Understanding decoupling in response to corporate governance reform pressures. The case of codes of good corporate governance

Author:Mario Krenn
Position:Department of Management and Business Administration, Southeastern Louisiana University, Hammond, Louisiana, U.S.A.
Pages:369-382
SUMMARY

Purpose - The purpose of this article is to explain under what circumstances firm-level adoption of codes of good corporate governance will more likely be superficial rather than substantive in nature. The article contains lessons for any agency or country that attempts to implement deep and lasting changes in corporate governance via codes of good corporate governance. ... (see full summary)

 
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Understanding decoupling in
response to corporate
governance reform pressures
The case of codes of good corporate
governance
Mario Krenn
Department of Management and Business Administration,
Southeastern Louisiana University, Hammond, Louisiana, USA
Abstract
Purpose – The purpose of this article is to explain under what circumstances rm-level adoption of
codes of good corporate governance will more likely be supercial, rather than substantive in nature.
The article contains lessons for any agency or country that attempts to implement deep and lasting
changes in corporate governance via codes of good corporate governance.
Design/methodology/approach – The article reviews the literature on compliance with codes of
good corporate governance and develops a conceptual model to explain why some rms that have
formally adopted a code of good governance decouple this policy from its actual use.
Findings – Decoupling in response to the issuance of codes of good corporate governance will be more
attractive to rms and also more sustainable under the following conditions: rms’ compliance costs are
relatively high, rms’ costs of outright and visible non-compliance are relatively high, and outsiders’
compliance monitoring costs are relatively high.
Originality/value The article contributes to the debate on compliance and convergence and
provides policymakers with a conceptual framework for assessing the likelihood of successful
regulatory change in corporate governance.
Keywords Convergence, International standards, Corporate governance codes, Decoupling,
Theory of compliance
Paper type Conceptual paper
1. Introduction
Codes of good corporate governance have become an increasingly important aspect of
the business environment. The USA in 1978, and the UK in 1992, were the rst major
economies that issued codes of good governance. By 2013, corporate governance codes
had been created in more than 90 countries around the world (European Corporate
Governance Institute, 2013). Supranational agencies (e.g. the World Bank, the IMF, the
OECD), regional regulatory bodies (e.g. the European Commission) and international
institutional investors (e.g. CalPERS, TIAA-CREF) have spurred this development and
encouraged many countries and domestic regulatory agencies to emulate these codes
The author acknowledges the helpful comments and suggestions of anonymous reviewers and
participants at the 70th Annual Meeting of the Academy of Management in Montreal, Canada, at
which an earlier version of this manuscript was presented.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1358-1988.htm
Codes of good
corporate
governance
369
Journalof Financial Regulation
andCompliance
Vol.23 No. 4, 2015
pp.369-382
©Emerald Group Publishing Limited
1358-1988
DOI 10.1108/JFRC-04-2014-0019

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