Corporate Governance Approaches - Essay Example

The stakeholders within this form of corporate governance are basically the employees of a company and, thus, they are given prime priority in making corporate choices (Vaaler and Burkhard 621). State ownership as an approach of corporate governance refers to the state control of industries, assets and enterprises. The state control in the state ownership corporate governance transcends all levels of governance. This means that at national, municipal and community levels, the state takes full ownership of its corporations (Charreaux and Philippe 113).

State ownership is normally achieved through nationalization, which is a process of transforming the ownership of assets by making them state owned. The major characteristic of shareholder capitalism form of corporate governance is the fact that the top management or executives of companies are monitored through rewards and penalties which are market-based (Vaaler and Burkhard 629). This is demonstrated by the fact that company executives are rewarded in accordance to the profitability and general performance of the company.

This approach to corporate governance, therefore, leads to committed effort among company executives and making of decisions which are focused on profitability and high performance of the company. The motivation that top executives derive from performance based compensation is absent in the stakeholder approach to corporate governance. In countries such as China where the stakeholder approach of corporate governance is applied, company top executives are poorly paid which makes them less motivated to apply their leadership skills into the successful attainment of company goals, vision and mission (Charreaux and Philippe 108).

In this sense, it is argued that the shareholder approach to corporate governance is a more appropriate method of management of companies. State ownership approach to corporate governance is characterized to corporations which are owned by the government in which the stake of the shares is wholly owned by the government. The state owned corporations and enterprises may not be focused at generating profits. However, profit making ventures may be run within government entities (Vaaler and Burkhard 624).

The state owned enterprises demonstrate a sharp contrast with both the shareholder and stakeholder approaches of corporate governance which are purely focused in the generation of profit. The state ownership approach, therefore, makes corporations to be less competitive in the market. On the other hand, shareholder and stakeholder corporate governance of companies makes them very competitive in their production and supply of various goods and services (Charreaux and Philippe 125). The similarity between the shareholders and stakeholder forms of corporate governance include their commercial manner of operation.

This similarity is not shared with state ownership in which corporations may not be run for commercial gain but for the sake of providing essential services to the public. Government ownership of companies is also different from the stakeholders and shareholder capitalism because of its monopolistic nature within the market (Vaaler and Burkhard 637). The state ownership form of corporate governance is, therefore, the least effective form of governance of com