Asia’s Corporate Governance Shift Is Less Than Meets the Eye

Asia appears to be rapidly embracing Anglo-American corporate governance models—but looks can be deceiving. Our recent research reveals a striking paradox: While Asian jurisdictions widely adopt Anglo-American governance mechanisms in form, they often use these tools for remarkably different purposes. In a recent paper, we demonstrate how this 'faux convergence' challenges conventional wisdom about global corporate governance and carries important implications for investors, regulators, and corporations operating across Asia or even around the world.

Our concept of faux convergence fundamentally differs from Professor Ronald Gilson’s influential theory of functional convergence (Ronald J. Gilson, ‘Globalizing Corporate Governance: Convergence of Form or Function’, 49 American Journal of Comparative Law 329 (2001)). While Gilson suggested that jurisdictions might achieve similar functional outcomes through different formal means, we observe the opposite: Jurisdictions often adopt similar formal mechanisms but deploy them to serve radically different functions. This distinction is crucial for understanding how corporate governance actually evolves across borders.

Our observation stems from years of studying how corporate governance has evolved across Asia. On the surface, the region appears to have enthusiastically embraced Anglo-American corporate governance models. Independent directors, which we trace to 1970s America, now populate boardrooms throughout Asia. Stewardship codes, a UK innovation following the 2008 Global Financial Crisis, have been adopted by most major Asian economies. Derivative actions, whose roots are in Anglo-American corporate law, are now enshrined in company laws across the region.

However, our research reveals that this apparent convergence masks a far more complex reality: Similar corporate governance mechanisms often serve radically different functions. Take independent directors. In Japan, they champion investors’ interests as part of the government’s economic revitalization strategy. In Singapore’s family-controlled firms, they act as mediators in family disputes rather than monitors of management. In China, many independent directors have historically been academics who may lack business expertise but provide legitimacy and vital government connections—functions far removed from the original Anglo-American conception.

The case of derivative actions further illustrates this pattern of faux convergence. While many Asian jurisdictions have adopted similar formal rules allowing shareholders to sue on behalf of a company in which they own stock, the actual operation of these mechanisms varies dramatically. Japan provides a particularly striking example of unexpected evolution. After decades of lying dormant, in the 1990s, derivative actions suddenly became a powerful force for both social activism and shareholder rights, culminating recently in a massive 13 trillion yen judgment against former directors of Tokyo Electric Power Company. By contrast, in commonwealth jurisdictions like Singapore, which inherited the English common law system and adopted statutory derivative actions to make them more accessible, these mechanisms remain remarkably rare. Indeed, until 2020, there was no record of even a single derivative action being filed in a Singapore-listed company, and since then, only two such actions have been attempted—both dismissed at the pre-filing stage known as a 'leave application.' These differences largely derive not from legal origins or cultural factors but jurisdiction-specific institutional arrangements, including rules about legal costs, procedural requirements, and the interaction with controlling shareholder structures.

The case of stewardship codes particularly illuminates this phenomenon. While Asian jurisdictions have widely adopted UK-style codes since 2014, the codes are used for very different purposes. Japan’s code aims to promote growth by encouraging more corporate risk-taking—completely inverting the UK code’s original purpose of controlling excessive risk-taking after the financial crisis. Meanwhile, one of Singapore’s stewardship codes uniquely targets controlling families rather than institutional investors, fundamentally reimagining what shareholder stewardship means in a region dominated by family-controlled firms.

Faux convergence serves an important strategic function: It allows jurisdictions to signal compliance with international standards while maintaining governance systems that reflect local norms, power structures, and institutional logic. Recent empirical research by Nguyen and Wang provides compelling evidence for this 'halo signaling' effect, showing that the adoption of stewardship codes attracts broader US institutional investment, particularly in firms that previously had limited US investment. Understanding this dynamic is crucial because it suggests that the global spread of corporate governance practices may be creating an illusion of convergence, potentially misleading both scholars and policymakers about the actual state of corporate governance around the world.

Our research suggests that understanding corporate governance evolution requires moving beyond simple convergence-divergence dichotomies. Instead, we need frameworks that can account for how governance mechanisms are strategically adapted and repurposed as they move across borders. The concept of faux convergence provides one such framework, helping explain how jurisdictions can simultaneously adopt global forms while maintaining distinctive local practices.

These findings have significant implications for global market participants. For international investors, understanding faux convergence is important because familiar governance mechanisms may create a false sense of security without delivering expected protections. For policymakers, our research suggests that transplanting governance models without considering local contexts is likely to produce unexpected outcomes. For corporations and their advisers, recognizing the jurisdiction-specific operation of these mechanisms is essential for effective cross-border operations in Asia and likely around the world.

As the world moves toward more regional approaches to corporate governance, understanding them becomes increasingly important. This is especially evident as Asia develops regional approaches that reflect its unique mix of state, family, and institutional capitalism. The message is clear: When it comes to corporate governance, looking beneath the surface of formal adoption is essential. Perhaps it is time to recognize that, in this context, what you see is not always what you get.

A version of this post was originally published in the Columbia Blue Sky Blog. 

This post is based on the authors' recent paper 'Faux Convergence in Asian Corporate Governance: Unmasking the Illusion of Anglo-American Transplants,' available here and forthcoming as a chapter in 'Inter-Asian Law' (Cambridge University Press), edited by Matthew S. Erie & Ching-Fu Lin.

Gen Goto is a Professor of Law at the University of Tokyo’s Graduate Schools for Law and Politics. 

Dan W. Puchniak is a Professor of Law at Singapore Management University’s Yong Pung How School of Law.