Evolution of Corporate Governance: How is Botswana faring? Part 9

In the last article, we continued the discussion on the French evolution of corporate governance. We noted that control instruments of different corporate governance systems are consistent to the pluralist approach to the firm ( Hal Archivesouverts, 2016). The French evolution of corporate governance was characterised by polarisations of opinion due to the dominance of the State in the corporate governance issues. That caused the publication of more than two codes on corporate governance. This week, we will be discussing the humble beginning and evolution of the Dutch corporate governance. The awareness and thereafter the development of corporate governance started around 1995. Prior to that it was noted that there was no interest, no debates, or any development on corporate governance and there was not enough literature in the field ( Muijsenbergh, 2002). Despite that scarcity, of information on corporate governance, Netherlands was, apparently, one of the countries that was concerned about the status of corporate governance in the country. Nevertheless, the year 2002, was the 400 anniversary of multinational corporate governance in the country. It was noted that, equally historic, 400 years prior to the start of corporate governance in Netherlands, the United East India Company was founded ( No longer exists). That was the first functioning multinational company with organizational structure and international operations at the time. The first initiative that the company did was to separate capital from its management. In other words, the policy of the company started the agency theory of running the organization. What is the agency theory? Agency theory is a principle that is used to explain and resolve issues in the relationship between business principals and their agents. Most commonly, that relationship is the one between shareholders, as principals, and company executives, as agents. Available on: www. instopedia. com. Accessed on 08/ 10/ 2020, ( cited in Kedisitse, 2020). This theory is also known as the agency problem because it is where all corporate problems started. Before 1855 when the first company was formed, there were sole trade businesses owned and run by their owners. Then at the time there was the emergence of Industrial Revolution and, consequently, many people reached stages of financial buoyancy. As a result, many people started buying investment stocks when the idea of the incorporation of the company started in 1855. The imagination of conflict of interest then shot out in great speed. Consequently, the concept of separation of role and responsibilities of investors and management started. Initially, it was a good idea, because it proposed that one group of people cannot put capital in the company and run the same company. Then it sounded sweet and was agreed until time that some elements of management became big- headed and started despising the monied people ( investors).

They started differing in their views on corporate law and other ethical issues. Greed did not help the situation which manifested in short- termism in their approach to business. It was then realised that there was no goal congruence between the two groupings. The interests of boards of directors were pitted against those of the investors ( company owners) and hence the birth of the ‘ agency problem’. However, the new governance order is to precipitate the reforms, that is why there are now concepts of primacy of stakeholders, which is called ‘ inclusive capitalism in the US. We will have the opportunity of analysing these issues at one stage.

At that stage, the United East India Company was led by 60 governors. In view of this big number of governors, there was trouble with governance ( Muijsenbergh, 2020). It should be noted that the essence of corporate governance is to facilitate the execution of balanced decision- making. Before one considers quality decisionmaking, let us say, to be conservative, each governor speaks for 15 minutes during the meeting, which will be 60x15= 900 minutes for the governing body meeting which makes 900/ 60 minutes to get a total of 15 hours to hold the meeting. However, a remedial decision was made to form a lower council comprising 17 governors. The initial geographical council composition was considered, and the council was formed as follows: Amsterdam, being a large province and big city was given the opportunity to elect 8 council members, the province of Zealand nominated 4 members and 4 other regions were each allowed to nominate 1 workman to represent them in the council to make a total of 16 members. The last additional member to make the required 17 members was given to represent either Zealand Province or the 4 other regions.

That composition diluted Amsterdam potential domination of the corporate structure. Instead, it gave smaller cities power, especially when it came to voting. At least the arrangement was better than the initial. In the next article, we will be continuing the Netherlands evolution on corporate governance; as always, we are grateful for the feedback we are receiving from our readership.