The role, diffusion and effectiveness of good governance codes

Codes of good governance are a set of best practices regarding the board of directors and other governance mechanisms. Their adoption has been encouraged by different institutions (such as national stock exchanges, governments institutions, or industry associations) to increase the accountability of listed companies’ governance processes to outside investors. Since the publication of the influential Cadbury Code in 1992 there has been a proliferation of good governance codes across countries (Aguilera & Cuervo-Cazurra 2004). Nowadays codes are a popular means of regulating corporate behaviour among many industrialized and emerging countries (Seidl 2007). Parallel to the diffusion of codes of good governance there has been a growing interest of management scholars on their diffusion, characteristics, and implications for governance practices. Given the relevance and the increasing interest in the topic, it is time for a detailed assessment of the contribution of previous literature and studies on codes in order to understand their role and effectiveness in influencing corporate governance of listed companies. The chapter is organized as follows. In the second section, we focus on the role and diffusion of corporate governance codes. Then we present the content of codes, and we describe the main differences between civil law and common law countries’ codes. In the four section, we focus on the impact of codes on companies’ governance practices and firm performance. Finally, we synthesize the main merits of codes, and we discuss the critics about their impact on governance practices.