What Can We Learn from U.S. Corporate Governance? A Critical Analysis

This essay re-examines our views of corporate governance in light of the recent influence of U.S. corporate governance institutions on reform efforts in other countries. It suggests that the current emphasis on the roles of independent directors and institutional investors as the "keys" to "good" governance in the U.S. and elsewhere may be overdone. Reforms should target methods of achieving substantive improvements in actual corporate governance practices rather than focus primarily on formal structures such as board composition. In this sense, the true lesson to be learned from the American corporate governance system may lie in recognizing the importance of supporting institutions--particularly information disclosure and private enforcement--which would help to make not only U.S. corporate governance mechanisms, but presumably any corporate governance structure, more effective. Indeed, the real interest in U.S. corporate governance may lie in capturing the perceived economic dynamism of the U.S. economic system, which corporate governance institutions appear either to enable or support. More narrowly, A brief examination of Russia and China indicates that although developing countries may well wish to adopt some highly visible U.S. corporate governance institutions in order to create a perception of "good" governance as an aid in obtaining foreign investment, their willingness to concede actual authority to internal or external monitors remains a question. In Japan, with its focus on economic revitalization, the emphasis in corporate governance reform has been on increasing management discretion through Commercial Code amendments rather than on monitoring of management. There as well, a greater emphasis on information disclosure and private enforcement - rather than on a new optional "American-style" board committee system -- may be appropriate. Finally, rather than focusing primarily or solely on the U.S. corporate governance system, other models, such as the flexible "comply or explain" procedure for listed companies originated in the U.K. and now adopted in Germany, would also be a valuable reference when seeking to improve formal governance structures in Japan and elsewhere