In times of global corporate disasters many turn to corporate board structures in order to find solutions. The board of directors is responsible for monitoring the management and is therefore in the focal point of many legal scholars. Current US board structures have proved to fail to provide sufficient supervision. Scandals such as Enron and WorldCom have shuttered especially American but also European legislatures. Highest priority, at present, is to reestablish investors’ faith in the securities market. Corporations are facing reluctant investments or even fearful avoidance of the stock market. Many US scholars see a solution in the adoption of the German two-tier board system and the European Union gives the managements of European Corporations, the Societas Europeas, the possibility to opt for the two-tier-system. In the 1997 Report on the Corporate Governance Movement in France, even the Organization for Economic Co-Operation and Development (OECD) praised the two-tier-system to be superior and more effective in monitoring management than the unitary system, which is in place in the majority of countries, including the United States of America (USA) and New Zealand, at the moment. The two-tier-system is on the rise. France offers an optional adoption for major stock companies and the Netherlands and the Scandinavian countries demand a two-tier structure once a stock company has reached a certain size.
New Zealand has not faced similar scandals to Enron. Therefore, some might think that there is no necessity to indulge in a discussion on changing board structures. However, the New Zealand market is highly reliant on international investments and has lately lost ground in the global competition in this regard. The USA and Germany are both undoubtedly global players and, as André puts it, “by virtually any standard … the world’s largest and most successful economies”. Germany has a large influence on the legislation of the European Union, one of New Zealand’s largest trade partners. Studies have revealed that large international companies impose the two-tier system on French subsidiaries. If this is done in order to maintain more formal control over the subsidiary or to give the subsidiary more flexibility, is irrelevant.
Table of Contents
I. INTRODUCTION
II. BOARD STRUCTURES
A. Introduction
B. US Board Structure
1. Introduction
2. Board of Directors
3. The Problem of Effective Corporate Monitoring
a. Enron Corporation
b. WorldCom
c. Remark
4. Reformations by the Sarbanes-Oxley Act 2002
C. New Zealand Board Structure
1. Introduction
2. Board of Directors
3. Non-Executive Officers and Audit Committees
4. Social Responsibility
D. German Board Structure
1. Management Board vs. Supervisory Board
2. Rigid Separation
3. Size of the Supervisory Board
4. Directors’ Appointment
5. Additional Shareholder Rights
6. Remark
III. EVALUATION OF THE TWO-TIER SYSTEM
A. Introduction
B. Prospects
1. Clear Allocation of Responsibilities
2. Fraud Prevention
3. Equilibrium with Stakeholder Interests
C. Negative Aspects
1. Increase in Bureaucracy
2. Unattractive to Top Managers
3. Threat of Power Imbalance
D. Reality Check
1. Introduction
2. Codetermination
3. Banking Background – the Danger of the Insider System
4. Interlocking Director Problem
IV. TWO-TIER SYSTEM IN NZ?
A. Introduction
B. Average Size of New Zealand Companies
C. Codetermination
D. New Zealand Shareholders
E. Interlocking Relationships
F. Remark
V. SUMMARY AND CONCLUDING REMARKS
Research Objectives and Themes
This study evaluates the viability of adopting a German-style two-tier board system within the New Zealand corporate landscape, considering the country's reliance on unitary boards and its specific market challenges, including a lack of independent internal supervision and weak social responsibility metrics.
- Comparison of Anglo-Saxon and Rhineland corporate governance models.
- Analysis of US corporate failures (Enron, WorldCom) and subsequent legislative responses.
- Examination of the German two-tier system's mechanisms, including the Management Board and Supervisory Board.
- Assessment of the applicability of German-style codetermination in New Zealand.
- Identification of structural barriers to adoption in the New Zealand business market.
Excerpt from the Book
3. The Problem of Effective Corporate Monitoring
Corporate collapses caused by executive misconduct and fraud are still mainly a US problem and have not occurred to the same extent in Germany or New Zealand. Many attribute the recent corporate disasters to inefficient corporate monitoring by the board of directors. Chief executive officers have too much power enabling them to minimise supervision by the board. This problem, although a US one on the first sight, has developed to a phenomenon of global interest. US investors influence worldwide markets and the US government pressures other countries, such as New Zealand, to follow their lead in corporate governance regulation. Consequently, legal professionals all around the globe have been busy in analysing the scandals that led to US corporate governance reform endeavours. In order to understand what needs to be reformed in one’s own country, it is necessary to examine the major US scandals that reached world fame, namely Enron and WorldCom.
Summary of Chapters
I. INTRODUCTION: Outlines the rise of global corporate scandals and introduces the comparative study of two-tier versus unitary board structures.
II. BOARD STRUCTURES: Details the fundamental legal differences between the US, New Zealand, and German board frameworks, focusing on the separation of power and stakeholder interests.
III. EVALUATION OF THE TWO-TIER SYSTEM: Analyzes the theoretical benefits and practical pitfalls of the German two-tier model, including bureaucracy and power imbalances.
IV. TWO-TIER SYSTEM IN NZ?: Discusses the potential for implementing the two-tier system in New Zealand and concludes that the model is likely unsuitable due to the size and specific structure of New Zealand companies.
V. SUMMARY AND CONCLUDING REMARKS: Reaffirms the author’s conclusion that New Zealand should retain its unitary system and seek alternative methods to improve independent supervision.
Keywords
Corporate Governance, Two-Tier System, Unitary Board, New Zealand Company Law, German Aktiengesetz, Codetermination, Sarbanes-Oxley Act, Supervisory Board, Management Board, Stakeholder Interests, Shareholder Primacy, Corporate Monitoring, Board Independence, Insider System, Outsider System.
Frequently Asked Questions
What is the core focus of this research?
The work examines whether the German two-tier board system, which emphasizes a strict separation between management and supervisory functions, serves as an effective model for improving corporate governance in New Zealand.
What are the primary thematic areas explored?
The research covers legal frameworks for corporate oversight, the impact of recent US corporate scandals, the structural differences between Civil Law and Common Law systems, and the pros and cons of stakeholder-inclusive versus market-driven governance.
What is the ultimate research question?
The central question is whether New Zealand should adopt a two-tier board system to address the perceived lack of independent internal supervision and weak social responsibility in its current unitary corporate structure.
Which scientific methods are utilized?
The author employs a comparative legal analysis, evaluating different national corporate governance models, legal statutes, and scholarly literature to assess the transferability of the two-tier system to the New Zealand context.
What does the main body cover?
The main body investigates board structures in the USA, New Zealand, and Germany, details the mechanics of the German two-tier system, and evaluates its performance against potential negative aspects like increased bureaucracy.
Which keywords characterize this paper?
The paper is characterized by terms such as Corporate Governance, Two-Tier System, Codetermination, Board Independence, and Corporate Monitoring.
How does the Sarbanes-Oxley Act relate to the author's argument?
The author uses the Sarbanes-Oxley Act as an example of a US legislative effort to improve monitoring that, according to the paper, failed to establish 'real' independence for directors, thereby supporting the case for considering alternative, more robust structures.
Why does the author conclude that the two-tier system is unsuitable for New Zealand?
The author concludes that the two-tier system's complexity and high costs, combined with New Zealand's specific market characteristics, would not effectively provide the independent supervision required, making it an inappropriate solution.
- Quote paper
- Lars Haverkamp (Author), 2006, The Two-Tier Board Structure: An apt model for New Zealand?, Munich, GRIN Verlag, https://www.grin.com/document/82885
