Corporate Governance Models

Lecture- 11 (BECG)

Prof. C. Anand Faculty IBS, Hyderabad

Contents
(i) Introduction to CG Models (ii) Anglo-American Model (iii) German Model (iv) Japanese Model (v) Indian Model

(i) Introduction to CG Models

CG is all about promoting corporate fairness, transparency and accountability. There are many CG Models involving various stakeholders like shareholders, employees, suppliers, FIs. Banks, etc., in governing a company or corporation. Some of the important models are: Anglo-American Model German Model Japanese Model Indian Model. These models are briefly described in the coming paragraphs.
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(ii) Anglo-American Model

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Shareholders elect the Board and control the company. The Board performs three major functions: Representation; Direction; & Oversight. In this model, the main stakeholders are: Employees, Suppliers & Creditors. Creditors have a lien on the assets of the co. Board designates the policy which is implemented by management through a well designed information system. The model is most useful for a production/manufacture-oriented organization.

(iii) German Model

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Shareholders do not directly control CG. Employees also have a say. Half of the Board members are elected by Labor Unions. Remaining half are elected by shareholders. Employees are responsible for policies (product, profit, market share etc.) Board monitors the management. Board, which conducts day-to-day operations will independently report to the supervisory board. Labor relations officer finds a place on the Board leading to workers participation.

(iii) Japanese Model

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Banks/FIs have a major say in CG of a company. Shareholders and Banks/FIs together appoint the Board (Supervisory Board) and also the President who consults the Board. Usually The Board ratifies the Presidents decision. The Board carries out the management functions. Usually, FIs monitor the management functions by appointing their nominees. Banks/FI have powers to suspend the Board

(iv) Indian Model

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it is a mix of both Anglo-American and German CG Models. Companies in India can be grouped into (i) Pvt. Co., (ii) Public Co. and (iii) Banks/other corporations. The Promoters / Founders and their associates have maximum control on Business in planning, etc. The role of external finance is minimum. In Public enterprises, Central/State Governments have major control and say. The interest of stakeholders are given low priority. Large Public Sector enterprises serve the interests of the Government rather than maximizing their own long term ownership value.
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