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Question :

Summative Assignment:

Compare and contrast the Anglo- American model and the European Model of Corporate Governance. Comment on which model, in your view, more accurately reflects emerging corporate trends and provide evidence for your conclusions by focussing on a particular country or alternatively by making international comparisons based on a variety of different countries and, or continents.

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Answer :


This comparative and summative essay can be categorised into five segments through starting with introduction and proceed through the concept of corporate governance. In addition to that, this essay will also encompass the models of corporate governance based on a comparison between the models of America and Europe. This essay will also highlight the insurgence of different trends in the corporate governance that is taking a new shape for the global models.

Discussion of the source and concept of corporate governance

The very term of corporate governance was coined in the advent of 19th century in the purpose of joint stock trading of the companies. The business process was slow whereas it expanded with time in different countries whereas the incorporation factor was compatible with legal framework to procure separate legal identities for the business owners. The legal aspect elucidates the existential characteristics of the business entities encompassing the formulation, operational functionaries and relationships[1]. The organisations are compelled to follow the law. In the case between Salomon vs. Salomon & Co, the House of Lords depicted that Salomon does not have legal liability for the debt of the company as he is a different person. Companies with limitation in liability degree does possess separate identity from the founder of the companies. Those companies are liable to follow the law of establishment along with the community law for being an integral part of it. The legal guidelines for the organisational deeds always goes through periodical evolution whereas the management needs to maintain utmost compatibility with them to sustain legitimacy. The enforcement of the law is applicable for every continent with specific corporate identities whereas the enlisted organisations are also liable to follow the rules of the stock exchange[2].

The aspect of corporate governance is related with separating the entity ownership from parental control whereas it is dependent between the relation of shareholders and management based on the governing processes and legal charters. The aspect of personhood is also associated with the relation between the organisation and the society. The corporate governance has advanced with variations in different countries based on the accountability whereas the standards of it are contrasting in different countries and continents. The business corporations are bound to obey the company law of the respective countries for maintaining legitimacy of business operations[3]. The scholars and experts around the world has depicted the aspect of corporate governance with different point of views to provide it a singular form of identity. There can be two distinct features in this depiction as the aspect of report of Cadbury that ventilated the corporate governance as a matter of framework for controlling the organisation. On the contrary, the aspect of OECD elucidated it as a set of rules to formulate an outline of the existing relationship between the shareholders with the management of an organisation to procure smoothness in organisational operations. Thus, it can be considered as a prior aspect of exertion of influence inside a corporate entity encompassing the management and shareholders along with the entire business environment including the market competitors, business regulators and different stakeholders.

The contemporary recurrence of the specified terminology of corporate governance was evolved through the tumultuous events in the business spectrum for the last twenty years. The main event was the winding down or collapse of the gargantuan corporations of global market based on the developed economy of United States whereas the fraudulent activities like UK fraud in the year 2008 had triggered those dire incidents. These incidents incurred provision of the utmost emergence to make regulations for the legal and ethical process of operating the organisational activities[4]. In order to accomplish the regulatory objectives, the regulators had identified and articulated five distinct models of corporate governance to eradicate any provision of fraud and illegal activities to cause doom for the large organisations that can spoil the social economy of the respective countries. The main model of corporate governance is the United Kingdom model of Commonwealth procurement articulated through amalgamating organisational principles and legal jurisdictions. On the other hand, the second model is the United States model based on the rules and regulations whereas the third model is a two-tier setup for the entire European Continent and European Union countries specifically[5]. The fourth model depicts the type of corporate governance in Japan through the involvement of the participation of organisational stakeholders in the process of controlling the business operations. The fifth and last model is the Asian model that has a unique characteristic of controlled by overwhelming dominance of the families. This essay will focus immensely on the comparison and contrast of the European model along with the Japanese model and the Anglo-American model of the aspect of corporate governance. The prevalent features of the models are pivotal in drawing adequate resonance and distinguishing factor among them. The German model of corporate governance can easily highlight the salient features of the model of European continent and it has sheer comparative notions with the key elements of the Anglo-American model.

Corporate governance models

Model of United Kingdom and other Commonwealths

The incorporation and registration of companies are done in the national level regulators in the United Kingdom as the business organisations need to follow the guidelines depicted in the Companies Act 2006[6]. The corporate governance in United Kingdom is operated through the system of the common law of the legislative spectrum of the country. On the other hand, the case law and the directives of different business related acts of business activities are applicable in the operations of UK organisations. The model has an intense intention to establish quality methods to procure sheer ease in the process of corporate governance to lead the organisational operations of the country in legally and ethically righteous way. The perfect mechanism of corporate governance is required to ensure the safety and security of the righteous operational practices. The organisational directors are expected to make the appropriate steps to foster legal practices whereas every futile effort needs to be reported properly to make further amendments[7].

