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Global Convergence and Divergence

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Of integration may be producing a global convergence of different organizational systems, especially since it is fuelled by economic underpinnings. Ugeux defines convergence as the manner in which a series of actions are driven towards a central point of reference – a process resulting in a move towards a common set of principles and objectives. Since globalization represents the integration of markets on the basis of economic ties, there is a convergence of global financial systems, such as capital markets and credit systems, fuelled by the higher levels of activity of international firms which now have worldwide operations. Uguex details several of the initiatives that have been taken in the field of corporate governance in many countries, including the provisions of the Cadbury report in the UK and the Sarbanes Oxley Act implemented in the United States.

He notes that there appears to be a conceptual convergence in the following aspects: (a) the use of a non ruling approach, wherein recommendations have been made for Companies to follow, which have been mandatorily imposed, yet are in practice being followed by many countries (b) the majority of the Board of public companies must be independent and executives of the Company are not deemed to be independent (c) Members of the audit committee must be independent directors and must not receive fees or compensation from the Companies (d) the audit committee makes the decision on the hiring of external auditors and this is subject to the approval of the directors and shareholders. These aspects reflect the fact that subsequent to the corporate scandals that have erupted with companies such as Enron, a higher level of corporate responsibility and accountability has been imposed on most firms and these measures are being applied across nations in a manner that is similar and reflects a convergence in the principles of corporate governance.

As a result, managers in international organizations may need to apply uniform standards in corporate governance across all their subsidiaries in various countries.

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