The document discusses four models of corporate governance: 1) The Anglo-American model has separation of ownership and control with shareholders appointing directors who appoint managers. Disclosure and investor protection rules are strong. 2) The German model has a two-tier board structure with equal shareholder and employee representation on the supervisory board. 3) The Japanese model emphasizes relationships between companies in keiretsu networks, with main banks and shareholders appointing boards. 4) The Indian model mixes Anglo-American and German approaches depending on the type of corporation, with private companies following the German model more closely.

1. MODELS OF CORPORATE GOVERNANCE
SUBMITTED BY:
AADITI DESHPANDE
SYMMS (HR) - 05

2. WHAT IS CORPORATE GOVERNANCE?
Corporate Governance is not just corporate management; it is something much broader to include a fair
efficient and transparent administration to meet certain well defined objectives.
It is a system of structuring, operating and controlling a company with a view to achieve long term
strategic goals to satisfy shareholders, creditors employees customers and suppliers, and comply with the
legal and regulatory requirements, apart from meeting environmental and local community needs.
When it is practiced under a well laid out system, it leads to building of a legal, commercial and
institutional framework and democrats the boundaries within which these functions are performed.
The framework of rules and practices by which a board of directors ensures accountability, fairness,
and transparency in a company's relationship with its stakeholders.
Corporate governance is the process and rules under which a company is managed on the behalf of
shareholders and stakeholders. The board of directors is primarily responsible for applying and
maintaining a company's corporate governance.
Corporate Governance deals with the manner the providers of finance guarantee themselves of
getting a fair return on their investment. Corporate Governance clearly distinguishes between the
owners and the managers. The managers are the deciding authority. In modern corporations, the
functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.
Corporate Governance deals with determining ways to take effective strategic decisions. It gives
ultimate authority and complete responsibility to the Board of Directors. In today’s market-
oriented economy, the need for corporate governance arises. Also, efficiency as well as
globalization are significant factors urging corporate governance. Corporate Governance is
essential to develop added value to the stakeholders.

3. THREE MODELS OF CORPORATE GOVERNMENT AND SOCIAL RESPONSIBILITY
a. ANGLO-AMERICAN MODEL
 This model is also called an ‘Anglo-Saxon model’ and is used as basis of corporate governance in
U.S.A,U.K,Canada, Australia, and some Commonwealth countries.
 The shareholders appoint directors who in turn appoint the managers to manage the business.
 Thus there is separation of ownership and control.
 The board usually consist of executive directors and few independent directors.
 The board often has limited ownership stakes in the company.
 Moreover, a single individual holds both the position of CEO and chairman of the board.
 This system (model) relies on effective communication between shareholders, board and
management with all important decisions taken after getting approval of shareholders (by voting).

4.  The major features of this model are as follows:
o The ownership of companies is more or less equally divided between individual
shareholders and institutional shareholders.
o Directors are rarely independent of management.
o Companies are typically run by professional managers who have negligible ownership
stake. There is a fairly clear separation of ownership and management.
o Most institutional investors are reluctant activists. They view themselves as portfolio
investors interested in investing in a broadly diversified portfolio of liquid securities. If
they are not satisfied with a company’s performance, they simply sell the securities in the
market and quit.
o The disclosure norms are comprehensive, the rules against insider trading tight, and the
penalties for price manipulations stiff, all of which provide adequate protection to the
small investors and promote generalmarket liquidity. They also discourage large
investors from taking an active role in corporate governance.
b. GERMAN MODEL
 This is also called as 2 tier board model as there are 2 boards viz. The supervisory board and
the management board.
 It is used in countries like Germany, Holland, France, etc.
 Usually a large majority of shareholders are banks and financial institutions.
 The shareholder can appoint only 50% of members to constitute the supervisory board. The
rest is appointed by employees and labour unions.

5. c. JAPANESE MODEL
 This is the business network model, which reflects the cultural relationships seen in the Japanese
keiretsu network, in which boards tend to be large, predominantly executive and often ritualistic.
 The reality of power in the enterprise lies in the relationships between top management in the
companies in the keiretsu network.
 In this model the financial institution has accrualrole in governance. The shareholders and the
main bank together appoint board of directors and the president.
 The distinctive features of the Japanese corporate governance mechanisms are as follows:
o The president who consults both the supervisory board and the executive management is
included.
o Importance of the lending bank is highlighted.

6. d. INDIAN MODEL
 The model of corporate governances found in India is a mix of the Anglo-American and German
models. This is because in India, there are three types of Corporation viz. private companies,
public companies and public sectors undertakings (which includes statutory companies,
government companies, banks and other kinds of financial institutions).
 Each of these corporation have a distinct pattern of shareholding.
 For e.g. In case of private companies, the promoter and his family have almost complete control
over the company. They depend less on outside equity capital. Hence in private companies the
German model of corporate governance is followed.