Post-Asian financial crisis reforms: an emerging new embedded-relational governance model

Abstract

The late 1980s and early 1990s saw rapid economic growth and subjugation of social policy and environmental concerns, as development was driven through the corporate and financial sectors in East and Southeast Asian economies, fuelled by free market reforms as societies edged towards neo-liberalism. The Asian financial crisis was the catalyst for the emergence of a new embedded-relational governance model, which emphasises the social and environmental dimensions of the welfare state, while relying on decentralised civil society initiatives and business self-regulation in implementing corporate social responsibility. This study focuses on corporate governance and financial system reforms introduced in the aftermath of the Asian financial crisis.

Keywords:

• corporate governance
• corporate social responsibility
• embedded-relational governance

Acknowledgements

The authors acknowledge the research assistance and translations provided by Robin Lee, Isabelly Susilowati, Dea Tjahjana and Ubonrat Wongwaiwetch. Comments on earlier versions of this paper from Ben Tipton, Jamal Hor and participants in the Asia-Pacific Economic and Business History Conference, Brisbane, Australia, 2006, the Business and Management History Symposium, Sydney, 2006, and the Symposium on History of Finance and Financial Institutions in the Asia-Pacific Rim, Sydney, 2006, are gratefully acknowledged. The authors would also like to acknowledge the helpful comments of the guest editors and two anonymous reviewers on an earlier version of this paper.

Notes

The views expressed in this paper are those of the authors and not necessarily those of CPA Australia.

By comparison, the European Union's Environmental Management and Audit Scheme introduced in 1993 encouraged and facilitated improvements in environmental management and disclosure. For a discussion of the waves of pubic pressure that have shaped the environmental agenda and influenced the roles and responsibilities of governments and the private sector internationally, refer Elkington (2006) and SustainAbility (2002).

The term, embedded-relational governance, was introduced by Midttun (2005) to describe a model of societal governance characterised by the stronger social and environmental agenda of the welfare state but which relies on de-centralised civil society initiatives, media exposure and business self-regulation.

Neo-liberalism refers to re-emergence of the liberal model in the 1980s and 1990s with a basis in pre-Keynesian liberalist tradition, characterised by market exposure and the de-regulation or de-composition of established public infrastructure regimes.

Of the five countries reviewed in this study, all but South Korea is a member of the Association of Southeast Asian Nations (ASEAN).

For a discussion of the influence of Chinese merchants on the spread of Confucianism and Chinese mercantilism and entrepreneurship throughout the Southeast Asian region from the twelfth century through to the early twentieth century refer to Mackerras (1997). Redding (1990) gives a detailed account of the significance of ‘overseas Chinese’ in Indonesia (pp. 25–7), the Philippines (pp. 27–9), Malaysia (pp. 29–31) and Thailand (pp. 31–3).

Nancy Birdsall, President of the Centre for Global Development, refer The Australian Financial Review (2004).

Arvind Subramanian, Division Chief, IMF, refer The Australian Financial Review (2004).

These Basel standards were issued by the Basel Committee on Banking Supervision in 1988 and 1996, respectively, and are now commonly referred to as Basel 1.

For a comparative analysis of transparency in corporate financial reporting in the region in the period leading up to the Asian financial crisis, refer to Rahman (1998).

The Equator Principles, which have been adopted by over 40 financial institutions, are a finance industry benchmark for the determination, assessment and management of social and environmental risk in project finance (refer http://www.equator-principles.com/index.html). Institutions adopting the Equator Principles are estimated to represent approximately 80% of the world's project financing (International Finance Corporation, refer http://www.ifc.org/equatorprinciples accessed 5 January 2007).

The term ‘corporate governance’ is used in a broad sense to refer to all forms of regulation, whether government imposed or self-regulatory and whether mandatory or voluntary, that are concerned with the management of corporations and monitoring thereof.

The Kuala Lumpur Stock Exchange was demutualised in 2004 and re-named Bursa Malaysia.

The report, which is available in English, discusses the requirements Code of Best Practice for Directors of Listed Companies, which was issued by the Stock Exchange of Thailand in January 1998 but is not available in English.

The standard, originally referred to as MASB 1, was renumbered as FRS 101 effective 1 January 2005.

It is noted that some disclosure requirements relating to corporate social and environmental performance were in place in Malaysia prior to the Asian financial crisis: Occupational Safety and Health Act, 1994 (s. 17), which requires the disclosure of information with respect to personal safety; and the Occupational Safety and Health (Control of Industrial Major Accidents) Regulations, 1996 (reg. 22) which requires manufacturers to disclose information to the public relating to ‘the nature of a major accident hazard including its potential effects on the population and the environment’.

The standard, originally referred to as MASB i–1, was renumbered as FRS i–1 effective 1 January 2005.

Source: CSR Asia, Weekly Newsletter, 30 August 2006.