Evolution of Corporate Governance

The emergence of corporate governance is inextricably linked with the formation and development of corporations themselves. Their emergence required a different management approach than the small organizations and companies that existed before. Therefore, the emergence of joint-stock companies contributed to the emergence of corporate governance.

History of becoming

For the first time, the concept of “corporation” arose in the Middle Ages. During this period, trade relations actively developed between the states. As a result of this process, some merchants began to unite, forming trade guilds. This association’s purpose was to promote its goods in foreign territories actively.

Of course, at that time, the guilds were not integral economic units. However, they were an excellent way to organize joint campaigns. They effectively protected property from the attack of robbers – and all this was possible due to the establishment of uniform rules for the guild, which all its members obeyed. There was no joint capital, but each of its members regularly paid a predetermined fee. Guilds developed in several directions. An example of this could be the production associated with:

  • Flour-grinding activities.
  • Crusades.
  • The development of maritime trade.
  • Association of public creditors.

Rome is considered to be the birthplace of the prototype of the corporation. It was in this country that private forms of doing business were defined. At that time, the corporation looked less like an organization than a community with its own rules and laws. As society developed, the concept of a corporation became more complex: the emergence of joint property, public performances by members of these societies, the imposition of social responsibility, etc.

The period of legislative consolidation of corporate governance

England is considered the birthplace of corporate governance in a form close to the modern understanding. The first rules and norms were approved in English laws at the end of the 19th century. At that time, this type of management had a different name, but its functions were identical to the corporate one.

The next stage in the development of this management was the period of the early twentieth century. It was during the years of the Great Depression in 1929-1930 that fundamental laws on corporate governance were adopted in the United States. First, they fixed the methods used at the state level. Subsequently, this system was called the “American Model of Corporate Governance.”

At the same time, Japan and Germany did not lag behind the United States, which developed and legitimized their corporate governance models, which seemed to them more perfect and efficient. Similar models have been developed in Latin America and Arab countries.

To date, there is no universal management model that would ideally fit all countries with a market economy. And there are several reasons for this: each system develops in entirely different social, economic, and historical conditions.

Modern development

Today, corporate development has the following trends:

  • Increasing the role of corporations in the global economy.
  • Narrowing the internal structures of the corporation.
  • Acceleration of internal development processes.
  • The use of modern information technologies is an essential attribute of a successful corporation.
  • Application of innovative technologies in development.

So, these are the historical foundations for the emergence of corporate governance. This type of management was a historical necessity since it allows to exercise control over the activities of joint-stock companies in the most qualitative, complete, and efficient way.

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