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Claudiu
Ghiuzan
requires that public companies acknowledge how they have followed The
Code. The procedure follows the principles of comply or explain which is a
regulatory approach that avoids binding laws and promote rather the
decision of the companies to choose if they comply with the Code. If the
company does not comply, it is mandatory to explain publicly why they did
not do so. (Legislation.gov.uk, 2000). Fundamentally, the UK company law is
based on common law code and it relies on one-tier board system also
called unitary board structure or Anglo-Saxon model. In particular, there is a
single board of directors but with four feasible structures: board with only
executive directors, board with a majority of executive directors, board with
only non-executive directors (NED) and board with a majority of nonexecutive directors. The average management board size include mainly 12
members and the CEO position is not mandatory separated from Chairman
(Tricker, 2012). The company law system follows the guidelines that all
board members are elected by the shareholders without relying on the
executive or non-executive positions. Moreover the investors have authority
of removing the directors from their position (Jungmann, 2006).
Now, if we take the example of CEO and Chairman Office we can see that
the British companies have the right of determining this particular position
within the organization. In other words, the companies must comply with
the code which states that the roles of chairman and chief executive
should not be exercised by the same individual (Council, 2014) or explain
why they did not do so. According to the Financial Reporting Council, in
2014 the majority of companies have complied with the code, however
there were still firms in FTSE 350 which had one individual as both
Chairman and CEO (Council, 2014). In Germany, on the other side, the
separation of those positions is mandatory (Mntysaari, 2006).
Fundamentally, if the positions are combined then the top managerial
officer in the organization will also be the chairperson that is responsible
for monitoring and evaluating the top managerial officer. This can
represents a potential threat to the independence of the board (Maassen,
2002). Indeed, studies have shown that in terms of return of equity, ROI
and profit margin, the firms with independent leadership clearly
outperformed the once with CEO-duality (Maassen, 2002). Another study
published by Dahya et al. in 1996 found support for the hypothesis that
corporate boards are more competent when both positions are not used
by the same people. The analysis pointed out that the separation of
authority of CEO and chairman in a sample of 124 organizations was
resulting in significant and positive market response in the UK. This
reaction was followed by performance improvement of the firms according
to accounting measures in the year following the change (Dahya, 1996).
In essence, with respect to the CEO duality there is a clear evidence that
once the concept is implemented, it makes the company to function
different.
Operating
Committees
Composition
Insider
dominated
Purpose
Advice to
Monitoring
Committees
Outsider
dominated
Accountability and
management
Function
Examples
Integration of
legitimacy
Separation of
decision
management
with
decision
decision control
decision control
Executive
committee
Finance
committee
Strategy
committee
management from
Audit committee
Compensation
committee
Nominating
committee
committee of a British public companies consist of independent nonexecutive members who oversees the executive directors. On the contrary,
in Germany the aim of supervisory committees and management
committees is to
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Compensation Committees
Another key point in regards to monitoring functions and which
emphasize the difference in functionality between the both systems, are
the compensation committees. In Germany for instance, the companies
are dealing with the issues of raising the level of executive compensation
as the organizations have become larger and they needed to compete for
their talented work force. For this purpose the compensation levels have
Conclusion
I have emphasized that theoretically the Corporate Governance system in
time, I indicated that both systems practically are using the same
procedures in staying globally effective.
If we highlight this differences we can see that in the UK, the corporate
governance is viewed as something done by individuals while in Germany
is recognized as something done by a group of individuals. In Germany is
the legislators job to monitor the management format of the companies
while in the UK the focus is on the members who cooperate in the
governance of the organizations (Mntysaari, 2006).
The legal procedures and tools applied by these two systems tend to
reflect the general administrative approach towards companies.
Mainly, the guidelines applicable in the German companies are more
standardised and certain if compared to the British rules (Mntysaari,
2006).
We can say that the UK and Germany represent the best examples of two
competing structures which makes the matter difficult to admit that one
system is more effective that the other. Effective corporate governance
control means that an institution is well administrated and all actions of
the executives are well reviewed. In fact, both structures include
weaknesses and strengths where further improvements are necessary. In
the end, the society in which an organization performs will strongly
influence their behaviour and the elements that might be acceptable in
some societies are considered wrong in others. This influence the sort of
activities that managers are willing to participate in and the tendency of
self-serving behaviours (Larcker, 2013). The cultural factors have an effect
also on the relationship between the organization and its shareholders and
stakeholders, as I stated above, and is important to mention that they play
an essential role in shaping the governance systems (Larcker, 2013).
References
Boehmer, E., 1999. Corporate Governance in Germany: Institutional
Background and Empirical Results, s.l.: University of Georgia.
Calnan, M., 2015. Germany catches up with the UK on executive pay,
Ipswich MA.: Employee Benefits.
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