The main model of corporate governance is an invention of developed nations, particularly the US and the UK. Ownership concentration, in conjunction with the absence of successful external governance practices, leads to regular conflicts involving dominating shareholders and their minority counterparts. This has resulted in the creation of a novel standpoint on organisational governance that centres on disagreements between different categories of principals in the corporation. The principal-principal (PP) approach of governance focusses on conflicts involving the dominating and minority shareholders in a corporation (Young et al., 2008, p. 197). Publicly listed corporations in developing countries have boards of directors, proficient managers, and shareowners hence composing the tripod of contemporary organisational governance.
Numerous governance approaches might assist in matching the interests of shareowners and those of the management. Such practices encompass internal and external mechanisms where the former includes concentrated ownership, executive reimbursement packages, and boards of directors while the latter encompasses the managerial labour market, product marketplace rivalry, and risk of takeover. The optimum occurrence of mechanisms implemented may be deemed a bundle or an ensemble and the specific practice’s success relies on the usefulness of the others. For instance, where a board of directors is relatively unproductive, a takeover attempt might be vital to remove a firmly established Chief Executive Officer. Conflicts often occur between the dominating shareholders and the divided minority shareowners (Young et al., 2008, p. 205). The variation of the battlefronts occurs with the changing dynamics of organisational supremacy in PP struggles. For instance, controlling shareowners may decide the people to form the board of directors as a way of nullifying the panel’s ability to oversee them. An appeal to the courts for the failure of the board to value the interests of minority shareowners is often limited.
The major internal governance approach in developed nations is the boards of directors irrespective of their being intricate formations that necessitate official and informal corporate support to function as planned. Since boards of directors in developing countries lack organisational support, they have a low likelihood of undertaking a strong governance and supervision role. The independence of boards of directors from founding families have a positive influence on the success of an organisation. Family owners might deprive the organisation of its resources or assign executive positions to incompetent relatives. Sibling competition, generational resentment, compensation that is not based on merit, and unreasonable tactical decisions may ruin the reputation and success of such an organisation (Young et al., 2008, p. 210). There is typically a lack of transparency in the operations of boards of directors and the management in family-owned corporations attributable to the nonconformity to public disclosure standards. This results in minority shareowners not being informed of the actual position and performance of the organisation of which they partly own attributable to controlling shareholders dominating decision-making practices and hiding crucial information regarding the corporation.
The eradication of concentrated ownership formations is unrealistic because the lack of supporting mechanisms such as effective boards of directors or regulations may generate a governance vacuum that has the possibility of causing unrestricted managerial opportunism. The resolution of PP conflicts in developing countries needs creative resolutions past ordinary practices. Individual nations will probably require establishing solutions that are tailored to their specific institutional problems (Young et al., 2008, p. 214). There is a need for future research to build on this basis and establish a successful solution to PP conflicts, which negatively affect organisations, shareholders (both minority and dominating), and economies in developing countries across the globe.
Reference
Young, M. et al. (2008) ‘Corporate governance in emerging economies: a review of the principal–principal perspective’, Journal of Management Studies, 45(1), pp. 196-220.