What Are Some Examples of Different Corporate Governance Systems?

Different corporate governance models have become increasingly scrutinized and analyzed as globalization takes hold in world markets. It has also become increasingly clear that corporate environments and structures can vary in substantive ways, even when business objectives are generally universal. Three dominant models exist in contemporary corporations: the Anglo-US model, the German model, and the Japanese model.

In one sense, the differences between these systems can be seen in their focuses. The Anglo-US model is oriented toward the stock market, while the other two focus on the banking and credit markets. The Japanese model is the most concentrated and rigid, while the Anglo-US model is the most dispersed and flexible.

The Anglo-US Model

The Anglo-US model, also known as the Anglo-Saxon model, was crafted by the more individualistic business societies in Great Britain and the United States. This model presents the board of directors and shareholders as the controlling parties. The managers and chief officers ultimately have secondary authority.

Managers derive their authority from the board, which is (theoretically) beholden to voting shareholders’ approval; however, most companies with Anglo-US corporate governance systems have legislative controls over shareholders’ ability to assert practical, day-to-day control over the company. The capital and shareholder structure are highly dispersed in the Anglo-US markets. Moreover, regulatory authorities, such as the U.S. Securities and Exchange Commission (SEC), explicitly support shareholders over boards or managers.

The German Model

The German model, sometimes referred to as the continental model or European model, is carried out by two groups. The supervisory council and the executive board.

The executive board is in charge of corporate management; the supervisory council controls the executive board. The supervisory council is chosen by employees and shareholders. Government and national interest are strong influences in the continental model, and much attention is paid to the corporation’s responsibility to submit to government objectives and the betterment of society. Banks also often play a large role financially and in decision making for firms.

The Japanese Model

The Japanese model is the outlier of the three. Governance patterns take shape in light of two dominant legal relationships: one between shareholders, customers, suppliers, creditors, and employee unions; the other between administrators, managers, and shareholders.

There is a sense of joint responsibility and balance to the Japanese model. The Japanese word for this balance is “keiretsu,” which roughly translates to loyalty between suppliers and customers. In practice, this balance takes the form of defensive posturing and distrust of new business relationships in favor of the old.

Japanese regulators play a large role in corporate policies, often because corporations’ major stakeholders include Japanese officials. The central banks and the Japanese Ministry of Finance review relationships between different groups and have implicit control over negotiations.

Given the interrelationship and concentration of power among the many Japanese corporations and banks, it is also not surprising that corporate transparency is lacking in the Japanese model. Individual investors are seen as less important than business entities, the government, and union groups.