Differences in Corporate Governance Structures From Country Perspectives

Shareholder perspective Stakeholder perspective
executive and non-executive executive and non-executive

directors are fiduciaries of directors are fiduciaries of a
shareholders; variety of claimants
executive and non-executive executive and non-executive
directors should adopt directors should balance
policies consistent with the pluralistic claims
maximization of shareholder
wealth;
profitability and economic profitability and economic
efficiency are the standards efficiency are important in
of efficacy; addition to survival, long-term
growth and stability
the corporation is the corporation is seen as a
subordinate to the interests superordinate entity
of shareholders.
Differences in Corporate governance structures from country perspectives

All global governance rules aim to protect shareholders and stakeholders while ensuring the
prosperity of the business, but not all follow the same model and can lead to very different
structures, spheres of influence and succession plans. For example, in the US, shareholders elect
a board of directors, who in turn hire and fire the managers who actually run the company. In
Germany, the board is not legally charged with representing the interests of shareholders, but is
rather charged with representing the interests of stakeholders, including workers and creditors as
well as the shareholders. It also usually has a member of the labor union on the board.
In the UK, the majority of public companies voluntarily abide by the Code of Best Practice on
corporate governance. It recommends there should be at least three outside directors and the
board chairman and the CEO should be different individuals.Japan’s corporate boards are
dominated with insiders and they are primarily concerned with the welfare of (parent company)
to which the company belongs.China has colossal corporate structures where businesses have
parent, grandparent and even great-grandparent companies. Each level has a board and
Communist Party officials usually have a seat. In India, the founding family members usually
hold sway over the board.
Korean manufacturers’ strategy is to grow as rapidly as possible and do this by borrowing money
from banks. As a result, the government holds sway over their corporate governance structure
through the banks. This relationship gives the Government influence over the company, while
the company has a say in government issues and Korean corporate governance.
Finally, the French corporate governance structure often attracts criticism for involving a
complex network of public sector organisations, large businesses and banks. However, this
ensures the French excel at collaborative projects between business and Government. For
example, France leads the world in the production of nuclear reactors and high-speed trains.
Corporate governance from finance perspective

Good governance contributes to sustainable economic development by enhancing the
performance of companies and increasing their access to outside capital. Corporate governance
reduces emerging market vulnerability to financial crises, reinforces property rights, reduces
transaction costs and the cost of capital, and leads to capital market development. Weak
corporate governance frameworks reduce investors’ confidence, and can discourage outside
investment. Lack of corporate governance were the main reason for share market crash of
Bangladesh in 2011. In Bangladesh, January 10, 2011 is called Black Monday because the stock
market collapsed on that date and has not yet recovered. Though a lot of measures have been
taken by the Securities and Exchange Commission (SEC), Dhaka Stock Exchange (DSE),
Chittagong Stock Exchange (CSE), Bangladesh Bank (BB), and Ministry of Finance (MoF),
there is no result of these efforts. Almost every day of the year 2011, small investors were
engaged in many activities, including procession, press-conference, hunger-strike, block the
roads, and close the stock market trade as a part of their expression of frustration. They solicited
intervention of the Prime Minister for stabilizing the market. Even they expressed their anguish
and frustration by opening their chest and inviting government officials to shoot them. The probe
report opined that there are many issues that are responsible for collapse of the market.
Governance of SEC and other institutions could not satisfy the probe committee (PC). One of the
main recommendations of the committee was the removal of chairman, executive director and
directors of SEC (SMIR, 2011). This recommendation clearly indicates a red flag for corporate
governance. Whereas, SEC is the only regulating authority of the listed companies that regulates
annual financial reporting disclosures of the companies, it is expected that the financial reporting
disclosures of the companies are not regularly monitored.
Corporate governance from Social perspective

In the aftermath of some corporate scandals and with the rise of civil society campaigns against
the negative impact of corporate operations on the environment, corporate governance has
started emphasizing issues that go beyond this traditional focus to touch on corporate ethics,
accountability, disclosure and reporting. As companies seek to assure regulators and investors
that they are fully transparent and accountable, corporations have increasingly pledged their
commitment to honest and fair corporate governance principles on a wide spectrum of business
practices’ (Gill, 2008). The impact of a corporate social responsibility (CSR) movement on the
broad changes in the socio-legal views of business corporations also reflects the evolution in the
perception of CG. Along with this movement, the notion of CG has been developed as a vehicle
for pushing management to consider broader ethical issues. CSR has drawn on the dramatic
progress made by companies in recent decades in balancing shareholder goals with the need to
reduce externalities that influence other stakeholders. It has ‘joined the political endeavors to
make corporations more attuned to public, environmental and social needs by pursuing corporate
governance as a framework for boards and managers to treat employees, consumers and com
munities similarly to stockholders’ (Gill, 2008).
Organization Control perspective

