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
Objectives and Key Themes
This work aims to evaluate the applicability of the German two-tier board system to New Zealand's corporate governance landscape. It analyzes existing board structures in the US, New Zealand, and Germany, comparing their effectiveness in monitoring management and preventing corporate scandals. The study considers the potential benefits and drawbacks of adopting a two-tier system in New Zealand, particularly in the context of the country's economic dependence on international investment.
- Comparative analysis of board structures in the US, New Zealand, and Germany.
- Evaluation of the effectiveness of different board structures in preventing corporate scandals and ensuring corporate monitoring.
- Assessment of the potential benefits and drawbacks of adopting a two-tier board system in New Zealand.
- Analysis of the impact of international investment and global economic competition on New Zealand's corporate governance.
- Examination of the role of codetermination and interlocking directorates in shaping corporate governance.
Chapter Summaries
I. INTRODUCTION: This introductory chapter sets the stage for the entire work by highlighting the global corporate scandals that spurred the need to examine corporate board structures. It emphasizes the failures of the unitary board system prevalent in the US and New Zealand, contrasting it with the German two-tier system, which is increasingly being viewed as a more effective model. The chapter introduces the key question of whether the two-tier system could be a suitable model for New Zealand, considering the country's dependence on international investments and its standing in the global economy.
II. BOARD STRUCTURES: This chapter provides a detailed comparison of board structures in the US, New Zealand, and Germany. It delves into the specifics of each system, including the composition and responsibilities of boards of directors, the role of non-executive officers and audit committees, and the extent of social responsibility considerations. The analysis of the US structure highlights the failures revealed by Enron and WorldCom, showcasing the need for reform. The German two-tier system is presented as an alternative, emphasizing its separation of management and supervisory functions. The New Zealand structure is examined in the context of its own strengths and weaknesses, paving the way for the later chapters' evaluations and recommendations.
III. EVALUATION OF THE TWO-TIER SYSTEM: This chapter offers a critical evaluation of the two-tier board system by examining its potential advantages and disadvantages. The positive aspects are analyzed in terms of clear allocation of responsibilities, enhanced fraud prevention, and improved balance of stakeholder interests. Conversely, the negative aspects, such as bureaucratic complexity, potential difficulties in attracting top managers, and the risk of power imbalances, are also explored. The chapter further presents a "reality check" by considering the practical implications of the two-tier system in the context of codetermination, banking practices, and the issue of interlocking directorates.
IV. TWO-TIER SYSTEM IN NZ?: This chapter directly addresses the central question of the study: the suitability of adopting a two-tier system in New Zealand. It examines the characteristics of New Zealand companies, the role of codetermination, the influence of New Zealand shareholders, and the presence of interlocking relationships. By considering the unique aspects of the New Zealand corporate landscape, this chapter provides a context-specific analysis of the feasibility and potential consequences of implementing a two-tier system.
Keywords
Corporate governance, board structures, two-tier system, unitary system, corporate scandals, Enron, WorldCom, Sarbanes-Oxley Act, Germany, New Zealand, United States, codetermination, shareholder rights, corporate monitoring, international investment, stakeholder interests, fraud prevention, bureaucracy.
Frequently Asked Questions: A Comparative Analysis of Board Structures in the US, New Zealand, and Germany
What is the main focus of this research paper?
This research paper focuses on evaluating the applicability of the German two-tier board system to the New Zealand corporate governance landscape. It compares board structures in the US, New Zealand, and Germany, assessing their effectiveness in corporate monitoring and preventing scandals. The paper also explores the potential benefits and drawbacks of adopting a two-tier system in New Zealand, considering its economic reliance on international investment.
What board structures are compared in this study?
The study compares three distinct board structures: the unitary board system prevalent in the US and New Zealand, and the two-tier system used in Germany. The analysis delves into the composition, responsibilities, and effectiveness of each system in preventing corporate misconduct and ensuring effective management oversight.
What are the key themes explored in the paper?
Key themes include a comparative analysis of board structures, evaluation of their effectiveness in preventing corporate scandals, assessment of the potential benefits and drawbacks of adopting a two-tier system in New Zealand, analysis of the impact of international investment, and examination of codetermination and interlocking directorates.
What are the advantages and disadvantages of the German two-tier board system discussed in the paper?
The advantages of the two-tier system include a clearer allocation of responsibilities, enhanced fraud prevention, and a better balance of stakeholder interests. Disadvantages include increased bureaucracy, potential difficulties in attracting top managers, and a risk of power imbalances. The paper also examines practical implications such as codetermination and the issue of interlocking directorates.
What is the role of corporate scandals (e.g., Enron and WorldCom) in this research?
The corporate scandals of Enron and WorldCom are used as case studies to illustrate the failures of the unitary board system in the US and highlight the need for more effective corporate monitoring and governance structures. They serve as a backdrop for the comparison with the German two-tier system.
Why is the New Zealand context specifically considered?
The New Zealand context is examined because the paper explores the feasibility of adopting the German two-tier system in New Zealand. The analysis considers New Zealand's unique corporate landscape, including the size of its companies, the role of shareholders, and the presence of interlocking relationships, to assess the suitability of this alternative system.
What is codetermination, and how does it relate to the study?
Codetermination refers to the participation of employees in the governance and management of companies. The study examines the role of codetermination in the German two-tier system and assesses its relevance and potential impact if implemented in New Zealand.
What is the conclusion of the research paper regarding the two-tier system in New Zealand?
The research paper's conclusion regarding the suitability of a two-tier system for New Zealand is not explicitly provided in the summary. However, the paper thoroughly analyzes the potential benefits and drawbacks within the specific New Zealand context to inform a reasoned assessment of its feasibility.
What are the key words associated with this research?
Key words include corporate governance, board structures, two-tier system, unitary system, corporate scandals, Enron, WorldCom, Sarbanes-Oxley Act, Germany, New Zealand, United States, codetermination, shareholder rights, corporate monitoring, international investment, stakeholder interests, and fraud prevention.
- 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
