Types of Corporate Governance Systems

Different Types of Corporate Governance Systems with Examples

To manage means to lead an enterprise towards its goal, extracting the maximum opportunities from all the resources at its disposal. Check the different types of corporate governance in the article below.

Corporate Governance and Its Basic Characteristics

The modern market is an investment market. No enterprise can develop without investment resources. More recently, a potential investor was only interested in the current financial state of affairs in the company in which he plans to invest money. Today the situation is different. An important role is given to the assessment of corporate governance, the effectiveness of which directly affects the well-being of the company in the long term. The vast majority of investors are willing to pay for the shares of a company where corporate governance is implemented and working.

The corporate governance system includes management bodies at various levels (both elected and appointed), which manage the activities of the corporation and reflect the balance of interests of the corporation’s members and professional managers. As a result of the interaction of these factors, corporate governance models include a certain set of basic characteristics, among which:

  • key participants;
  • shareholding structure;
  • composition of the board of directors;
  • legislative framework;
  • disclosure requirements;
  • corporate actions requiring shareholder consent;
  • mechanism of interaction between key participants.

The main advantages of having a corporate governance system in an organization are that with internal control, it is possible to improve the quality of the company’s accounting organization; the internal control system has a positive effect on the further development of the business and helps in attracting investments or loans. There are new opportunities for business development due to the presence of an established and controlled system of the financial division of the enterprise.

Which Are the Main Types of Corporate Governance Systems?

In any economic system, corporate governance must answer the basic question: what are the goals and objectives of the corporation, and for whose benefit does it work? Depending on what interests are given priority – the interests of the state, the owner, the manager – one or another model of corporate governance is used. The Corporate governance models are broadly classified into the following categories:

  1. Anglo-American Model.

The Anglo-American model actively uses various ways to motivate board members and managers to act in the interests of shareholders. The market model of corporate governance presupposes effective protection of shareholder rights and emphasizes business transparency and a high degree of information openness.

  1. The German Model.

Currently, large German banks that form the core of the group are universal financial complexes with a wide range of services not directly related to credit and settlement activities – consulting services for analyzing and forecasting the situation on the markets, collecting information on innovations and technical solutions, financial planning, export crediting, etc.

  1. The Japanese Model.

Features of the organization, the functioning of Japanese corporate structures, and the formation of Japanese corporate governance are associated with the original development of the country. Japan is a unitary state; at the same time, municipal institutions have been widely developed in it.

  1. Social Control Model.

The control model used must be appropriate to the specifics of a particular region, country, and even the most particular corporation. In principle, the development of any national model of corporate governance depends on three components: the mechanism for the implementation by shareholders of the nature of governance, the functions and tasks of the board of directors, level of information disclosure.


Leave a Reply

Your email address will not be published. Required fields are marked *