This particular process is considered vigorously to dictate the organisational problem of lacking efficiency of monitoring that can cause sheer disputes and failure sin the destined operations in a business process. The failures provided enough knowledge to enhance the strength of the corporate governance model of UK. The government articulated an advisory committee headed by Adrian Cadbury to monitor the organisational operations for nullifying every possible chances of dire occurrences in the future purposes. That committee provided a report called “Financial Aspects of Corporate Governance” as this report was provided to the business organisations to be followed coherently by the registered organisations to implement the codes of practices in practical operations. The aspect of definition of the legal guidelines for the corporate sectors was lead through the endorsement of the process of recruitment. The recruitment process has the involvement of the majority of the junior executive managers or directors of the company. On the other hand, the report made by Cadbury also encompasses the adequate recommendations for the salient divisions of organisational share of responsibility of the chief executive officer of the company and the chairman of the organisation based on the single operational board. The corporate governance codes of UK revealed the rules and principles through a unitary model by imposing power on the board for managing the operations to control the practices[8].

Henceforth, the government had also procured different rules to make distance between the controlling process and the management in order to bring transparency. They recommended to incorporate independent board members with a percentage of half of the total number as they can serve the positions of nonexecutive members. On the other hand, one person cannot occupy the positions of CEO and chairman at once by himself as the designations need to be filled with two different people at all the time. The unitary principles and board formulation feature is the most important characteristic of the UK corporate governance model[9].

Anglo-American model

In United States of America, the business organisations are registered through the legal process monitored by Securities and Exchange Commission of the government. The federal regulators monitors the operations to identify the illegal and unethical practices at once for further amendments. The main responsibility of the model is to safeguard the investment of the shareholders through sustaining ethical and legal use of the financial establishment of the companies. SEC generates compulsion for the private companies to report and submit their financial operations to the public in order to maintain transparency. On the other hand, the deviation of withstanding of SEC, the giant US companies like Enron and Tyco failed and collapse. Thus, the US government updated the Anglo-American model to create a new committee of Sarbanes and Oxley for preventing repetition of such disastrous period of corporate governance. This committee regulated legal imposition with discretionary codes that is popular as the Sarbanes-Oxley Act as it can be applied for all the corporate activities in the country registered through the SEC[10].

The companies need to provide annual report of all the business operations and financial statement with detailed account of the control of internal accounting measurements. On the other hand, this act also procure sustainable control on the internal audit process of the business organisations to provide certificates for righteousness of the disclosed financial report. The organisational directors can even be prosecuted with criminal and civil law violence standards for not obeying the guidelines of the act. NYSE has incorporated the act in the ruling guidelines. The model of Anglo-America thus encompasses a preponderant structure of external directors with independent authorization as the rule also needs to make the audit process mandatory through determining the actual amount of remuneration for the boards[11].

On the other hand, there are some distinct features in this model that can be helpful to differentiate it from the UK model. The first differentiating aspect is the regulation by legal statute that allows a single person to work as both the CEO and the director of the company. The practices are increased gradually by the private companies and platforms like national Council of Corporate Directors and Business Roundtable. The contribution of Council of Institutional Investors and Tradeway Commission is also pivotal for the control of corporate governance in the country. The models of UK and Anglo-America are quite similar in their pattern of work whereas the differences exist for the aspects like organisational power and policies like single person-single designation.

The European Model

The corporate governance model of the Continental Europe ranges from local institutions to regulatory platforms and governments of the countries. The practices of corporate governance varies through flavours throughout the Europe as the unitary models are only used by Spain, Italy, Portugal and Belgium. The countries like France focuses on the dominant stakeholders of the business or the families whereas Germany focuses of share controls of large banks. The Nordic countries focuses immensely on families to foster the corporate governance whereas the characteristics of this aspect is heavily dependent of capitalist mind-set in Europe[12]. The shareholders of the business do have equal organisational interest like the company itself through taking active part in the operational management. The managers along with the shareholders are answerable and considered as the extended group of organisational stakeholders whereas the labour union and business investors are also considerable factors in the business.

