Working Paper: Culture and Law in Corporate Governance

Amir N. Licht Interdisciplinary Center (IDC) Herzliyah – Radzyner School of Law; European Corporate Governance Institute (ECGI) (March 6, 2014 – European Corporate Governance Institute (ECGI) – Law Working Paper No. 247/2014) –

Good quote: The body of scholarship that has since accumulated seems to support the contention made at that time: “At the risk of stretching the mother metaphor a little bit, it can be argued thatculture may indeed be perceived as an old mother. It knows a lot, but some of thisknowledge might be obsolete today; it is sometimes nagging; it will resist change
unless absolutely required. Most importantly, it must not be ignored.”

Abstract: Understanding the role of culture in corporate governance has become a subject of growing importance. Today, no institutional analysis of corporate governance systems would be complete without considering the cultural environment in which such systems are embedded. This paper provides an overview of different accounts on how culture interacts with the law – especially corporate law – to shape corporate governance and on how this may help explain diversity and persistence in corporate governance. Basic concepts in cultural analysis are first presented, together with prevalent theories of cultural dimensions and of social networks as social capital. Relying on this analytical framework, this paper reviews current research on culture’s consequences for corporate governance on issues such as legal transplants, the objectives of the corporation (corporate social responsibility), relations with investors and other stakeholders by way of disclosure and dividend distribution, executive compensation, and the operation, composition, and network structure of the board of directors.

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