Globalization and Convergence in Corporate Governance: Evidence from Infosys and the Indian Software Industry

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Palgrave Macmillan Journals is collaborating with JSTOR to digitize, preserve and extend access to Journal of International Business Studies. Abstract In contrast to the much-studied role of capital markets in fostering convergence in corporate governance practices worldwide, we argue that the globalization of product and talent markets has affected corporate governance of firms in the Indian software industry. We model several possible reasons why a particular firm, Infosys, has emerged as the exemplar of good corporate governance in India, traditionally a backwater of corporate governance practices. We further analyze the manner in which Infosys has attempted to shape corporate governance practices in India more generally, and why these attempts have had limited effects thus far. Introduction We document the under-studied effect that global product and labor markets can play in the convergence of corporate governance systems worldwide. This complements our understanding of the much more extensively-studied role of capital markets in fostering such convergence through, for example, cross-border listings and global institutional investor activism. The software industry offers a unique setting to test the role of global product and labor markets for two reasons. First, for a large part of the industry, there is a global market for technical talent. Second, capital plays a smaller role in software than in most other global industries. Thus, one can, to some extent, isolate the impact of global talent markets from the effect of global capital markets, although, admittedly, it is harder to disentangle the effects of global talent from global product markets. Further, the emergence of the Indian software industry offers a unique experimental setting to ask whether globalization can promote convergence in corporate governance. This is because India is home to a globally competitive set of software powerhouses and because India is generally very far from world standards in what constitutes good corporate governance. The success and generally positive reputation of India's software firms-in contrast to most of India's other firms-provides at least surface credence to the idea that the global markets to which these firms are exposed has affected their governance systems.