The German Model

The corporate governance model of Germany provides with an amalgamation of reflected interest through enhancing the priority of the development of national interest of the country[13]. The company law of Germany is based on the enforceability of the legal guidelines whereas the case oriented common law is also important for the organisational legislation. The German Stock Corporation Act 1965 is the most important legal guideline for the corporate governance whereas the German Codetermination Act of 1976 is also important to provide important directions for the business organisations to operate in the national market with fair and legal way. In the late period, the government articulated the German Code for Corporate Governance in 2003 for promulgating the aspect of compliance for the companies. The stakeholders are prioritized in the German model of corporate governance as the model depicted the necessity to abide by the rules regularly to work in collaborative approach with the banks and boards. The industrial harmonization is also considered as important to be achieved through interpersonal cooperation between employees, boards and managers.

The companies have intensely focused on the aspect of corporate ownership as the most number of companies in Germany were owned by reputed families. The corporate governance model works in a two-tier board system that consists of a supervisory element and a management element[14]. The element of supervisory board focuses on the representatives of the organisational employees and the organisational shareholders. The management element concentrates on running the business operation through controlling internal and external activities of the companies. The Stock Corporation Act of Germany has elucidated another tier in the system model of corporate governance that is the annual meeting of the different shareholders of the company. The purpose of this meeting is to reveal and discuss about the yearly revenue of the company along with the operating income and net profit for the business year. This meeting has also the responsibility of selecting the auditors for the analysis of financial report by the directors along with representatives of the shareholders. It also has the power to make legal discharge of the managerial board in different organisational duties. The system of corporate governance has a social element that provides opportunity to make a labour or employee representation in the supervisory board of the companies. The representatives of the labours are elected through vote in the hypothecation of the labour unions whereas the directors of the companies are elected by the capital investors and shareholders. The typical existence of the relation among the employees is termed as codeterminism in the provision of corporate governance that provides intense value to the process of decision making for providing value to the labours[15]

The trend of continuous evolution gradually enhances its echoing sound for the interest and wellbeing of the employees based on the enforcement of the Codetermination Act of Germany. It can be considered as a process of evolving the perception of the successful coexistence of capital dominance and labour contribution in an organisational establishment. It can also trigger the collaboration of the employees with the management through relying on one another based on the very act. This act denotes easy organisational management based on ethical industrial activities and solemn relations of the employees to invest the privilege in managing the corporate governance. The aspect of trade unions are important as the German companies are stroke with the labour movements for rights[16]. The unions of taxi drivers to aeroplane pilots are considered as labours and they forge strike against the management for their legal rights. The codetermination act is not adequate to solve the problem of strikes between employees and management whereas the strikes of labour movements in Germany are not as agonistic as other European countries. 

Network model of Japan

The corporate governance of Japan is heavily based on the network connection between banks and industries linked through directors and crossholdings. The coherence of community in Japan focuses on perpetual welfare and harmonization that is called the system of Keiretsu as it dominates the practices of corporate governance. The model has two kinds of relationships of codetermination among the stakeholders, shareholders, government regulators and unions. On the other hand, the second relationship deals with administrator and stakeholders. The internal controls are prior factors of this model whereas the Japanese banks are also related with the management activities to enhance the financial efficiency of the business operations[17]. The preponderance of the directors are also important in business as the model focuses on maintaining equilibrium of the stakeholder interests. The management teams of Japan focuses on conservation that is afflicted with tenure of the management extension. The tasks are being collaborated based on reliance on banks that can be useful as discrete sources for the business related information. The doubtfulness of organisational information is important for the investors as it can also ventilate that there are less external investors in the business spectrum of Japan.

Comparative analysis between Anglo-American model and European Model 

The comparative analysis between these two models are based on the structure of the organisational boards whereas the systems of reporting are also important. The chairman and CEO formats are also considerable to furnish the comparison of these two models. This also focuses on the level of independence of the boards and directors whereas the independence of the auditors are also important to focus on the revelation of the financial information. The model of Anglo-American prospect follows a single tire board system whereas the European model has focused on the double tire board system for supervising the operations. Both the models are in compliance with the stringent obligatory legislations of the countries. The German code of corporate governance of 2003 revealed a static aspect of comply or compliance to whittle the effects of the regulations. On the other hand, the organisational designation of the CEO or chairman is important as the Anglo-American model allows a single person to occupy both the designation at the same time[18]. On the contrary, the European model does not allow a single person to work as both CEO and chairman of a company[19]. The European model strictly prohibits this trend for dispersing the organisational power through double tiers in a company as the chairman of the supervision team is expected to play different role in comparison with the chairman of the management team. The Anglo-American model advocates independence for the auditing team whereas the European model has elucidated management board with the onus for auditing. Both the models provide independence to the organisational board as the American model interjects it with structure of the committee and European model imposes it with the structure of the board.

