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Models of Corporate Governance
Transcript of Models of Corporate Governance
Good corporate governance is very important for economic development. Therefore quality of governance should be continuosly improved and good governance should be promoted. However, what is not measured, cannot be improved. Hence, there is a need for a model to measure its quality
3 Models of Corporate Governance
characterized by share ownership of individual, and increasingly institutional, investors not affiliated with the corporation known as outside shareholders or “outsiders”; a well-developed legal framework defining the rights and responsibilities of three key players, namely: management, directors and shareholders; and a comparatively uncomplicated procedure for interaction between shareholder and corporation as well as among shareholders.
Board of Directors
Corporate Governance Triangle
Share Ownership Pattern
In 1990, institutional investors held approximately 61 percent of the shares of UK corporations, and individuals held approximately 21 percent. (In 1981, individuals held 38 percent.) In 1990, institutions held 53.3 percent of the shares of US corporations.
Insiders (executive director)
> Is a person who is either employed by the corporation who has significant business relationship with corporate management.
Composition of the Board of Directors
Outsiders (non-executive director or independent director)
> Is a person/institution which has no direct relationship with the corporation or management
1. Corporate Financial Data(quarterly basis in the U.S)
2. Breakdown of Corporation's Capital Structure
3. Substantial background information on each nominee to the board of directors(including name, occupation relationship with the company and ownership of stock in the corporation)
4. The aggregate compensation paid to all executive officers(upper mgmt.) as well as individual compensation data for each of the five highest paid executive officers, who are to be named;
5. All shareholders holding more than 5% of the corporation's total share capital
6. Information on proposed mergers and restructuring
7. Proposed amendments to the articles of association
8. And the names of individuals and/or companies proposed as auditors
The 2 routine corporate actions requiring shareholders approval under the Anglo-US model are:
1. Election of Directors
2. Appointment of Auditors
Non-routine corporate actions which also require shareholder approval include:
1. Establishment or amendment of stock option plans(because these plans affect executive and board compensation)
2. mergers and takeovers
4. Amendments of the articles of incorporation
CORPORATE ACTIONS REQUIRING SHAREHOLDERS APPROVAL
• The Anglo-US model establishes a complex, well-regulated system for communication and interaction between shareholders and corporations. A wide range of regulatory and independent organizations play an important role in corporate governance.
• Shareholders may exercise their voting right without attending the annual general meeting in person
• All registered shareholders received the following by mail(the agenda for the meeting including background information on all proposals"proxy statements", the corporation's annual report and a voting card.
• Shareholders may vote by proxy
characterized by a high level of stock ownership by affiliated banks and companies ●
a banking system characterized by strong, long-term links between banks and corporation ●
A legal, public policy and industrial policy framework designed to support and promote "keiretsu" ●
BOD composed of solely insiders and comparatively low(in some corp., non- existent)level of input of outside shareholders ●
Equity Financing is important for Japanese Corporations ●
Insiders and their affiliates are the major shareholders in most Japanese corporations.
1. Main Bank(a major inside shareholder)
2. Affiliated company or keiretsu(a major inside shareholder)
3. Management and the
In Japan, Financial institutions and corporations firmly hold ownership of the equity market.
Share Ownership Pattern
Insurance companies & Banks 43 %
Corporations 25 %
Foreign 3 %
The board of directors of Japanese corporations is composed almost completely of insiders, that is, executive managers, usually the heads of major divisions of the company and its central administrative body. If a company’s profits fall over an extended period, the main bank and members of the keiretsu may remove directors and appoint their own candidates to the company’s board.
Composition of the BOD
Laws regulating pension funds also have an important impact on Corporate Governance.In 1988, the agency of the U.S. Department of Labor ruled that: Pension Fund have a "fiduciary responsibility" to exercise their stock ownership right.
INTERACTION AMONG PLAYERS