organization control perspective, managers who coordinate the efforts of different factors of
production and who contribute their skill and creativity to the production process is primarily
responsible for generating surplus. They invest in R & D and organizational matters and their
professionalism are of vital importance. It is they who create profitable opportunities to add
value. Therefore resource allocation decision should rest with them. Organization-control-
perspective is in vogue in USA till recently and the controversy about Corporate Governance in
that country is essentially a tussle between this perspective and the shareholder-control
perspective.
Commonalities among different perspectives
In all the perspectives corporate governance tries to ensure good governance that is conducive
for the shareholders, stakeholders, society, organization and for the economy at large along with
following repercussions:-
 Culture — consistently good governance as an input at all levels creates as an output a

culture of excellence. Those that ‘swim against the tide’ stand out against the ‘blueprint’
or ‘DNA’ of the organisation. The leadership’s behaviour defines the behaviour of the
workforce, and it becomes far easier in such circumstances to fit in with the defined
culture.
 Reputation — good governance delivers good products, which, in turn, lead to good
business performance. The reputation of a company can make or break it in the market.
 Clarity — all organisations have issues, problems and nonconformities. An organisation

with good governance can isolate these, reducing the impact on the market and very often
containing the risk internally.
 Financial sustainability — good governance reduces the threat of safety, legal,

performance and warranty concerns that can severely impact an organisation and its
stakeholders and/or interested parties. These stakeholders and/or interested parties may
be customers, directors, staff, suppliers, shareholders and even whole communities.
Corporate governance from Economic perspective
The need for a competent financial sector is important to stimulate and support economic growth
through efficient resource allocation. The financial system also enhances growth by pooling risks
and facilitating transactions (World Bank, 1989). The role of financial sector in economic growth
is even greater in developing countries as their tolerable margin of errors in resource allocation is
small1 . Different cross-country studies support the idea that countries with efficient and strong
financial markets experience higher rates of economic growth. As our banking sector have huge
impact on our economy so maintaining good governance of our financial institution is must. The
number of bank failures and financial crises during the last two decades raises questions on the
competency of the governance practices of the banking system. The undesirable banking
practices such as poor risk diversification, inadequate loan evaluation, fraudulent activities were
as much responsible as other macroeconomic factors in causing banking crises which shook the
financial systems of countries such as Bangladesh, Argentina, Chile, Malaysia, Philippines,
Spain, Thailand etc (Sundararajan and Balino, 1991). Winkler (1998) insists that the quality of
corporate governance of banking institutions determines the success of the financial
development. Absence of proper monitoring and control mechanism cripples the potential good
effect of financial development on the economic growth. The fact that banking companies are
allowed to collect deposit and utilize them for profit making activities, could create opportunities
of moral hazards.
Reference
Arun, T.G. and J. Turner (2002) ‘Public Sector Banks in India: Rationale and Prerequisites for
Reform’, Annal of Public and Cooperative Economics, Vol. 73, No. 1.
Arun, T.G. and J. Turner (2003) ‘Corporate Governance of Banks in Developing Economies:
Concepts and Issues’, Corporate Governance: An International Review, Vol. 12, No. 3, pp.371-
377.
Beasley, M.S. (1996). An empirical analysis of the relation between the board of director
composition and financial statement fraud. The Accounting Review. 71 (4). 443-465
Belkaoui A. and Kahl A. (1978). Corporate Financial Disclosure in Canada, Research

Monograph No.1 of Canadian Certified General Accountants Association, Vancouver.

Differences in Corporate Governance Structures From Country Perspectives

Uploaded by

Copyright:

Available Formats

Differences in Corporate Governance Structures From Country Perspectives

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Differences in Corporate Governance Structures From Country Perspectives

Uploaded by

Copyright:

Available Formats

Shareholder perspective Stakeholder perspective

executive and non-executive executive and non-executive

Differences in Corporate governance structures from country perspectives

Corporate governance from finance perspective

Corporate governance from Social perspective

Organization Control perspective

Commonalities among different perspectives

 Culture — consistently good governance as an input at all levels creates as an output a

 Clarity — all organisations have issues, problems and nonconformities. An organisation

 Financial sustainability — good governance reduces the threat of safety, legal,

Corporate governance from Economic perspective

Belkaoui A. and Kahl A. (1978). Corporate Financial Disclosure in Canada, Research

You might also like