In recent years, government and business leaders throughout the world have made governance issues a prime focus, as capital markets have increased their scrutiny of countries' and companies' corporate-governance structures, policies, and enforcement. The issue is of particular interest to Asian business leaders as they work to revitalize the region's faltering economy.

"Corporate Governance: A Functional Approach," a two-day, HBSsponsored research conference held in Shanghai last July, brought together leading figures in business, government, and academia to consider this important topic. The emphasis on function reflected conference chair Professor Kenneth A. Froot's decision to bring a different message to the gathering. "With a functional approach, you do less comparison of the institutions for corporate governance and instead compare the effectiveness of what they are meant to achieve," he explained in a recent interview.

This premise allowed exploration of many approaches to corporate governance, drawn from a wide variety of countries and cultural histories. Presenters evaluated success in terms of outcomes such as fostering healthy capital markets, supporting global competition, and offering resilience for economic downturns. "Any governance system is going to have to achieve these kinds of things," said Froot, noting that ineffective governance may have contributed to the demise of certain dot-coms and thus to that sector's collapse. One lesson of the dot-com phenomenon, he suggested, may be that American models are themselves in need of increased scrutiny.

The wide variety of governance models presented was matched by a diverse array of panelists and discussion leaders drawn from fourteen countries, including the People's Republic of China, Hong Kong, Japan, Korea, Singapore, Malaysia, Taiwan, Indonesia, India, and the Philippines. Professor F. Warren McFarlan, senior associate dean and director of the HBS Asia-Pacific Initiative, credited the School's Asia-Pacific Research Center, led by Executive Director Camille Tang Yeh (MBA '80), for recruiting an impressive and influential list of participants. "We focused the dialogue on the right issues, and we had the right people there," said McFarlan. "Without our office in Hong Kong, we would not have been able to pull it off."

The global reach of the conference was clear from its initial session, led by HBS professor Dwight B. Crane. Crane's research, prepared in partnership with Ulrike Schaede of the University of California, San Diego, chronicled the evolution of German business from a banking-led corporate finance environment toward a capital markets–driven model during the 1990s. The presentation stressed ways in which Germany's culture and history shaped its adoption of the model, a relevant concern for many Asian nations with similarly distinct corporate-governance traditions that need to blend with newer models.

India's thriving software industry is another example of evolution in governance, discussed in a presentation by HBS professor Krishna G. Palepu and associate professor Tarun Khanna. They suggested that the need to compete in global product and labor markets actually preceded capital-market concerns as a driver for Infosys, an industry leader in India, to adopt more transparent and globally standardized methods of corporate governance. Dozens of countries worldwide, each representing different degrees of involvement of legal systems and regulators in corporate governance, were studied by Harvard economics professor Andrei Shleifer and MIT's Simon Johnson. In discussing their findings, Shleifer and Johnson combined business and economic statistics from these nations to illustrate the levels of investor protection achieved by the disparate models. Establishing appropriate legal support for corporate governance is an active issue for Asian nations hoping to privatize certain state concerns while maintaining efficiency in management.

Another session brought together leaders of state-owned enterprises. Several Asian countries offer varied models of state ownership of businesses. Although their goal may not be privatization, many are exploring changes in corporate-governance practices to reap similar benefits. "I think all kinds of business institutions are trying to achieve transparency," said Froot. "Effective global governance isn't completely encompassed in one type of ownership." The broad range of conference topics clearly appealed to many in the region, as the gathering attracted over 170 attendees. McFarlan pointed out that fostering intellectual cooperation between HBS faculty and academics and practitioners throughout the world is an important goal of the School's Global Initiative. He noted that, partly as a result of connections furthered at the conference, last fall HBS researchers started work on a case with the Beijing-based Cosco Group, one of the world's largest shipping companies. By this measure and many others, the conference achieved its goals.

— Laura Singleton (MBA '88)

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