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Corporate Governance: Convergence towards Anglo-American Model - Essay Example

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Corporate Governance: Convergence towards Anglo-American Model Table of Contents Table of Contents 2 Introduction 3 Convergence of Corporate Governance 4 Conclusion 6 References 7 Introduction This project is a critical analysis of corporate governance systems if they are actually converging towards the Anglo-American model…
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Corporate Governance: Convergence towards Anglo-American Model
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Download file to see previous pages The underlying assumption of Anglo-Saxon model of corporate governance (practiced by U.S., UK, and Canada) is that the board should be structured to consist of outside and independent directors so as to minimize agency costs. Therefore in this model a single board includes executive directors who are in senior management positions and independent directors who not the employees of the organization. Overall the Anglo-Saxon model views an organization as series of contracts with the stakeholders which control everyone’s self-interest. Shareholders monitor the performance of the managers who are supposed to act in the interest of shareholders. The role of regulation is enhanced in such governance structure because of the requirement of fair and transparent disclosures by the organization. In contrast to Anglo-Saxon model another model of corporate governance is Continental European. While the former is characterized by dispersed ownership, equity, corporate control and flexible labor markets the latter is a mix of large shareholding pattern, debt financing, weak corporate control and rigid labor markets (Aguilera & Jackson, 2003, p.447). This project analyzes whether the corporate governance practices are converging towards the Anglo-Saxon model. ...
in major OECD countries that it might be the result of capital markets’ globalization such as issue of ADRs and GDRs, integration of markets, rise of foreign ownership, international competition, and emergence of new financial intermediaries (Nestor & Thompson, 1999, p.2). Collier and Zaman examined the development of the concept of audit committee in Europe and found that such a concept was rare before the 1990s and there was an increasing interest and recommendation that the audit committee must be formed. These recommendations are in line with the Anglo-Saxon concept of audit committee and have strengthened over time. Other examples of convergence are the discussions over director independence and financial expertise of board members (Collier & Zaman, 2005, p.23). The rise of foreign and portfolio investment, increasing intra-organizational dynamics such as foreign ownership and cross-border investments in the form of mergers, acquisitions and alliances have also led to the changes in corporate governance. Those firms that expand into global markets prefer to use equity rather than cash to acquire other firms and if the investment is in U.S. they are required to adopt corporate governance measures the investors are comfortable with. In the international capital markets there may not be sufficient investment flows for the firms which seems to have suboptimal governance practices which becomes a disadvantage to the home country of that firm. Overall the convergence of corporate governance practices is driven by: Increasing international financial capital flows that provided liquid capital markets to the companies and countries which meet requirements in international corporate governance standards. Impact of regional stock exchanges such as NYSE, London Stock ...Download file to see next pagesRead More
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