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Corporate Governance Codes in the Nordic Countries : The Reasons and Consequences of the Different Approaches

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Title: Corporate Governance Codes in the Nordic Countries : The Reasons and Consequences of the Different Approaches
Author(s): Laakso, Roni
Contributor: University of Helsinki, Faculty of Law
Discipline: Commercial law
Language: English
Acceptance year: 2017
National corporate governance codes are soft-law instruments that many jurisdictions have created to improve governance practices and to set higher standards than the minimums stipulated by statutory legislation. Corporate governance codes are not part of statutory legislation but recommendations and a form of self-regulation by private corporations and related institutions. Even thought the recommendations themselves are not part of statutory law stock exchange rules often require public corporations to comply with them. All of the Nordic countries have published such corporate governance codes. The quasi-normative status of the corporate governance codes has left them largely outside of the scope of traditional legal research. When it is also taken into account that the codes take a clear stance on all of the key questions relevant for the debate around corporate governance it is obvious that the codes provide a fruitful ground for interesting and topical research in the field of corporate governance. These are the elements that also form the motivation for this thesis. The aim of the thesis is threefold. Firstly, to form a structured view of the main similarities and differences between the Nordic corporate governance codes. The focus of this analysis is on the values embedded in the codes in terms of the shareholder vs. stakeholder primacy discussion. Detailed recommendations for governance mechanisms are also analyzed. Secondly, the thesis tries to identify possible reasons for the found differences and similarities between the Nordic codes. The third and final aim of the thesis is to gain an understanding of how the different governance structures recommended by the codes affect the economic performance of corporations (measured by earnings or market valuations). The thesis utilizes a pluralistic research method that combines elements from several different research approaches. This method supports the multidisciplinary nature of the thesis. The analysis is largely based on traditional legal dogmatics which is supplemented by comparative legal analysis. These two methods are further supplemented by economic analysis of law to identify the economical implications of the norms put forth by the Nordic codes. Based on the results of the economical analysis of law conclusions are formed on what the corporate governance codes ideally ought to be like. An utilitarian approach is adopted and the arguments used are based purely on economic efficiency and not on moral or political theories. The results of the thesis highlight several differences in the values embedded in the Nordic corporate governance codes. Important differences are also noted in the practical governance mechanisms and structures recommended by the codes. Further analysis indicates that some of these differences are a result of different political power structures in the countries, with left-leaning political systems adopting a stakeholder friendly view of governance while right-leaning systems adopt a more Anglo-Saxon shareholder primacy based model. Corporate ownership structures (particularly concentration of ownership) and economic history also seem to influence the decisions made in terms of the governance mechanisms to be recommended. The analysis of the performance implications of different governance mechanisms indicates that a more stakeholder friendly approach to governance does not necessarily lead to materially better or worse economic performance for the corporate sector. This means that the question between shareholder and stakeholder primacy is largely political and it is not feasible to argue strongly for or against either view based on purely economical arguments. Furthermore, the thesis finds that even though all of the Nordic codes put a strong emphasis on board independence this approach does not necessarily lead to an economically optimal result. Putting too much emphasis on independence results in increased information asymmetry between the board and management, and this could lead to sub-optimal decisions by the board and to lower performance. Finally, the thesis concludes that because it is very improbable that the administering institutions of the codes can identify the best governance practices, when even academics are unable to do this, it would be preferable if the codes shifted their focus away from prescribing detailed governance mechanisms and more towards requiring increased disclosure. Such an approach would allow the financial markets to make the ultimate decision on which governance mechanism best suits an individual corporation.

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