Culture greatly influences the quality of corporate governance<\/p>\n
Eric Hallett, Jakarta<\/p>\n
There has been much recent debate over how universal the
\npolicies of good corporate governance are across cultures
\n(transparency and disclosure, ethical decision-making,
\nshareholder rights, proper risk management, appropriate executive
\nremuneration, stakeholder interests, etc.).<\/p>\n
Many suggest that the policies set forth by the Organization
\nfor Economic Co-operation and Development (OECD) for good
\ncorporate governance apply everywhere -- good business is good
\nbusiness no matter where your are. Others insist that cultural
\nvalues influence what is considered good business and that "best
\nbusiness practices" can mean different things in different
\nplaces.<\/p>\n
The element of culture plays an important role in how we do
\nbusiness and what we consider good and bad conduct. And it's
\nthis difference in perception about what is good and bad based on
\ncultural values that divides business leaders between different
\ndefinitions of best business practices. In many eastern
\ncountries, for example, the selection of board members is still
\nheavily influenced by family relationships and informal network
\nties.<\/p>\n
This makes good business sense in these countries and it
\ncontributes to the ongoing interests of the companies. However,
\npolicymakers in the west frown on this type of behavior by
\nclaiming that appointing family and friends to the board of
\ndirectors is a blatant display of favoritism and bias and will
\nlead to unavoidable conflicts of interest.<\/p>\n
Can we reconcile the two viewpoints? Is it wise to do so?
\nOne approach to good corporate governance across cultures might
\nbe found somewhere between the two. There are certain business
\npractices which universally benefit companies around the world,
\nand there are other culturally-specific practices which benefit
\ncompanies that must adhere to locally accepted values in order to
\nprosper.<\/p>\n
In fact, allowance is currently made by the OECD for the
\n"divergence" of culturally-specific practices and systems as long
\nas these practices and systems lead to the overall objective of
\ngood corporate governance which is the long-term welfare of the
\ncompany's shareholders and stakeholders.<\/p>\n
At the same time the OECD also recommends that divergent
\npractices and systems eventually be minimized or eliminated. By
\ndoing this the OECD is taking the side of the universalists even
\nthough it is currently allowing for exceptions. It is
\nencouraging companies with divergent practices to move along the
\npath to universal acceptance of its "best business practices".<\/p>\n
This is where the challenge lies for Indonesia and other
\ncountries that have long-standing, culturally-based business
\npractices which lie outside of those that are recommended by the
\nOECD. It is a challenge because the practices are rooted in
\ncultural values that are extremely difficult to change, if they
\nare changed at all.<\/p>\n
Resistance to cultural change is part of human nature. We
\nlike to keep things predictable and running smoothly even though
\nwe know there are negative long-term consequences for doing so.
\nChange brings with it a sense of short-term discomfort, pain,
\neven loss. Sometimes, waiting for long-term consequences seems
\neasier to contend with than dealing immediately with short-term
\nconsequences. This is the psychological predicament that all
\ncompanies face when struggling with change.<\/p>\n
This resistance should not get in the way of making immediate,
\ninformed decisions about the extent to which our companies are
\nwilling to accept and uphold best business practices as
\nstipulated by the OECD.<\/p>\n
When evaluating the usefulness of divergent practices, and
\nwhether we should maintain them or not, we must avoid the
\npsychological trap of preferring divergent practices over
\ngenerally accepted practices because "that's the way we've always
\ndone it".<\/p>\n
Leaders resistant to healthy change may also defer to
\nprevailing practices because the rewards are immediate and the
\nrisk of change is minimized. This is the power of culture
\nspeaking.<\/p>\n
Instead, our companies must grapple with how they justify
\ndivergent practices and whether that justification is legitimate.
\nBesides the example given above, consider the practice of paying
\nhigher prices for raw materials from suppliers who are connected
\nto an informal network, instead of receiving open bids and paying
\nthe lowest price for the same materials. Is this practice
\nlegitimate? Who loses or gains if it the practice is changed?
\nThese are the types of questions we must consider among others.<\/p>\n
Our companies must also consider the consequences, both short-
\nterm and long-term, of maintaining or eliminating divergent
\npractices. If divergent practices are maintained, future
\ninvestors and customers world-wide may get the impression that
\nwe're not serious about good corporate governance. On the other
\nhand, if we eliminate divergent practices we upset comfortable
\nand culturally-accepted ways of doing business which bring their
\nown rewards and may even be necessary for sustaining business in
\nthe short-term.<\/p>\n
Good corporate governance is needed and best business
\npractices as set forth by the OECD give us a fundamental approach
\nto achieving this. It is up to our business leaders to decide
\nhow to meet the challenge of integrating these policies into very
\nunique corporate cultures within a very unique national culture,
\nor to decide how to meet the challenge of not integrating them.<\/p>\n
The writer is Head of the Business English Center at Prasetiya
\nMulya Business School. He lectures on International Comparative
\nManagement topics and can be reached at eric@pmulya.ac.id<\/p>",
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