THE SOCIO-CULTURAL ENVIRONMENT OF FRENCH BUSINESS

Reading Presentation

Cultural Norms & Company Laws in Europe

Agenda
1. 2. 3. 4. 5. 6. 7. 8. Important Words Summary Important Statements Further Difficulties Why is this Article Important What questions it asks What questions it answers Missing items

Author
Associate Professor of Law, University of Warwick, UK Research social and economic background and the impact of company law rules and in competition/convergence between company law systems Article published in International Journal of Business and Social Science, March 2012

Important words used in article and definitions

Companies or corporations in modern sense often have these 4 characteristics Separate legal personality Limited liabilities of the shareholders Transferable shares Delegated management Company law is the study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community and the environment interact with one another. Corporate governance is "the system by which companies are directed and controlled". It involves regulatory and market mechanisms, and the roles and relationships between a companys management, its board, its shareholders and other stakeholders

Important words used in article and definitions

Common Law, originated from England, is generally uncodified. This means that there is no comprehensive compilation of legal rules and statutes. While common law does rely on some scattered statutes, which are legislative decisions, it is largely based on precedent, meaning the judicial decisions that have already been made in similar cases. Also known as case law Civil Law, developed in continental Europe, in contrast, is codified. Countries with civil law systems have comprehensive, continuously updated legal codes that specify all matters capable of being brought before a court, the applicable procedure, and the appropriate punishment for each offense.

Important words used in article and definitions

Cultural dimensions: Power Distance Uncertainty Avoidance Individualism .vs collectivism Masculinity .vs femininity Long-term orientation Anglo Saxon refer to the Anglophone peoples and societies of Britain, the United States, and other countries

Important words used in article and definitions

Path dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant. Market-Based Corporate Governance System is based on Anglo-American law. Since the markets are the primary source of capital, investors are given the most power in determining corporate policies. Therefore, the system relies on the capital markets to exert control over the corporation's management. Shareholder primacy is a theory in corporate governance holding that shareholder interests should be assigned first priority.

Summary
The article examined the relationship between company laws and national cultures of four European Union Member States, namely Germany, France, the UK and Italy. It explained and explored the diversity of company laws between those nations with regard to their different national cultures. Key take-aways:
There is a certain degree of convergence of corporate governance practice between the Anglo-Saxon firms (in UK) and the non Anglo-Saxon ones (in Continental Europe). However, the distinctive underlying values in each nations culture deter further adoption and convergence of a universal corporate governance practice. While the level of profit returned to shareholders in British firms is higher than that of those firms in Continental Europe, it doesnt necessary means the UK model of corporate governance is the best to be adopted across Europe. The operation of new rules that do not fit culturally maybe difficult and it may work best if followed by a cultural movement.

Structure of the Article & Parts Summary (1/2)

Defining culture Culture & Law How legal rules reflected or explained by different cultures. Can legal rules change culture? Strengths & Weaknesses of Stakeholder Model .vs Shareholder Model. Dimensions of Culture Convergence or Persistent Diversity What foster or restrict the convergence of corporate governance practice? The fact that corporate structures appear similar on paper does not mean that individuals will react in the same way when it comes to making decisions. The very aim of improving corporate governance is culturally constructed in a way that is reflected in varied national politics.

Structure of the Article & Parts Summary (2/2)

Company Law Characteristics in Germany, France, Italy, and the UK Compare different company law model in the 4 countries. Economic outcomes of different models. National Histories, Culture & Company Law How each nation has its current company law system. Relationship between investors and their enterprises, as well as different strategies used in each country to reduce agency cost. Adaptation and Change to Company Law Speed and direction of change is affected by cultural dimensions. Though there seems to be a 2-way influence between UK and Continental Europe, variation in cultures still deter swift convergence. Each country still has varied legal approaches. Effective European Corporate Governance

Cultural dimensions of 4 studied countries

Power Distance

Uncertainty Avoidance

Cultural dimensions of 4 studied countries

Individualism

Masculinity (Mastery)

Important statements
This study will seek to I) explain and explore the diversity of company laws between those nations. II) It will also consider whether it is likely to endure, in the EU political context and under pressure from increasing economic globalisation

I) Exploration of Diversity
in consideration of individualism as opposed to collectivism, the greatest continuing divide may be between (geographically and politically) core Europen countries centred on France and Germany and the outer powers of Italy and the UK The insiders (also more harmony seeking, and long-term oriented) are superior in terms of performance under normal conditions, the outsiders in crisis times. If systems were to converge in crisis times outsider systems may dominate for this reason p. 286

Difficulty: Are the outsiders really better off? Are there even outsiders?

II) Differences likely to last?

Convergence toward the Anglo-Saxon model of corporate governance on that economic basis seems inevitable BUT Given the cultural variations, swift acceptance of the market model is highly improbable. Path dependency within nations is evident, often privileging other factors than economic efficiency p. 292

II) Differences likely to last?

If European political arena acceptance of particular rules seems to be inevitable, differential effectiveness of government agencies, courts and other mechanisms may aid persistence of diversity in accordance with varied national cultures. The fact that corporate structures () appear on paper to be comparable () does not mean that individuals will react the same way when it come to making decisions. Enforcement issues p. 288

II) Culture and Law

Where cultural values vary, uniform rules even across the EU may not be appropriate
Culture and Laws are pathdependant to the extent that they ma not be successfully imposed across the EU or be interpreted in extremely different ways p. 284

Further Difficulties
Unusual grouping of countries based on questionable claims in relation to cultural differences
In addition to the example already given: she implies the UK had a higher score on the masculinity index than Germany: both countries are the same She classes Germany and the UK together because both are predominately protestant. Germany 50/50

Further Difficulties/ Questions

Availability Bias? Patriotism? - The UK is at the centre of every idea she develops and implicitly or explicitly considered the factual or ideal role model. - Especially fond of the Market Model Why is that?

Items missing that should have been mentioned

Use of facts and numbers to support her conclusions - in order to avoid generalization Critical review of assumptions - Is Hofstedes results appropriate to use in the more globalized world today? What has been the effect of the recent financial crisis? The articles contribution remains unclear

Q&A Thank you!