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Key Dimensions of Difference

There are two key dimensions within which differences in corporate governance between different nations are conceptualized. The first is the agency theory, which holds that differences are based on the mechanisms available to minimize agency problems. For example, the U.S and the U.K both practice dispersed ownership, while in Continental Europe and Japan blockholders, such as families and banks, retain greater capacity to exercise direct control.

The second dimension of difference is explained by the institutional theory. The theory holds that corporations are imbedded in a nexus of formal and informal rules. National diversity reflects various institutional constraints. Institutions are also able to yield comparative institutional advantages for different business systems.

Why Difference Matters

The potential separation of ownership and control between the principals and agents creates a need for various mechanisms to align the interests of principals and agents. These interests are varied in different nations, based on the environmental differences, identity differences and differences in interdependency. Internationalization has sparked the need to be able to understand these differences.

For whom difference matters (for analysis, for practice)
Difference matters for various corporate stakeholder groups. These are capital, labour and management. The transnational differences enable comparative analysis and possible adoption of systems that may work better within a certain country or integration of foreign systems with local systems to produce better hybrids.

Are they becoming more similar?

Specific dimensions, specific examples, specific business systems
Although institutionalists claim that countries will continue to diverge along stable, path-dependent trajectories, some authors claim that national models are increasingly becoming institutionally incomplete. In short, differences are being eliminated because of policies at the international, national and sub-national policies. An example is the European Union. Moreover, stakeholders are taking a cross-border dimension more. An example is the fact that the U.S investors in Europe have come under much pressure. Institutional change occurs in a gradual manner, and hybridization is often the result. The practices developed in one nation setting are transferred to another; they undergo adaptation and recombine with other governance practices. For example, Japan and Germany “imported” the U.S. institutions after the war, and this resulted in the hybrid form of corporate organization. Today, Germany and Japan are attempting to introduce “shareholder value” management style. This is an indication that different corporate systems are becoming more similar.

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