Models of Corporate Governance
1. Anglo-US Model
The Anglo-US model is based on a system of individual or institutional shareholders that are outsiders of the corporation. The other key players that make up the three sides of the corporate governance triangle in the Anglo-US model are management and the board of directors. This model is designed to separate the control and ownership of any corporation. Therefore the board of most companies contains both insiders (executive directors) and outsiders (non-executive or independent directors). Traditionally, though, one person holds the position of CEO and chairman of the board of directors. This concentration of power has led many companies to ...view middle of the document...
However they serve on boards continuously, not just during times of financial difficulty as in Japan. In the German model, there is a two-tiered board system consisting of a management board and a supervisory board. The management board is made up of inside executives of the company and the supervisory board is made up of outsiders such as labor representatives and shareholder representatives. The two boards are completely separate, and the size of the supervisory board is set by law and cannot be changed by the shareholders. Also in the German model, there are voting right restrictions on the shareholders. They can only vote a certain share percentage regardless of their share ownership (O'Connell, 2006).
Significance of corporate governance
Corporate governance protects the financial interests of individuals in a company, whether they are owners, managers, employees or outside stakeholders. Governance includes guidelines or policies that provide a framework individuals must follow when working in the company. Publicly held companies often have a board of directors as the overseers of corporate governance (Vitez, 2006).
Effects of corporate governance
Using corporate governance can create a competitive advantage for companies in the business environment. Governance that provides specific responsibilities for each owner, manager and employee in the company ensures little or no confusion for competing activities or tasks related to business functions (Vitez, 2006).
Parties to corporate governance
Balance of power in the company raises the question of the relationship between the company in general meeting and the Board of Directors. All these bodies have distinct powers and controls of the company provided for in the Companies Act, and or the memorandum and articles of Association of the Company. The general meeting is principally responsible for election of the directors while directors are principally concerned with the management of the company. The question is which of the two bodies; Board and shareholders in general meeting has more powers in the control of the company and what should happen if one body misuses its powers to the detriment of the other (Aglietta & Reberioux, 2005).
The most influential parties involved in corporate governance include government agencies and authorities, stock exchanges, management (including the board of directors and its chair, the Chief Executive Officer or the equivalent, other executives and line management, shareholders and auditors). Other influential stakeholders may include lenders, suppliers, employees, creditors, customers and the community at large. (Davies, 2006).
A board of directors is expected to play a key role to endorsing the organization's strategy, develop directional policy, appointing, supervising and remunerating senior executives, and ensuring accountability of the organization to its investors and authorities. All...