Question

1. Briefly define corporate governance. In what ways is governance complicated by having a multinational scale of operation for a corporation? How does US law affect governance in the foreign operations of US multinationals? What are the primary laws “exported’ by the US via its multinational corporations?

Answer 1

Corporate governance can be defined as the set of rules, practices and processes which an organization uses in order to ensure that it is systematically controlled as well as systematically directed. A company has many stakeholders like shareholders, employees, customers, vendors, suppliers etc. Corporate governance mechanism ensures that interests of all different stakeholders are properly balanced.

When an organization has a multinational scale of operations then corporate governance does get complicated. This is because a multinational enterprise operates in several different countries and the regulations and rules are different in each country. Moreover the culture and socially acceptable practices are also different in different countries. For example in certain developing nations in Asia bribery and under the table payments are common to get work done faster but it is a strict no-no in many Western countries.

US law significantly and positively affects governance in the foreign operations of US multinationals. US multinationals are often guided by the provisions of US law when it comes to making decisions and taking actions in foreign shores. They consider US law as a point of reference and all their actions are guided by this.

The primary laws ‘exported’ by the US via its multinational corporations are laws relating to transparency and reporting, rules promulgated by SEC with regards to reporting and providing information to users of financial reports, disclosure and compliance laws of Sarbanes Oxley Act of 2002 (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.