Explain the models of Corporate Governance?

MODELS OF CORPORATE GOVERNANCE.

Ans.    Corporate governance systems vary around the world. This because in some cases, corporate governance focuses on link between a shareholder and company, some on formal board structures and board practices and yet others on social responsibilities of corporations.

However, basically, corporate governance is seen as the process by which organizations are run.

There is no one model of corporate governance which is universally acceptable as each model has its own advantages and disadvantages.

The following are some of the models of corporate governance :

Anglo-American model : This model is also called an ‘Anglo-Saxon model’ and is used as basis of corporate governance in U.S.A, U.K, Canada, Australia, and some common wealth countries. The shareholders appoint directors who in turn appoint the managers to manage the business. Thus there is separation of ownership and control. The board usually consist of executive directors and few independent directors. The board often has limited ownership stakes in the company. Moreover, a single individual holds both the position of CEO and chairman of the board. This system (model) relies on effective communication between shareholders, board and management with all important decisions taken after getting approval of shareholders (by voting).

German model : This is also called as 2 tier board model as there are 2 boards viz. The supervisory board and the management board. It is used in countries like Germany, Holland, France, etc. Usually a large majority of shareholders are banks and financial institutions. The shareholder can appoint only 50% of members to constitute the supervisory board. The rest is appointed by employees and labour unions.

Japanese model : This model is also called as the business network model, usually shareholders are banks/financial institutions, large family shareholders, corporate with cross-shareholding. There is supervisory board which is made up of board of directors and a president, who are jointly appointed by shareholder and banks/financial institutions. This is rejection of the Japanese ‘keiretsu’- a form of cultural relationship among family controlled corporate and groups of complex interlocking business relationship, where cross shareholding is common most of the directors are heads of different divisions of the company. Outside director or independent directors are rarely found of the board.

Indian model : The model of corporate governances found in India is a mix of the Anglo-American and German models. This is because in India, there are three types of Corporation viz. private companies, public companies and public sectors undertakings (which includes statutory companies, government companies, banks and other kinds of financial institutions). Each of these corporation have a distinct pattern of shareholding. For e.g. In case of companies, the promoter and his family have almost complete control over the company. They depend less on outside equity capital. Hence in private companies the German model of corporate governance is followed.

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