The corporations in German share their preferences in terms of bank financing along with the equity financing. However, there are corporations that own shares in other corporations specially the ones that are devoid of any sort of interest in business[20]. The structure of corporate governance initiates for the corporations and banks that plays a vital role in the German Model. On the contrary, the role of US model tends to affect the banks and corporations that are not so active or do not perform any prominent role. It further relies on the market in order to regulate the concerned corporation linked with the German model. Moreover, such corporations are considered as a wealth generating entities that are further monitored by the market. The outputs that are generated from such markets are collectively known as the national wealth. In general their lies the need for the executive compensation that is further resolved by the supervisory board present in German model being carried by the compensation committee in US model.

Trends of corporate governance

In addition to the above made discussion, the emergence of different trends in a corporate governance aims to maintain transparency and accountability to stay effective on the corporate entities. There are different codes being published for every listed company in different countries, so that regulation for running such firms can be performed in an authentic manner[21]. Therefore, by linking the held discussion, the role played by the OECD has to be mentioned for its well-developed corporate practice that further indicates the habitats of convergence. Moreover, a subscription to IOSCO, a listed or registered company that are immaterial of theo0r home country tends to incline for the phenomenon of convergence. The global organisation aims to match the standards that are further set by the International Accounting Standards Board. They further adapt the practices of auditing that are advocated by the International Auditing Practices and their responsible committees. Thus, for acquiring the positive effort of convergence, the above discussed factors and impact can be considered that further results for the adaptation of International Standards by different countries in order to structure their individual report of financing.

However, there are different reports that are further marks for the different counter convergence. As for instance, the difference in the codes of governance of a country tends to mark the impact of negative convergence. In addition to the discussed fact, there are certain differences being marked between the UK common wealth models being based on the principles along with the US codified laws[22]. The above fact results to deny the emphasis of a harmonized system of corporate governance. However, with the application of different legal systems always tends to produce and affect the company and contract law from different perspectives. As a result of the above influence the fact f difference in integrity of the applied legal systems may affect the essence of independence among the corporate governance, whereas, the difference in the board structure further affects the acquisitions and mergers, thus creating negative instance of convergence. In relation to the above made discussion, the other factors that stands as a barrier to convergence is marked in terms of the difference identified in the stock markets. The variations in liquidity, level of sophistications in markets along with the market capitalisation are all related to the catered differences of the stock market. Therefore, by linking the discussion held so far, the ownership structure of such markets also varies in terms of the corporations that may depend on the family or on the external UK and US based investors[23].

In addition to the above made discussion, the impact of socio cultural development has been identified for the production of different corporate structure of governance and their related practices. The above manifests for the concepts of determinations for Keiretsu in Japan, Germany along with different other boards. However, the indicators of convergence marks for the commonality being practice data corporate level that further stay ineffective on the corporate structure and the related power to the structure[24]. Therefore, the held argument still remains against the indicators of convergence as per the divisive nature of Brexit, that have a negative impact on the convergence for the emerging policies of Trump Administration in US. As a result of the above discussion, the concept of corporation has been marked as a product wished by the shareholders along with the requirements for an effective and efficient management for the investment. Moreover, in situations where the corporation exists as a separate legal entity the cultural impact can further be identified on the members of the society. Thus, marking the emergence of culture as an indicator of convergence, the corporate further tends to mark for the transformation to any specific model. Thus, result for the growth of corporate strategies that have favoured the networks of strategies alliance occasionally.

However, the test held for convergence were being publicised highly but it never gained success in between the US Chrysler and German Benz. Therefore, the difference marked in terms of corporate governance model, the level of transparency marked for the collaboration of individual reporting system for merging the balance of the two firms[25]. In addition to the above discussion, the function of harmonisation for the corporate practices aids for the very fact of accountability and transparency. These functions are further marked to be feasible throughput the process of production propelled by the corporations.Thus, it can be said that by considering the evolution of corporate governance, most of the practices performed for the corporate levels comply their products with both tradition and cultural essence.


Thus, it can be further concluded that the relation of corporate governance marks for the control and management of the registered companies in a legal manner. However, the pint of difference lies in the fact of ownership, culture and history of the status resulting for the different model relevant for the corporate governance. The Socio cultural development of the corporations along with the other different legal systems tends to be feasible to the convergence in the remote countries. This essay marks for the adaptation of common and best activities for the development of accountabilities along with the convergence of corporate model of unfeasible governance.