1. Chapter 6 Models of Corporate Governance
Corporate Governance – principles, policies and practices
Corporate Governance – Principles, Policies and Practices 3e
Chapter 6 Models of Corporate Governance

2. Models of Corporate Governance
In which we consider:
- How context and culture affect corporate governance
- American rule-based model
- United Kingdom/Commonwealth principles-based model
- Continental European two-tier model
- Japanese business network model
- Asian family based model
- Corporate governance: convergence or differentiation?
- Institutions necessary for successful corporate governance.

3. Models of Corporate Governance
Context and culture affect corporate governance
Differences in ownership patterns
highly dispersed with no dominant owner
concentrated with single or block holders dominant
Markets for corporate control
Culture influences on corporate governance.

4. Models of Corporate Governance
Markets for corporate control
In finance markets that are large, liquid, and with high turnover listed companies face
chances of hostile take-over bids
consequential loss of board control
widespread merger and acquisition activity
In finance markets that are small, illiquid with low turnover, the market for corporate control will be weaker, and merger and acquisition activity infrequent.

5. Models of Corporate Governance
Five broad systems of corporate governance:
the American rule-based mode
the United Kingdom/Commonwealth principles-based model
the Continental European two-tier model,
the Japanese stakeholder-orientated network model
the Asian family-based model.

6. Models of Corporate Governance
The American rule-based model
companies incorporated by states
Investor protection federal by SEC
company law based on common law
governance regulated by law and mandatory rules, which are inherently inflexible
high levels of litigation
generally accepted accounting principles rule-based
unitary boards with executive and non-executive directors
roles of board chairman and CEO often combined.

7. Models of Corporate Governance
The UK/Commonwealth principles-based model
companies incorporated at country level
company law based on common law
governance principles-based
corporate governance codes - follow or explain why not
international accounting standards
unitary boards with executive and non-executive directors
roles of board chairman and CEO separated.

8. Models of Corporate Governance
The Continental European two-tier model
companies incorporated at country level
company law based on rule-based civil law
governance rooted in the law
international accounting standards
supervisory board - all non-executive
executive board - all executive
no common membership between the two boards
co-determination with employee and shareholder appointed directors on supervisory board.

9. Models of Corporate Governance
The Japanese business network model
Keiretsu networks of companies connected through cross-holdings, interlocking directorships and extensive inter-trading
classical model of the keiretsu reflects the social cohesion within Japanese society
unity throughout the organization
non-adversarial relationships
lifetime employment
enterprise unions
personnel policies encouraging commitment
decision-making by consensus
promotion based on loyalty and social compatibility as well as performance
This model is currently under pressure to change but survives.

10. Models of Corporate Governance
The Japanese business network model
boards of directors tend to be large
all executive - the top layers of the management pyramid
'promotion to the board‘
independent outside directors not acceptable
how can they understand the company?
how can they appreciate the corporate culture?
potential to disrupt the harmony
Meetings of the whole board formal, ceremonial
governance power lies with chairman and senior directors/executives.

11. Models of Corporate Governance
The Asian family-based model
Overseas Chinese firms are:
family centric with close family control
controlled through an equity stake kept within the family
entrepreneurial often with a dominant entrepreneur
decision making centralised
close personal links emphasizing trust and control
paternalistic in management style
social fabric dependent on relationships and social harmony,
strategically intuitive with business seen as more of a succession of contracts or ventures, rather than strategic plans, brand-creation or quantitative analysis.

12. Models of Corporate Governance
Corporate governance – convergence or differentiation?
Forces for convergence
CG codes of good practice around the world
securities regulators
international accounting standards
global concentration of audit practices
globalization of companies
raising capital on overseas exchanges
international institutional investors
private equity funding
cross-border merger of stock exchanges
research publications, conferences and professional journals.

13. Models of Corporate Governance
Corporate governance – convergence or differentiation?
Forces for differentiation
legal differences in company law, contract law and bankruptcy law
different standards in legal processes
stock market differences – capitalization, liquidity
differences in the market for control
differences in ownership structures
historical differences and expectations
cultural differences.

14. Models of Corporate Governance
Institutions necessary for successful CG
a reliable legal system with an independent judiciary
courts that are bias and corruption free
judgements that are enforceable, free of political pressures
a stock market with liquidity, international standing financial institutions, regulatory authorities including securities and futures market regulators
a companies registry that facilitates comprehensive disclosure
accounting and legal professions that are internationally respected
auditing firms that are professional, reliable, and independent of their clients
professional organizations educational institutions with relevant qualifications
consulting organizations able to advise companies and directors
financial and corporate governance training
corporate governance research reported in sound journals.

15. Models of Corporate Governance
We have considered: - how context and culture affect corporate governance - American rule-based model - United Kingdom/Commonwealth principles-based model - Continental European two-tier model - Japanese business network model - Asian family based model - corporate governance: convergence or differentiation? - institutions necessary for successful corporate governance.