Comparative Corporate Governance

CORPORATE GOVERNANCE : "describes the rules, practices, and processes through which firms are controlled."
1. About the effectiveness of directing and controlling businesses.
2. Obvious political question: Who is in charge of deciding how profits are going to be distributed?
COMPARATIVE : comparing corporate governance across countries or types of countries
SHAREHOLDER ACTIVISM
1. = Shareholders take on an active role in firm's operations + attempt to secure drastic changes in the organisation when performance declines
  1. ex. They can engage in proxy fights, which are unfriendly contestations over the control of the firm
COMPARING BOARD SYSTEMS
1. Unitary Board System
  1. Unification of Management + Control
    1. Board of Directors (Management + Control)
  2. Common in most countries, especially Anglo-Saxon countries, France, Belgium, Luxembourg, Denmark, Sweden, Singapore
  3. CORPORATE GOVERNANCE IN UNITED STATES
2. Two-Tier Board System
  1. Separation of Management + Control
    1. Management Board, Supervisory Board (Control)
  2. Common in Germany, AustrIa, Netherlands (only for big stock companies), France (on voluntary basis)
  3. CORPORATE GOVERNANCE IN GERMANY
RELATIONSHIP MODEL OF CORPORATE GOVERNANCE
1. GERMANY
  1. Two-tier board system
  2. Relationships involve cross-shareholding + relationships with labor representatives
  3. ex. Volkswagen
2. JAPAN
  1. Banks = main relationship investors
    1. Offer internal voice + very stable shareholding, virtually without exit - longterm view
    2. Can facilitate company restructuring in a liquidity crisis
  2. Keiretsus (set of companies with interlocking business relationships + shareholdings; type of informal business group) are held together by cross-shareholdings + webs of supply linkages + other forms of cooperation
  3. Customers + Suppliers have significant voice in shaping how the firm operates
3. WEAKNESSES
  1. Less pressures from stock market (market as a disciplining force)
  2. Without a realistic exit threat from shareholders + suppliers, there's a danger that their voices aren't taken seriously
  3. Dual role of banks can be problematic: internal voice + possibly aiding restructuring?
FAMILY OWNERSHIP & CONTROL
1. Poorer investor protection associated with less liquid capital markets
2. In illiquid financial markets, controlling family can be critical for providing financial resources
3. Large proportion of listed companies in East Asia is under family control
  1. Many markets in EA = rather illiquid

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Comparative Corporate Governance

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