1.3.4 Possible convergence outcomes

Taking the corporate governance schools as displayed in figure 1.3.1 and as described above into account, four different outcomes are advocated:

Within the unitary system one EU or even one global system is achieved by means of strong convergence of the best elements of all major corporate governance systems combined (standard school promoting the hybrid model). According to the Chicago School (being the standard school promoting the market-oriented model) the superior universal market-based system (the outsider system) will triumph. Within the diversity school two possible outcomes exist as well: an improved variety of governance systems between which convergence is weak, although the systems improve by learning from each other. Or distinctive national corporate governance systems in which due to weak convergence and indivisibility of the corporate governance features (the complementarity) separate national corporate governance systems continue to exist (Clarke 2007, p. 265).

Outcomes other than visible in figure 1.3.4 are of course possible as well. Some more moderate thinkers believe in multiple models - because absolute conformity is neither likely nor always healthy for the economy - with some similar core corporate governance features that result in a common global understanding (Braendle and Noll 2005, p. 8) (Luo 2007, p. 39) (Clarke 2007, p. 262). Van den Berghe even discusses a paradox of convergence leading to further divergence instead of convergence. She states that several continental European countries are as market-orientated as the standard Anglo-Saxon countries; therefore a growing convergence with the outsider system can be seen. However, the separate European countries move in a different speed mode in that direction which leads to an increasing divergence within the EU (Van den Berghe 2002, p. 168). Van den Berghe furthermore states that one best corporate governance model does not exist because it ought to fit with the specific forms of companies and their stage of life, their ambitions and development cycle. Hence, she proposes three-tier governance as shown in table 1.3.4a below.

Firms with dispersed ownership and strong management positions (the classic 'Berle and Means' firms) function best in open capital markets in which they can benefit from the flexibility and benefits of these markets. Those companies should function best in a market-oriented model acknowledging that several aspects of this model are still open to discussion and need to be corrected.

A hybrid model would be most efficient for private or public companies with concentrated ownership according to Van den Berghe. This hybrid model comes into existence by importing corporate governance features from the market-oriented model (such as respect for shareholders' minority rights) into the already existing classical insider model of these companies (Van den Berghe 2002, p. 174). For the new company formats the diversity school could help in developing tailored corporate governance models. The growing importance of institutional investors brings along agency problems with these investors and therefore they need to establish their own corporate governance rules and system. This also applies to the venture capitalists and high-tech entrepreneurial firms which are present in the ' Silicon Valley' model, and to the modern economies in which a ' corporation' is increasingly composed of a network of separate firms or of a joint venture (Van den Berghe 2002, p. 133). Besides the ' separation' in models Van den Berghe argues that good corporate governance also needs to be achieved through four conditions (i) defining an ' Olympic' minimum (a minimum set of principles which must guarantee better governance), (ii) opting for self-regulation combined with strict monitoring, (iii) focusing on transparency and disclosure and (iv) partial harmonisation to create a European level playing field (Van den Berghe 2002, p. 178).

In the underlying study it is believed that the last four conditions as formulated by Van den Berghe are for the most part correct and will be further researched when formulating recommendations for the comply or explain principle to work adequately. Nevertheless, three-tier convergence with different corporate governance models for different companies within different countries and different continents seems unlikely and undesirable, although one best corporate governance model does indeed not exist. In the aftermath of the corporate scandals in the EU it was believed that what constitutes corporate governance is constantly evolving and one size does not fit all. Therefore one corporate governance code was not favoured since it would not significantly contribute to the improvement of corporate governance in Europe (Final Report High Level Group 2002, p. 9). Directive 2006/46/EC (see section 1.2.2 above) is in line with the path chosen; although a national code and the comply or explain principle are imposed, the contents of the code and manner of embedding the principle are left open to the countries to decide upon, taking their country specifics into account. Overseeing the convergence debate with the different possible outcomes as sketched above and acknowledging the path as chosen in the EU, this underlying study is based on the outcome of an improved variety ofgovernance systems between which the existing convergence may only be slight, but the systems improve by learning from each other. Not neglecting the importance of path-dependence and culture, improvements within the variety of corporate governance systems are within reach when the existing EU corporate governance framework and thus also the comply or explain principle are optimised as researched further below.