Corporate Governance Models: Anglo-American model, Japanese model & India perspective of corporate governance

 

Corporate Governance Models-

he Corporate governance models are broadly classified into the following categories:

1. Anglo-American Model
2. The German Model
3. The Japanese Model
4. Social Control Model

Anglo-American Model

Under the Anglo-American Model of corporate governance, shareholder rights are recognized and given importance. They have the right to elect all the members of the Board and the Board directs the management of the company. Some of the features of this model are:

• This is a shareholder-oriented model. It is also called the Anglo-Saxon approach to corporate governance being the basis of corporate governance in Britain, Canada, America, Australia, and Common Wealth Countries including India
• Directors are rarely independent of management
• Companies are run by professional managers who have a negligible ownership stake. There is a clear separation of ownership and management.
• Institution investors like banks and mutual funds are portfolio investors. When they are not satisfied with the company’s performance they simply sell their shares in the market and quit.
• The disclosure norms are comprehensive and rules against insider trading are tight
• The small investors are protected and large investors are discouraged to take an active role in corporate governance.

German Model

This is also called the European Model. It is believed that workers are one of the key stakeholders in the company and they should have the right to participate in the management of the company. Corporate governance is carried out through two boards, therefore it is also known as a two-tier board model. These two boards are:

1. Supervisory Board: The shareholders elect the members of the Supervisory Board. Employees also elect their representatives for the Supervisory Board which are generally one-third or half of the Board.
2. Board of Management or Management Board: The Supervisory Board appoints and monitors the Management Board. The Supervisory Board has the right to dismiss the Management Board and re-constitute the same.

Japanese Model

Japanese companies raise a significant part of capital through banking and other financial institutions. Since the banks and other institutions stakes are very high in businesses, they also work closely with the management of the company. The shareholders and main banks together appoint the Board of Directors and the President. In this model, along with the shareholders, the interest of lenders is recognized.

Social Control Model

The Social Control Model of corporate governance argues for full-fledged stakeholder representation in the board. According to this model, creation of a Stakeholders Board over and above the shareholders determined the Board of Directors would improve the internal control systems of the corporate governance. The Stakeholders Board consists of representation from shareholders, employees, major consumers, major suppliers, lenders, etc.

Indian Model

In India, there are mainly three types of companies’ viz. private companies, public companies, and public sector undertakings. Each of these companies has a distinct kind of shareholding pattern. Thus the corporate governance model in India is a mix of Anglo-American and German Models.