Corporate governance systems vary around the world. This because in some cases, corporate governance focuses on the link between a shareholder and company, some on formal board structures and board practices and yet others on the 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 accepted as each model has its own advantages and disadvantages.
The corporate governance structure of joint-stock corporations in a given country is determined by several factors: the legal and regulatory framework outlining the rights and responsibilities of all parties involved in corporate governance; the de facto realities of the corporate environment in the country; and each corporation’s articles of association.
Each model identifies the following constituent elements: key players in the corporate environment; the share ownership pattern in the given country; the composition of the board of directors, the regulatory framework; disclosure requirements for publicly-listed stock corporations; corporate actions requiring shareholder approval; and interaction among key players.
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.
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.
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.
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 sector undertakings (which includes statutory companies, government companies, banks, and other kinds of financial institutions. Each of these corporations has a distinct pattern of shareholding.
Some continental European countries, including Germany and the Netherlands, require a two-tiered Board of Directors as a means of improving corporate governance. In the two-tiered board, the Executive Board, made up of company executives, generally runs day-to-day operations while the supervisory board, made up entirely of non-executive directors who represent shareholders and employees, hires and fires the members of the executive board, determines their compensation, and reviews major business decisions.
India’s SEBI Committee on Corporate Governance defines corporate governance as the “acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders.
United States, United Kingdom
The so-called “Anglo-American model” of corporate governance emphasizes the interests of shareholders. It relies on a single-tiered Board of Directors that is normally dominated by non-executive directors elected by shareholders. Because of this, it is also known as “the unitary system”. Within this system, many boards include some executives from the company (who are ex officio members of the board).
In the United States, corporations are directly governed by state laws, while the exchange (offering and trading) of securities in corporations (including shares) is governed by federal legislation.