Emergence of Corporate Governance
Models
• In each country, the corporate
governance structure has certain
characteristics or constituent elements,
which distinguish it from structures in
other countries.
• To date, researchers have identified three
models of corporate governance in
developed capital markets. These are the
Anglo-US model, the Japanese model,
and the German model
Anglo American Model
• This model is based on free economy Theory.
• Market forces sets the prices
• In this model, company operates to maximize
the shareholders wealth.
• Directors of the company do not necessary
own a big chunk of company shares, their
election is depend on their efficiency and
ability to convince the investors.
Anglo American Model
• It works on Triangular principal…
1.Shareholders
2.non-executive directors
3.Managers(including executive directors)
• Bulk of Capital is provided by the institutional
investors.
• Relies on combination of debt and equity.
• Participation of Shareholders low.
Anglo American Model
• Players in the Anglo-US model include
management, directors, shareholders
(especially institutional investors),
government agencies, stock
exchanges, self-regulatory
organizations and consulting firms
which advise corporations and/or
shareholders on corporate governance.
Anglo American Model
Composition of the Board of Directors in the Anglo-US Model
• The board of directors of most corporations that follow the
Anglo-US model includes both
“insiders” and “outsiders”.
• An “insider” is as a person who is either employed by
the corporation(an executive, manager or employee) or
who has significant personal or business relationships with
corporate management.
• An “outsider” is a person or institution which has no
direct relationship with the corporation or corporate
management
• A synonym for insider is executive director;
• A synonym for outsider is non-executive
director or independent director
Japanese Model
• The Japanese model is characterized by a high
level of stock ownership by affiliated banks
and companies; a banking system
characterized by strong, long-term links
between bank and corporation.
• Keiretsu system..group of enterprise
• Typically group has a number of companies.
Japanese Model
• Equity financing is important for Japanese corporations.
• However, insiders are the major shareholders in most Japanese
corporations.
• The percentage of foreign ownership of Japanese stocks is small
Japanese Model
• The Japanese system of corporate governance is many-sided, centering
around a main bank and a financial/industrial network or keiretsu.
• The main bank system and the keiretsu are two different, yet
overlapping and complementary, elements of the Japanese model.
• Almost all Japanese corporations have a close relationship with a
main bank. The bank provides its corporate client 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.
Japanese Model
• In the Japanese model, the four key players are:
main bank (a major inside shareholder),
affiliated company or keiretsu (a major inside
shareholder), management and the government.
• Note that the interaction among these players serves
to link relationships rather than balance powers, as
in the case in the Anglo-US model
Japanese Model
Japanese Model
• The base of the figure, with four connecting lines,
represents the linked interests of the four key
players: government, management, bank and keiretsu.
• The open lines at the top represent the nonlinked
interests of non-affiliated shareholders and outside
directors, because these play an
insignificant role.
Japanese Model
• In both the Japanese and the German model,
banks are key shareholders and develop
strong relationships with corporations
Japanese Model
• The board of directors of Japanese corporations is composed almost
completely of insiders, that is, executive managers, usually the heads
of major divisions of the company and its central administrative
body. If a company’s profits fall over an extended period, the main
bank and members of the keiretsu may remove directors and
appoint their own candidates to the company’s board.
• Another practice common in Japan is the appointment of retiring
government bureaucrats to corporate boards; for example, the
Ministry of Finance may appoint a retiring official to a bank’s board.
German Model
• The German corporate governance model
differs significantly from both the Anglo-US
and the Japanese model, although some of its
elements resemble the Japanese model.
German Model
• There are three unique elements of the
German model that distinguish it from the
other models .Two of these elements pertain
to board composition and one concerns
shareholders’ rights:
German Model
• First, the German model prescribes two boards with separate
members. German corporations have a two-tiered board structure
consisting of a management board (composed entirely of insiders,
that is, executives of the corporation) and a supervisory board
(composed of labor/employee representatives and shareholder
representatives).
• The two boards are completely distinct; no one may serve
simultaneously on a corporation’s management board and
supervisory board. Second, the size of the supervisory board is set
by law and cannot be changed by shareholders.
German Model
• Third, in Germany and other countries
following this model, 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.
German Model
• German banks, and to a lesser extent,
corporate shareholders, are the key players in
the German corporate governance system.
Similar to the Japanese system described
above, banks usually play a multi-faceted role
as shareholder
German Model
• The two-tiered board structure is a unique construction of the German
model. German corporations are governed by a supervisory board and
a management board. The supervisory board appoints and dismisses
the management board, approves major management decisions; and
advises
the management board. The supervisory board usually meets once a
month.
• A corporation’s articles of association sets the financial threshold of
corporate acts requiring supervisory board approval. The management
board is responsible for daily management of the company
German Model
• The management board is composed solely of
“insiders”, or executives. The supervisory
board contains no “insiders”, it is composed of
labor/employee representatives and
shareholder representatives.
