Objectivity, Proximity and Adaptability in Corporate Governance

Countries appear to differ considerably in the basic orientations of their corporate governance structures. We postulate the trade-off between objectivity and proximity as fundamental to the corporate governance debate. We stress the value of objectivity that comes with distance (e.g. the market oriented U.S. system), and the value of better information that comes with proximity (e.g. the more intrusive Continental European model). A superior corporate governance arrangement must balance the benefits of proximity and objectivity. In this context, we also discuss the ways in which investors have "contracted around" the flaws in their own corporate governance systems, pointing at the adaptability of different arrangements.