Recently the image of top-managers has been attacked by several cases of massive fraud. To name only some, Enron and WorldCom amongst others are probably the best known ones. In both companies, managers acted impudent shameless and greedily. And this seems to be dreadful not only for shareholders and stakeholders of that particular firm, but also for the entire economy and the societies involved.
Based on this, the essay is dealing with questions of corporate governance and its very routes. Therefore, the basic idea and especially its two main (contradicting?!) concepts – the Anglo/American versus the German – will be explained more in detail. Both systems have got deep routes in their respective regions history. And both of them might make some sense in there local backgrounds. Moreover, the models will be contrasted against each other and an evaluation which model could lead to better corporate performance and corporate governance is made.
Table of Contents
1. Introduction
2. Definition and Concept of Corporate Governance
3. Comparison of Corporate Governance Models
3.1 Anglo/American Shareholder-Value Model
3.2 German Stakeholder Model
4. Performance Evaluation and Conclusion
Objectives and Thematic Focus
The essay explores the fundamental question of what constitutes effective corporate governance by analyzing and contrasting the Anglo/American shareholder-value model with the German stakeholder model, ultimately evaluating which approach is more conducive to superior corporate performance.
- Theoretical foundations of corporate governance and agency theory.
- Mechanisms of control and monitoring in modern corporations.
- Comparative analysis of one-tier (Anglo/American) vs. two-tier (German) board systems.
- The impact of shareholder-value orientation versus stakeholder-oriented goals.
- Evaluation of long-term economic performance and stability.
Excerpt from the Book
Within the Anglo/American approach of corporate governance, the shareholder-value model is favouring the maximization of asset-value as the main aim.
This means, all actions of hired and paid managers are primary for the shareholders, the owners of the firm. (Smerdon, 1998, p3) And generated returns are seen as belonging to them. They are an incentive for future investments, a reward or even the price for risk bearing (economical, technological) and the price for waiting as well. (O’Sullivan, 2000, p43)
In this context, value creation and value distribution are linked only with investors. Therefore this theory promotes the idea of market control as outlined above, rather than control via stakeholders. Additionally, Kay sees firms within this model as a private rather than a public body, which is only defined by the relationship between principal and agent. (Cited in Smerdon, 1998, p7) It is assumed, this behaviour leads in the long-term to remarkable advantages, not only for shareholders but for all other stakeholders as well. It also diminishes the cost of money, either for equity capital as well as for debits. Therefore this behaviour is positive for all. (Witt, 2000, pp159)
Summary of Chapters
1. Introduction: This chapter highlights recent managerial fraud cases and introduces the necessity of examining corporate governance systems to regain trust and ensure economic stability.
2. Definition and Concept of Corporate Governance: This section defines corporate governance as the system by which companies are directed and controlled, focusing on the balance of driving forces and the agency problem.
3. Comparison of Corporate Governance Models: This chapter examines the distinct structures of the Anglo/American shareholder-value model and the German stakeholder-based "Deutschland AG" model.
4. Performance Evaluation and Conclusion: This final section synthesizes the arguments, suggesting that the shareholder-value model may offer superior performance in a globalized economy, while acknowledging the historical roots of both systems.
Keywords
Corporate Governance, Anglo/American Model, German Model, Shareholder-Value, Stakeholder Model, Agency Theory, Board of Directors, Performance, Principal-Agent, Capital Markets, Corporate Control, Management, Accountability, Business Ethics, Global Competition.
Frequently Asked Questions
What is the primary objective of this essay?
The essay aims to define corporate governance and provide a comparative analysis between the Anglo/American shareholder-value model and the German stakeholder model to determine which is more likely to lead to superior corporate performance.
What are the central themes covered?
The central themes include the separation of ownership and control, the agency problem, mechanisms of managerial monitoring, and the debate between prioritizing shareholder interests versus broader stakeholder responsibilities.
Which scientific methods are employed?
The work utilizes a literature-based comparative study, drawing upon economic theories, management studies, and recent historical data regarding corporate governance practices in the US, Britain, and Germany.
How is the Anglo/American model characterized?
The Anglo/American model is characterized by a one-tier board system, a focus on shareholder-value maximization, and reliance on market-based control mechanisms to discipline management.
What defines the German corporate governance model?
The German model, often referred to as "Deutschland AG," is defined by a two-tier board system, bank-oriented financing, and a stakeholder approach that incorporates the interests of employees, unions, and the state.
Which performance metrics are discussed?
The author discusses performance in terms of long-term vs. short-term returns, cost of capital, and the ability of a firm to remain stable and competitive within a globalized environment.
Why does the author argue that the shareholder model may be superior?
The author suggests that the shareholder model's focus on profitability and lower capital costs may provide a more efficient mechanism for securing a company's future in a highly competitive global market.
What is the role of the "duty of loyalty" for directors?
The duty of loyalty requires directors to act in the best interests of the shareholders, ensuring transparency in decision-making and preventing managerial self-interest or fraud.
- Quote paper
- Michael A. Braun (Author), 2003, What is Corporate Governance? Anglo/American versus German Model, Munich, GRIN Verlag, https://www.grin.com/document/43160
