3.3.2 The relevance of culture in corporate governance

It is important to be aware that Hofstede's results are dated and that his method hasbeencriticisedonempiricaland theoretical grounds over the years. Reviewers question whether the cultural dimensions developed from data collected in 1968 and 1972 are artefacts of that period. Do the averages of a country truly relate to the individuals of that specific country? The fact that the population only consisted of IBM employees could be regarded as a constraint of the study performed. Moreover, is the usage of only questionnaires a valid base for developing cultural dimensions? Perhaps more research instruments are necessary to study cultural differences between countries (Sondergaard 1994, p. 449) (McSweeney 2002). On the other hand, simply acknowledging the limitations of Hofstede's cultural dimensions instead of setting them aside is a possibility as well: "they were never meant to be strict and fast rules. They were devised to provide a basis of comparison in the study of elusive realities" (Sison 2000, p. 182). Since the 1984 study with a population of only IBM employees, about six smaller studies concerning fourteen or more countries duplicated Hofstede's research and showed similar results (Hofstede, Hofstede et al. 2011, p. 48). Hofstede argues that these confirmations of his scores on the cultural dimensions do not necessarily mean that the countries' cultures have not changed since 1984. But as far as they did, their mutual position remained the same: their cultural dimensions moved simultaneously (Hofstede, Hofstede et al. 2011, p. 48). The same applies to the correlations: the correlations calculated with more recent data are as significant as the correlations with the data from 1968 to 1972. Hence, Hofstede states that they actually do describe permanent dimensions of a country's culture (Hofstede, Hofstede et al. 2011, p. 53).

Hofstede's study was and perhaps still is the most extensive study in this area and was the frontrunner for many other important studies such as those performed by Schwartz (Schwartz 1999). Schwartz distinguishes three issues (to be subdivided further in seven values) by which societies can be compared as regards culture (Schwartz 1999, p. 26). The three issues (with the seven values in italics) are:

Schwartz researched the issues and values formulated above by means of a survey, followed up by statistical analysis and while doing so compared the national cultures of 49 countries around the world. Although Schwartz is cautionary about his study and calls for further research, his study shows some interesting results. The western European countries such as Belgium, Germany, Italy and the Netherlands score high on intellectual autonomy and egalitarian-ism, whilst the English speaking countries such as the USA and the UK score high on mastery and affective autonomy (Schwartz 1999, p. 39). The UK is among the English speaking countries closest to the western European countries. Further below in this chapter the findings of the studies as discussed here are summarised per country under review to be of further usage in the comparison of the corporate governance systems in the chapters to come. Li and Harrison argue that national culture has such strong effects on corporate governance that it simply ought to be considered in any transnational study (Li and Harrison 2008, p. 375).

La Porta, Lopez-de-Silanes et al. also performed a transnational study on corporate governance in their Law and Finance paper; however they used 'the legal approach' which they considered the preferred way to understand corporate governance. La Porta, Lopez-de-Silanes et al. wondered what the legal rules related to corporate governance are around the world, how well they are enforced and what effect these rules have on ownership patterns. With regard to these matters they have empirically examined 49 countries around the world (La Porta, Lopez-de-Silanes et al. 1998, p. 1115). The researchers state that laws in general are not written from scratch, but rather transplanted from legal families or traditions due to voluntary adoption centuries ago or due to forced imposition by past colonial powers (Mintz 2005, p. 587). They make a distinction between common law which originated in England (the UK and the US) and the civil law family which derives from Roman law. This civil law family can be further subcategorised into French (Belgium, the Netherlands, part of Italy and western parts of Germany), German (Germany and partly Italy) and Scandinavian law (La Porta, Lopez-de-Silanes et al. 1998, p. 1118). In short, the results of their study show that laws vary substantively across the countries reviewed: civil law gives fewer legal rights to investors than common law does, in common law countries shareholders have the strongest protection and in the French civil law countries the weakest protection. The quality of law enforcement is highest in Scandinavian and German civil law countries, subsequently in common law countries and lowest in French civil law countries (La Porta, Lopez-de-Silanes et al. 1998, p. 1151). As stated above, La Porta, Lopez-de-Silanes et al. took the legal approach and ignored culture in their research, although one could defend that culture is incorporated in the legal families they present.

