1.3.3 he diversity school

The diversity school states that differentiation in models is a necessity due to the different types of firms, shareholder strategies and agency problems (Van den Berghe 2002, p. 17). Moreover, it is argued that the evolution of corporate governance models and systems is to a large extent subject to path depen-dence;1 the EU and US corporate governance models and the national systems evolve further in line with their cultural and historical features (Hopt and Leyens 2004, p. 19). "The irresistible force ofglobal competition will meet the immovable object of path dependence" (Braendle and Noll 2005, p. 13). According to the path dependence theory corporate governance systems in a country at a certain point in time (t1) depend on the design of the system in earlier times (t0). The research on the cultural dimensions by Mintz (Mintz 2005) and Breuer and Salzmann (Breuer and Salzmann 2008, p. 18) as presented in chapter 3 fits in with the path dependence and divergence hypothesis. Mintz states that it is not practical to expect convergence in corporate governance systems since the differences are deeply rooted and attempts to create a one size fits all are likely to fail (Mintz 2005, p. 892).

Two types of path dependence exist: the structure-driven path dependence and the rule-driven path dependence. The structure-driven path dependence entails that the corporate system within an economy depends on the initial structures by which this economy evolved. For instance, today's ownership structures are still influenced by the initial ownership structures at the start of the economy. Two reasons are acknowledged for the existence of this structure-driven path dependence: efficiency and rent-seeking. For instance, based on efficiency it is perhaps better to maintain the existing situation (existing corporate governance system) instead of changing into a new and improved situation (a modified corporate governance system) that brings along a lot of adaptive costs that are not covered by the gains of the new situation. Furthermore, the parties that are in control in these structures might have the incentives and abilities to prevent changes that would improve efficiency but would reduce their private benefits (the rent-seeking) (Bebchuk and Roe 1999, p. 37). The second type of path dependence is the rule-driven path dependence. Corporate rules in a country can influence the ownership structures and corporate governance systems in several ways. Just as legal rules can discourage concentrated ownership by making it more costly and difficult to hold or gain large blocks of shares. Mandatory rules can also push the corporate governance structures in a certain direction, such as through rules on the constitution of the management board or labour influence within the board (Bebchuk and Roe 1999, p. 9). According to the adherents of both types of path dependence welfare losses are a risk when features outside of a corporate governance model are inserted to reach convergence. Importing parts of other systems or models will possibly break the equilibrium of the system or model itself (Van den Berghe 2002, p. 18). "Corporate governance rules are not technologies which can be exported like sewing machines" (Braendle and Noll 2005, p. 8). Convergence resulting in one international or in one EU corporate governance model is not likely to happen fast and will possibly even result in an inferior model, according to the abovementioned adherents. In the diversity school and the theory on path dependence the cross-reference hypothesis - that the features of a corporate model can be detached or adapted to other models without large frictions or negative effects - is rejected. Some of them add the concept of complementarity to the path dependence (Clarke 2007, p. 259). Schmidt and Spindler state that the characteristics or features of a given corporate governance system are complementary to each other if "they fit together, i.e. mutually increase their 'benefit' in terms of whatever the objective function or the standard for evaluating the system may be, and/or mutually reduce their disadvantages or 'costs(Schmidt and Spindler 2000, p. 11).