CORPORATE GOVERNANCE SYSTEMS - U.S. VS. GERMANY

Shareholder (U.S.) vs. Stakeholder (Germany) Corporate Governance

Shareholder (U.S) vs. Stakeholder (Germany) Corporate Governance

Introduction

Corporate governance basically relates to the way in which the relationships in between the board of directors, shareholders, management, employee and the rest of the stakeholders (belonging to an organization) are organized. The controlling and directing of the corporation is done through corporate governance. Corporate governance encompasses the supervision of high level management as well as their actions, how the authority to direct the company is exercised, conformity to laws, regulations and the legal framework according to which the corporation operates, and the acceptance of accountability within the corporation for its actions and effects. It is not so easy to completely and specifically define the term, mostly because of the fact that it can be used in various ways depending on the context it is used in. Even different disciplines that are involved in the study of corporate governance and its models derive a distinct and unique meaning of the term which suits their discipline. For instance, in the discipline of law, duties and power of the parties involved in corporate governance are examined and the legal instruments are discussed; the discipline of economic focuses on the tools that measure, calculate and assure returns on investment to the individuals that supply finance to corporations; the business management and administration discipline emphasizes on the instruments of internal governance that improve and boost performance as well as the decision making process.

By the year 2000, in excess of 60 corporate governance codes were reported to have existed within 30 markets all over the world, apart from the international governance codes. In response the OECD created a specific assortment (under five contexts) of global principles. They were the rights of stakeholders, the rights of shareholders, the structure as well as the role of the board, the responsibility of the shareholders, and transparency/disclosure (OECD, 2004). These principles are intended to act as a point of reference for corporations looking forward to amending their codes of corporate governance. However, even after the provision of these global governance codes, it is hardly ever found that two countries are following the same codes and conducting corporate governance in the same manner.

Two specific models of corporate governance are observed to have been adopted and implemented in advanced countries throughout the world. They are the 'stakeholder system', which is also referred to as the 'insider system', this is widely seen to be in practice within Germany and Japan; and the 'shareholder system', which is commonly referred to as the Anglo American system or the market outsider system, this is widely seen in practice in the United States of America and to some extent (or partially) in the United Kingdom as well as Ireland (Koen 2005, pp.254-297).

Discussion

Dissimilarities between the corporate governance patterns of different nations are based on the presence of excess determinants and influences which include political, economic, historical, institutional and social factors. Historical and political elements influence and affect financial ...