In later studies La Porta, Lopez-de-Silanes et al.'s legal approach was more deliberately combined with the culture factor. Based on the research of Schwartz and La Porta, Lopez-de-Silanes et al., Breuer and Salzmann showed that national culture is statistically significant in differentiating countries with different corporate governance systems. They used Schwartz' cultural value model and data, and analysed the impact of national culture on six dimensions of corporate governance (corporate control, investors' objectives, ownership structure, protection of minority shareholders, corporate boards and hostile takeovers) (Breuer and Salzmann 2008, p. 4). The data on corporate governance was collected from various other studies such as from La Porta, Lopez-de-Silanes et al.'s. Based on their regression analysis Breuer and Salzmann claim that "countries with an emphasis on the cultural dimensions of Embeddedness (conservatism), Egalitarianism, and Harmony tend to have a bank-based corporate governance system, and countries with an emphasis on the cultural dimensions of Autonomy, Hierarchy, and Mastery tend to have a market-based system" (Breuer and Salzmann 2008, p. 17).

In 2001 Licht, Goldschmidt and Schwartz combined the studies of La Porta, Lopez-de-Silanes et al. (the anti-director rights index and the creditor protection index), Schwartz and Hofstede (Licht, Goldschmidt et al. 2001). They concluded that a comparative analysis of corporate governance cannot rely on a single method of classification. La Porta, Lopez-de-Silanes et al.'s legal approach by grouping countries according to legal families only provides a partial depiction of the universe of corporate governance regimes (Licht, Goldschmidt et al. 2001, p. 5). For example, Licht's research confirms La Porta, Lopez-de-Silanes et al.'s conclusion that common law and English speaking countries protect minority shareholders better (a higher level of anti-directors' rights to minority shareholders). However, this was not the case for protecting the creditors: "our findings cast doubt on the alleged supremacy of common law regimes in protecting creditors and, therefore, investors in general' (Licht, Goldschmidt et al. 2001, p. 32). Licht et al. support the culturally-induced path dependence in corporate governance regimes as also reviewed by Bebchuk and Roe (Bebchuk and Roe 1999). They call culture "the mother of all path dependencies", and state that cultural values partly determine the types of legal regimes and could even impede legal reforms that conflict with them (Licht, Goldschmidt et al. 2001, p. 34). Hofstede even states that his scores on the cultural dimensions clarify the differences in corporate governance systems more sufficiently than any economical variable whatsoever. And like the researchers quoted above, in 2011 Hofstede claimed again that the evolution of culture is strongly path dependent (Hofstede, Hofstede et al. 2011, p. 320).

The importance of taking culture into account in comparative corporate governance is not only acknowledged by researchers nowadays but also by institutional shareholders and international organisations. For example, international investors such as Calpers find it: "necessary to adopt culture-sensitive corporate governance principles for the major foreign markets in which they invest" (Mintz 2005, p. 587). The OECD acknowledges the importance of culture too: they state that their Principles of Corporate Governance serve as a reference point for policy makers while they develop their own corporate governance framework that reflects their own economic, social, legal and cultural circumstances (OECD Principles 2004, p. 13).

Above, the necessity to take culture into account when simultaneously researching and comparing several corporate governance systems and models is reviewed, as well as the outcomes of several studies on those cultural dimensions. For a summary of the results of these studies on the countries under review in this research see table 3.3.2 below, which will be elaborated further in chapter 4 when the five specific national corporate governance systems are discussed.

When examining the - as regards this research tailor-made - table above, a presumption of some convergence in culture and as a result thereof perhaps in corporate governance between the countries under review exists. The cultural dimensions high individualism and autonomy are measured in all the countries above. A distinction can be made between the common law countries (UK) and the civil law countries. Within this distinction strong similarities can be seen, such as mastery in common law countries and emphasis on embeddedness, egalitarianism and harmony in the civil law countries. Besides convergence, outliers can also be seen; for example low masculinity in the Netherlands and high power distance in Belgium and Italy. Possibly those cultural outliers do have demonstrable implications for the corporate governance systems in the countries under review which will be examined further in chapter 4. Cultural dimensions can enhance convergence in corporate governance. On the other hand, if the country-specific dimensions are too strong, culture discourages convergence in corporate governance.

A point of critique on the above studies is that often the focus is primarily on the results and the research method. What the results imply today and in the future for the corporate governance in specific countries or within the EU corporate governance model is not or very briefly discussed. The importance and relevance of culture is revealed, but the studies usually lack further analysis of these results and coherence with other disciplines of interest (such as economical and legal). In the underlying study this next step will be taken in the chapters to come. Whilst examining the application of the comply or explain principle in practice the outcomes of the above studies are integrated in the discussions since, as argued above, culture does matter.