While there has been some convergence in corporate governance codes and securities regulations across the European Union (EU), the remaining areas of divergence are the most contentious as they reflect differences in fundamental societal norms and values. I propose that using the multinational corporation as the referent unit of analysis yields a means for making a qualitative distinction between the two regimes. I suggest that at least for firms with EU-wide scope, certain critical elements of the German model may be more appropriate, as the neoclassical justifications of the Anglo-American model are less reliable in such a setting.
The European Commission considers the coordination and convergence of corporate governance codes across the European Union (EU) a priority. Given the widespread loss of confidence in business institutions precipitated by the global financial crisis, the particular choice of governance structure and objectives has become even more salient. In the debate within the EU, advocates of the convergence thesis generally suggest that globalization and the competition for capital will lead to the adoption of the 'Anglo-American' model, which gives primacy to the shareholder; the counterargument is that given the path-dependent nature of institutional development and the use of political advantages by the elite to resist change, the continental European members with governance frameworks along the lines of the 'German' model, with its emphasis on multiple stakeholder constituencies, will ensure diversity (Gordon 2003; Buck and Shahrim 2005; Collier and Zaman 2005; Goergen et al. 2008). An important component of the debate is the efficacy of these two competing models of corporate governance systems. In this paper, I put forth an argument in the EU systems debate that favors the retention of - especially, when considering the role of multinational corporations (MNCs) within the EU - certain critical elements of the German model.
Corporate governance codes and practices have been largely a function of the member states' national laws within the EU (Weil et al. 2002; Van der Eist 2002; EIRO 2002). Though the logic of the EU's decades-long project to remove internal barriers to economic activity may suggest a movement towards convergence in the corporate governance frameworks as well, resistance from both lawmakers (e.g., the failure of the Takeover Directive in the EU Parliament), businesses (e.g., the almost knee-jerk opposition to any EU harmonization efforts on corporate governance by the Union of Industrial and Employers' Confederations of Europe (UNICE)), and national culture have largely stymied EU law-making in the area (Buck and Shahrim 2005; Gordon 2003; UNICE 2002).
In the next section, I sketch the principal corporate governance systems in the EU and then assess the likelihood of convergence to a single model, if any, that may one day have EU-wide acceptance. In doing so, I contrast the compatibility of the competing Anglo-American and German models with the neoclassical explanation of corporate governance. I then consider whether and how the success of the internal market in enhancing intra-EU foreign direct investments (FDI) should be affecting the development of a European corporate governance system - that is, does the multinationality of the firms in an economy spur convergence, and if so, does the firms' multinationality suggest favoring a particular type of structure. I argue that consideration of the nature of the multinational firm may indeed favor the EU-wide adoption of certain aspects of the German model of corporate governance, as the neoclassical assumptions underlying the Anglo-American model are less likely to hold in such a setting. The final section contains a few concluding remarks.
CORPORATE GOVERNANCE IN THE EU
Even though national corporate governance systems "emanate from nations with diverse cultures, financing traditions, ownership structures and legal origins," there has been a surprising degree of convergence in the corporate governance codes and practices across the EU since the late 1990s (Weil et al. …