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Corporate governance, accountability and emerging economies

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Sweet & Maxwell is part of Thomson Reuters. © 2014 Thomson Reuters
(Professional) UK Limited


Company Lawyer

Corporate governance, accountability and emerging economies
Silvia Fazio
Subject: Company law. Other related subjects: Economics. International law
Keywords: Accountability; Brazil; Corporate governance; Developing countries; Emerging markets;
Multinational companies; United States
Legislation: Sarbanes-Oxley Act 2002 (United States)

*Comp. Law. 105 Development of Corporate Governance

Corporate concentration
In recent decades the increased presence of multinational corporations in the global economy and the enhancement of their economic power have arguably brought to light some of the largest inequalities of our times.1 The scale of the concentration of economic power is illustrated by the statistics: of the world's hundred largest economic entities, 51 are multinational companies and 49 are nation states.2
The statistics are also revealing when we compare the economic concentration with the actual employment generated by large corporations.3 The global economic trend is towards greater concentration of control of markets and productive assets by a relatively small number of corporations that make a limited contribution to global employment.
Other issues linked to the impact of multinational corporations are related to the fact that they develop global policies with a view of maximising profits in a centralised manner. In so doing there is a tendency to remit profits to their country of origin and, arguably, fail to benefit the communities where they are based. In this respect, empirical studies examined by Borschier and Stamm appear to show that penetration by transnational companies adds to overall economic growth in the short term but reduces growth performance in the long term.4
The presence of large corporations in the market, operating on a global basis, tends to push more corporations to grow and merge and to operate in a similar way. As a cycle, the more corporations concentrate the greater is the necessity for existing corporations to grow and merge in order to be able to operate effectively in such a competitive market that has few boundaries. Competition is, in effect, one of the driving forces for corporate concentration.5

Negative externalities and the operations of multinational corporations
In pursuing the maximisation of profits in such a highly competitive global market, corporations often produce what Herman6 classifies as “negative externalities,” which he considers to be “unintended impacts of production or consumption on others, effects that are actually not internalised and taken into account through market processes”. Such effects have increased, with:
“… growing numbers of people, greater economic interdependence, and an outpouring of chemicals and industrial products of uncertain environment effect; workers absorbing new chemicals in work place; the general public affected by waste residues interacting with one another in the environment”.
Large corporations may also contribute more directly to negative externalities as a result of their size, geographic dispersion and mobility, which give them greater freedom to select technologies and business strategies that add to their internal efficiency, but that may involve an unfavourable trade-off between costs and benefits to society.7 Multinational corporations tend to make use of different jurisdictions in order to maximise efficiency and profits. In this regard, the lack of international regulatory mechanisms and mechanisms of control may allow multinational corporations to operate


in a predatory manner,