From a theoretical perspective, this paper examines the implementation of codes of corporate governance that have been adopted by many countries. The main argument presented in this paper is that while codes could have been adopted at country-level the effectiveness of these codes lies in their implementation at firm-level. As such the paper identifies ownership structure as a strong determinant in either the adoption or rejection of governance elements by firms. Specifically, the extent of power and interest structures manifest in family, institutional, state and bank ownership possibly determines the choice to implement or decouple recommended corporate governance practices. Decoupling here refers to the broad separation between the adopted governance practices and their actual use, suggesting levels of adaptation, delayed use or complete rejection. In the specific context of Germany, the paper proposes that family, state and bank ownership may be associated with lower levels of implementation, while the opposite is expected for institutional ownership. Arguments leading to these propositions are provided. For example, changes in the way a firm is governed may not be welcome in a family business, as changes to the status quo may imply subsequent loss of control. Using the arguments drawn from the literatures on power, politics, actors' interests and capabilities, this paper develops four propositions, indeed, its defining feature. Further research could be in the form of empirical work, testing these propositions in both a national and an international context.
There has been widespread adoption of codes of corporate governance (Aguilera and Cuerzo-Cazurra (2004) across the world, a phenomenon that can be explained through the new institutional sociology (NIS) lens (DiMaggio and Powell, 1983; Jepperson and Meyer, 1991). NIS discusses the mechanisms of diffusion leading to isomofhism through coercion (Greenwood and Hinings, 1996; Henisz, Zelner and Guillen, 2005); normative emulation; the result of mutual influence of actors within a social structure; and mimetic isomorphism, a process of likeness brought about by the need to remain economically effective, efficient and legitimate relative to significant others. Indeed, literature on international coercion has shown how dominant states (Kogut and Macpherson, 2003) and multilateral organizations (e.g. Brune, Garrett, and Kogut, 2004) have been strongly instrumental in bringing policy reform and adoption of new practices. Research on normative emulation at country -level has often centred on imitation among countries linked to each other through social ties (Guler, Guillen and Macpherson, 2002; Polillo and Guillen, 2005). Competitive emulation or mimicry (DiMaggio and Powell, 1983) has also been found to be present in policy imitation by countries competing for foreign capital (Guler et al. 2002; Polillo and Guillen, 2005). The three mechanisms are all important in country -level diffusion analysis of policies (Henisz et al. 2005).
Given that the widespread diffusion of national codes of corporate governance is at country-level, the biggest challenge lies in their implementation, and that process takes place at firm level. Thus, what can be seen on the surface is the fact that many countries across the world have adopted 'good' codes of corporate governance (Aguilera and Cuerzo-Cazurra, 2004) and have recommended them to their companies many of which have subsequently adopted them. What is not known is the extent to which these codes are put to use by firms in order to serve the purpose for which they were set up. In other words what we might be witnessing is symbolic adoption at the minimum, or well-meant adoption at country level which is not matched by an equal response by individual firms especially at the implementation phase.
To our knowledge no research to date has examined the implementation of codes of corporate governance at firm level. …