The study seeks to analyze the argument whether convergence of corporate governance systems is likely to occur. Although, many scholars agree that there is a movement towards the shareholder-oriented system, the evidence in support of this view is mixed and illusory. In reality, despite globalization and competitive pressures that enhance convergence, differing corporate governance systems persist due to legal and political forces for divergence. As a result, convergence is not likely to occur. Furthermore, countries with concentrated ownership structures are not likely to converge in line with the American governance model. Therefore, it is more likely that the differences in corporate ownership and governance structure will continue.

The prospect for international convergence in corporate governance systems has been the subject of debate in the area of corporate governance over the last decade. In addition to being extensive, the literature on convergence in corporate governance has not been static and has continued to shift significantly over the last decade (McDonnell, 2002).

The current debate about convergence involves the question whether movement of ownership structures and governance systems will converge towards an Anglo-Saxon model as a result of the increased competitive market force in the international market. It is well recognized that there are two principal systems of corporate governance in the world which are largely categorized by the structure of ownership. The two systems are the insider-oriented system and the outsider-oriented system. The insider-oriented system refers to a system which has concentrated structures, while outsider-oriented system refers to one with a dispersed ownership structure; for example, the structures currently used in the US and the UK.

Most systems of corporate governance fall somewhere in between these two systems or share the characteristics of both the themes. Although the divergence of corporate governance might have arisen from differences brought about by cultures and political and legal systems, countries are attempting to reduce the differences, and there is a possibility that corporate governance will converge at the global level (Solomon, 2007). This has led to increased debate on the possibility of convergence of corporate governance systems. One significant assertion in the debate is the argument that American corporate governance has reached the end of its evolution by adopting a shareholder primacy and dispersed shareholding governance model (Hansmann and Kraakman, 2001).

This paper attempts to give a contrary view by illustrating that convergence of corporate governance systems is unlikely to occur. This is mainly because there are crucial political and legal constraints which affect the system of corporate governance in different countries. The aim of this paper is to examine the forces of convergence of corporate governance and analyze the views in support of and arguments against convergence of corporate governance systems. This paper also delves into the shift towards a shareholder-oriented model.

The paper is structured as follows: a brief introduction is followed by a discussion on the convergence debate. The extent to which formal convergence is distinct from functional convergence is also discussed. Subsequently, the arguments in favor of convergence and supporting convergence are examined, followed by a discussion on the arguments against convergence and an assessment of the reasons as to why convergence is not likely to occur. Finally, the conclusion is offered.

Corporate Governance Journal, Corporate, Governance, Systems, Converging, Towards, Model, Shareholder, Primacy, Ownership, Structure.