Poor corporate governance has serious implications for global business and international trade. The United States (U. S. ) economy is a benchmark for global growth and therefore corporate failures within this economy creates international concern. It is unfair to direct ill feeling solely at U. S. companies when other market based economies have had their share of failures during the self fed greed period of the last five years. U. S. companies as motivators for global expansion must however be ambassadorial in corporate governance approach.
An excessive number of "icon" company capitalist economy corporate collapses are causing various stakeholders significant concern. Personal angst, in the form of financial losses endured, will either reduce the supply of venture capital (both locally and FDI based) available thereby slowing corporate and technological advancement or increase the cost of funds by requiring increased return on investment. Collectively, the loss of trust in capitalism as a stable and sustainable model of resource allocation provides non-capitalist economies a solid argument to complicate or delay opening their economies.
This slows global market expansion and reduces efficiencies created through the utilisation of comparative advantage. Ethical corporate governance, without the requirement for legal intervention which increases the costs to all businesses, is critical to continued globalisation of markets and corporations. Divergent political, legal and cultural principles throughout the world require that balancing the dimensions of people, planet, profit and posterity must be a core responsibility of all corporate leaders.
If these principles are not core business values, developing nations and third world countries will continue to view capitalist corporations with caution. The changes required are systemic meaning that shareholder groups, consumers, governments and all other stakeholders must hold corporations and individuals within them to account for their decisions and actions on pain of public vilification or through the power of purchase. Much of this activity is increasing and becoming global in scope with the Internet becoming a tool enabling information dissemination instantaneously.
Investors must realise that immediate returns are not always possible. Investing in a company is a long-term joint venture that must be advantageous to the company, the individual and society as a whole; more in line with Islamic banking principles. INTRODUCTION (Rayman-Bacchus, Lez. , 2003) "Although the current wave of globalization is the result of unprecedented scientific and technological advances, through history, movements of an international nature have been, to a large extent, about the spread of political and economic ideas across borders. " In recent times, there have been a number of high profile corporate failures.
In many cases, Directors and Senior Managers have been held personally responsible. Often, these failures can be attributed to poor corporate governance and as such, corporate governance has been placed under intense scrutiny. This paper critically analyses the causes and effects of poor corporate governance in capitalist economies and the continued internationalisation of markets. As the continued integration of markets will only occur if there is an underlying perception of mutual benefit, a bias towards the philosophical perspective rather than purely economic implications are considered.
The collapses of ENRON, WorldCom, Tyco and HIH and the accounting practices of Xerox and Harris Scarfe highlight that all is not well in the boardrooms and executive chain of highly regarded companies. The argument that the set of circumstances that created an environment for collapse is new is to forget the events leading to "Black Friday" in October 1987. The same underlying factors of capitalising expenses to provide a solid balance sheet, greed and self-interest of Directors and key Executives, ignorance and conflict of interest situations were evident during both the latest global growth phase and that of the 1980's.
Corporate failures destroy shareholder wealth, confidence in the management and accounting practices of major corporations, their supposedly independent reviewers and the legislated framework developed to protect the rights of investors. In the global environment where international superannuation funds invest billions internationally, people everywhere willare lose when corporations go bankrupt. The deterioration in investor relationships decreases both local and foreign direct investment for corporations with globally acceptable moral and ethical principles.
Investors are "more accepting" of investment losses if, ceteris paribus, there appears to be a sense of fair play, honesty and integrity in the decision making process of the corporate executives while attempting to increase shareholder value. Corporate America has a far greater responsibility to international markets and the global economy, because the modern form of Capitalism was born there. The U. S.is seen as the benchmark against which to compare all capitalist economies and therefore must be aware that other countries evaluate the roles, principles and values of capitalism based on their interaction with U. S. companies. The spate of scandals, failures and decision making for short-term financial gain defies belief.
LARGE CORPORATE / CAPITALISM Apart from a direct financial relationship with the ENRONS et al, there will be a period of declining trust in the market place towards large global corporations.
This is a purely natural and spontaneous human reaction depicting gross indignities at the outsider's viewpoint towards self-indulgent largess, contempt and cavalier attitude to generating corporate and personal wealth at any cost and with any amount of risk. International reaction to the high profile corporate failures will be for collective-based nations, culturally opposed to the capitalistic and free market approach to global trading, to slow down the transition in restructuring their economies to a more market based structure and be considerably more critical in their evaluation of FDI.
Nations like China, North Korea, Cuba, Iran and smaller less stable states with dictatorial incumbents, like Zimbabwe, now have arguments to espouse the righteousness of having strong state control over their markets and not incorporating free markets in their economy. SELF INTEREST INCENTIVES Individual Kaplan [1994b] finds that while the three economic systems (German, Japanese, U. S) are similar in many respects, there is one substantial difference – U. S. managers hold much larger stock and option positions.
The differences between the U. S. and other systems almost certainly have increased because the wealth of U. S. CEO's have become increasingly sensitive to the performance of their companies stock which has never been more evident than during the stock market Internet bubble period. Stock prices are affected by the return on their investment, both in terms of capital and income, which encourage delays to immediate consumption thereby providing capital for markets.
As most corporate executive roles are short-term tenure positions, to achieve the maximum value from tenure, it may be in an executives personal interest to over promote the successes, ignore failures and make reckless high risk decisions. Corporate (Phraya, 2003) Arthur Anderson was considered a pillar of strength, a brand reflecting stability, respect, and synonymous with the good things about US business culture but it failed to return the trust of investors and the man in the street in US and Western business as a whole.
The mutual relationships between auditing firms, their consulting arms and businesses lead to "conflict of interest situations" for growing auditing firms when, as publicly listed organisations, they were evaluated solely on their financial performance. Large investment banks make recommendations on companies whilst simultaneously deriving income via large corporate capital raisings. Again, there is a breakdown in "arms length transactions" as considerable payments flow to the underwriter from the capital raising process.
Poor recommendations towards companies for which funds have been raised for two reasons being (a) not being asked to raise capital in the future thereby reducing financial stability and (b) the inability to offload stock (and therefore risk) if the organisation for which the raising is being completed is downgraded as an investment option. As capitalist market companies all feed off each other and personal living standards of those employed at intertwined organisations are directly affected, the dissemination of accurate performance information will not always be forthcoming. Independence needs addressing!