Models of Corporate Governance
Models of Corporate Governance
Models of Corporate Governance
Anglo-US Model
The Anglo-US model is characterized by share ownership of individual, and increasingly institutional,
investors not affiliated with the corporation known as outside shareholders or “outsiders”; a well-
developed legal framework defining the rights and responsibilities of three key players, namely:
management, directors and shareholders; and a comparatively uncomplicated procedure for interaction
between shareholder and corporation as well as among shareholders.
• In 1990, institutional investors held approximately 61 percent of the shares of UK corporations, and
individuals held approximately 21 percent. (In 1981, individuals held 38 percent.) In 1990, institutions
held 53.3 percent of the shares of US corporations.
Is a person who is either employed by the corporation who has significant business relationship with
corporate management.
The same person has served as both chairman of the BOD and CEO which led to ff. abuses
Several factors contributed to an increased interest in corporate governance in the UK and US. These
included:
REGULATORY FRAMEWORK
Laws regulating pension funds also have an important impact on Corporate Governance.In 1988, the
agency of the U.S. Department of Labor ruled that: Pension Fund have a "fiduciary responsibility" to
exercise their stock ownership right -huge impact on behavior of Private Pension Funds and other
institutional investors;Institutional investors have taken a keen interest in all aspects of corporate
governance, shareholder's right and voting at annual general meetings
U.S. has the most comprehensive disclosure requirements and a complex, well-regulated system for
shareholder communication The regulatory framework of UK in corporate governance is established
in parliamentary acts and rules established by self-regulatory organizations such as Securities and
Investment Board which is responsible for oversight of securities market, this is not a government
agency like the SEC in US.
DISCLOSURE REQUIREMENT
4. The aggregate compensation paid to all executive officers(upper mgmt.) as wel as individual
compensation data for each of the five highest paid executive officers, who are to be named;
5. All shareholders holding more than 5% of the corporation's total share capital
8. And the names of individuals and/or companies proposed as auditors. Disclosure requirements in
the UK and other countries that follow the Anglo-US model ae similar. However, they generally
require semi-annual reporting and less data in most categories, including financial statistics and the
information provided on nominees.
JAPANESE MODEL
KEY PLAYERS
The Japanese system of Corporate Governance is many-sided, centering around a main bank and a
financial/industrial network or keiretsu
The bank provides its corporate clients with loans as well as services related to bond issues,
equity issues, settlement accounts and related consulting services.
The main bank is generally a major shareholder in the corporation.
In the US, Anti-monopoly prohibits one bank from providing this multiplicity of services
Many Japanese corporation also have a strong financial relationships with a network of affiliated
companies. These networks, characterized by crossholding of a debt and equity, trading of
goods and services, and informal business contacts, are known as Keiretsu
Government-directed industrial policy plays a key role in Japanese Governance, this includes
official and unofficial representation on corporate boards, when a corporation faces financial
difficulty
In the Japanese model, the four key players are:
Interaction among these players serves to link relationship rather balance power, as in the case of
Anglo-US Model - non-affiliated shareholders have little or no voice in japanese Governance -As a result,
there are few truly independent directors(representing outside shareholders)
COMMON PRACTICE:
If a company’s profit fall over an extended period, the main bank and member of the keiretsu
may remove directors and appoint their own candidates to the company’s board.
Appointment of retiring government bureaucrats to corporate boards
The average japanese board contains 50 members
German Model
UNIQUE ELEMENTS of the GERMAN MODEL
EL Two-tiered Board Structure - Which means it consist of a management board and supervisory
board. The 2 boards are completely distinct; no one may serve simultaneously on a corporations
management board.
Size of supervisory board - It is set by law cannot be change by shareholders
Voting right restrictions - Voting right restrictions are legal; these limit a shareholder to voting a
certain percentage of the corporation’s total share capital, regardless of share ownership
position
BOARD COMPOSITIONS
Two-tiered Board
Employees/labour Union & Shareholders - Responsible for appointing members to the supervisory board
KEY PLAYERS
BANKS
Corporate shareholders
Banks usually play a multi- role as shareholder, lender, issuer of both equity and debt, depository.
German and Austrian corporations use the abbreviations AG following their names
Disclosure Requirements