Corporate Governance & Corporate Social Responsiblity - Research Paper Example

The increasing incidents of scandals in financial organizations has facilitated the need for corporate to play a more active role in promoting good corporate governance and behavior. This paper investigates the roles that banks and institutional investors can play in promoting good corporate governance and behavior in Asian economies. Asian financial institutions, banks and institutional investors play important economic roles in the region. However, just like in other regions across the world have indicated, poor governance of the institutions do not only cause a decline in profitability, but also could destabilize monetary system if the problem becomes widespread (OECD, 2003, p13).

Therefore, it is important for the financial institutions to ensure implementation and enforcement of sound corporate governance behavior. Before investigating the role that financial institutions in Asia can play in promoting good corporate governance behavior, it is important to examine the normative framework in these organizations in the region. Alayannis, et al (2003) noted that families own majority of businesses and organizations in Asia and hence relations with stakeholders is mostly informal.

In addition, the region has a wide economic and legal diversity but countries such as China, India, Malaysia, Pakistan and Hong Kong have similar legal structures governing business operations. According to Johnson and Mitton (2003, p51) over 65% of all listed companies in Asia are private and are managed and run by families. The companies have been in existence for several decades and their success is almost fully attributed to the collective efforts of their owners. These business owners have a tendency of forming extensive interconnected networks of subsidiaries and sister companies, which include partially owned and publicly listed companies.

Allen and Douglas (2000) argued that investing in the subsidiaries enables investors to put their investments under their chosen management team. In addition investing in the subsidiaries gives the investors an opportunity to put their money in potentially profitable ventures. However, this mode of investment leads to unfair treatment of investors who do not belong to the family that owns the enterprise. Due to the nature of the business proprietorship, the organizations have strong informal relationships between the stakeholders, who are mainly family members or close friends.

In China, the state maintains a strong grip on the ownership of financial organizations and some elements of socialist laws are common especially on the firms’ relations with stakeholders (Klapper and Love 2002). To promote good corporate governance behavior in China, Hong Kong and other Asian countries with similar business and legal framework, banks and other institutional investors should enforce credible laws and regulations. Similarly, judicial systems should enhance their expertise and increase capability to arbitrate conflicts pertaining to corporate governance with fairness and efficiency (Holder, et al 2009).

Senior management and board of directors of banks and institutions should play a more proactive role in promoting good corporate governance and behavior in Asian countries. In particular, Gregory (2002, p49) argues that “