Corporate Governance Challenges for Dual-Registered Companies from Emerging Markets: Focus on South Africa

Emerging market companies are increasingly undertaking dual registrations on local and foreign stock exchanges to access global finance, and consequently are becoming exposed to wider concerns with corporate governance. These wider concerns are fostered by globalization as emerging economies increasingly develop ties with other countries, either regionally or with more distant economies in the developed world. Aguilera and CuervoCazurra (2004) postulate that this convergence of economies leads to the diffusion of organizational practices, such as corporate governance practices, and potentially creates both a greater efficiency of these processes and greater external legitimation. The challenge for corporate governance acceptance lies in the type of convergence that corporate governance measures can take, which can be either in form or in function (Palepu et al., 2002; Gilson, 2000). While formal convergence implies the coalescing of legal rules and institutions, functional convergence implies adaptations within different existing institutions to perform the functions of good governance. Although formal convergence may not be in evidence in an emerging market, de facto convergence may well be encouraged by the requirements that increasing numbers of dual listed companies face. Coffee (1999) also adds contractual convergence, where foreign companies submit to United States stock exchange governance rules and stock exchange regulation in order to expand their organization for potential growth opportunities. Thus this chapter explores the impact of dual registration on corporate governance and the potential for changing the nature of emerging market governance conditions.