In this blog post, Tusharika Bhattacharya, who is pursuing her Company Secretary Finals from Institute of Company Secretaries of India and is also pursuing a  Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, differentiates and describes the various models of corporate governance across the globe. 


The scale of collapses has varied across the globe, and the ramifications for the rest of the global economy are well seen in many other places. Corporate Governance is stretched to the extent that it is distressed and has not been able to cope with the demands placed on it. Corporate Governance alone is not the cause of the current Financial Crisis. Furthermore, effective Corporate Governance could have helped to reduce the catastrophic impacts that the global and national economies are now suffering.hands-1063442__180

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The amount of the collapses across the globe and the ramifications for the rest of the global economy are also well documented in many other places. This is not a semantic question: following the examples of Enron, WorldCom and others in the United States, the Sarbanes-Oxley Act introduced some major changes to US Corporate Governance. Due to the collapses in Marconi in the U.K, leading commentators have expressed their views that this should not be seen as a failure of Corporate Governance since the failure was principally due to a misguided strategy, rather than a collective board failure.


Corporate Governance Codes And Risk Management Codes


There is a wide variety of source material when considering the strength or otherwise of any given code of Corporate Governance. The review in this section is limited to three codes:

  • The Corporate Governance Standards set out in the NYSE Listed Company Manual;
  • The Combined Code produced by the Financial Reporting Council;
  • The Corporate Governance Code for listed Companies produced by the Associations Française des Entreprises Privées (AFEP) and the Mouvement des Entreprises de France (MEDEF


Different Sections Under The Codes

Each of the three codes reviewed includes sections on the following topics:

  • Independent or Non-Executive Directors: All three codes have either a majority of non-executive directors or a balance of non-executive and executive directors. This is no longer a controversial issue. Each code either has material in it, or there is supporting material prepared by others that provides clarity on the meaning of independent.
  • Nominations Committee: The main purpose of the nomination committee is to ensure that there is a transparent appointment process which is not under the control of management alone, and to ensure that the right balance of skills and experience is brought to the board table. In reality, search for new directors is many times outsourced to headhunters with the consequence that the appearance of transparency is a bit reduced by the typical reluctance of headhunters to consider shortlisting anyone who has not previously undertaken a given role.1393496019_board-meeting
  • Compensation Committee: In each code, there is a requirement of compensation or remuneration committee. In the case of the United States, this includes the CEO and Executive Officers. After the financial crisis, there is a good requirement that the remuneration committee be increased to oversee the broad principles underpinning remuneration of senior managers throughout the organization, which has potential significance to influence the nature of risk-taking in the organization.
  • Audit Committee: Each code requires an audit committee on the board. There are similar requirements for the skills and expertise, although they have varying forces of law behind them.
  • Code of Business Conduct and Ethics: Each company has developed and published an appropriate Code of Business Conduct and Ethics. This is not explicitly required in either the Combined Code or the French Code.
  • Certification: Both the Combined Code and the French Code require companies to either comply or explain why they are not complying with their respective codes. Policy makers in The UK and France have now had long enough to consider the benefits (to society at large) of good corporate governance and therefore that they should be required to certify compliance rather than simply explain why corporate governance is not relevant to them.


European and the French Codes

European Codes – The European codes require the boards to disclose the extent of their non-compliance with their respective codes and to explain why they have not complied. The purpose behind the concept of “Comply or Explain” is clear enough.

French Code – The French Code enshrines a provision requiring that directors represent all shareholders rather than specific segments interest groups.people-european-union

Separation Of The Role Of Chairman And CEO: Both the French and Combined Codes require the separation of the role of the Chairman and the CEO. Thus, a recommendation of balancing the management and assurance roles of boards, and therefore it should be a requirement enshrined in all codes for the separation of the roles of Chairman and CEO

Availability of information: Both the European codes have discussed the importance of information for the directors. Therefore, it should be the Chairman’s role to ensure that this balance is struck correctly, and to facilitate any additional information that directors should request in the pursuance of their duties.

Periodic elections: In Europe, all directors are to be subject to periodic elections. This is not covered in the NYSE code.



Types of Models


The Anglo–U.S Model

This model has struggled over the course of the twentieth century to keep up to date with stakeholder perceptions. The Anglo-U.S Model has the characteristics of share ownership of individual , it is a well developed legal framework , defining the rights and responsibilities of three players namely management and shareholders as well as among shareholders during AGM or outside AGM, Equity financing is a common method of raising capital for corporations in the U.K and U.S, It is not surprising that the U.S is the third largest stock exchange in the world after the NYSE and Tokyo.statue-of-liberty-500700__180

Key Players In The Anglo-Us Model: Players in the Anglo-US model are management, directors, shareholders (especially Institutional investors), government agencies, stock exchanges, self-regulatory organizations and consulting firms which advise corporations and shareholders on corporate governance and proxy voting.

Composition of the Board of Directors in the Anglo-US Model: The board of directors of most corporations that follow the Anglo-US model includes both “insiders” and “outsiders.” An “insider” is as a person who is either employed by the corporation (an executive, manager or employee) or who has significant personal or business relationships with corporate management. An “outsider” is a person or institution which has no direct relationship with the corporation or corporate management.


The Japanese Model

The Japanese model is characterized by a high level of stock ownership by affiliated banks and companies; a banking system is characterized by strong, long-term links between bank and corporation; a legal, public policy and industrial policy framework designed to support and promote keiretsuboards of directors composed almost solely of insiders; and a comparatively low (in some corporations, non-existent) level of input of outside shareholders, caused and exacerbated by complicated procedures for exercising shareholders’

Key Players in the Japanese Model: The Japanese system of corporate governance has many sides, centerings around the main bank and a financial/industrial network or keiretsu. In the Japanese Model, the four key players have affiliated company or keiretsu main bank, management and the government.

Composition of the Board of Directors in the Japanese Model: 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.


The German Model

The German corporate governance model is distinguished significantly from both the Anglo-US and the Japanese model, although some of its elements resemble the Japanese model. First, the German model prescribes two boards with separate members. German corporations have a two-tiered board structure consisting of a management board (composed entirely of insiders, that is, executives of the corporation) and a supervisory board (composed of labor/employee representatives and shareholder representatives).

german-flag-1332897__180Key Players in the German Model: German banks and corporate shareholders are the key players in the German corporate governance system. In Germany, corporations that are shareholders, sometimes hold long-term stakes in other corporations, even where there is no industrial or commercial affiliation between the two. This can be said to be similar, but not parallel, to the Japanese model, yet very different from the Anglo-US model where neither banks nor corporations are key institutional investors.

Composition of the Management Board (“Vorstand”) and Supervisory Board (“Aufsichtsrat”) in the German Model: The two-tiered board structure is a unique construction of the German model. German Corporations are governed by a management board and a supervisory board. The supervisory board appoints and dismisses the management board, approves major management decisions; and advises the management board. The supervisory board meets once a month. A corporation’s articles of association set the financial threshold of corporate acts requiring supervisory board approval. The management board is responsible for daily management of the company.



Thus we can state that each model describes the constituent element, and they have been developed in response to country-specific factors and conditions. These models vary because of the influences of country-specific factors in these countries.



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