3.6 Alternative Models of Corporate Governance Introduction Corporate governance is seen as the process by which organizations are run.

n. There is no one model of corporate governance which is universally acceptable as each model has its own advantages and disadvantages. The Three Models Anglo-American Model German Model (Continental Europe) Japanese 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 common wealth countries. Composition of the Board of Directors o o 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 o An outsider is a person or institution which has no direct relationship with the corporation or corporate management.

Anglo-American model

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.

Composition of the Boards o The management board is made up of inside executives of the company and the supervisory board is made up of outsiders such as labor representatives and shareholder representatives. o The supervisory board oversees and appoints the members of the management board and must approve major business decisions.

Japanese model This model is also called as the business network model, usually shareholders are banks/financial institutions, large family shareholders, corporate with cross-shareholding. Composition of the Board of Directors o 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.