The Anglo- American Model of Corporate Governance- Basic Overview
This post seeks to present an overview and a brief introduction to the Anglo- American Model of Corporate Governance.
Essentially, in a nutshell, the Anglo-American Model of Corporate Governance is a liberal model of governance in a body corporate.
Adapted from and influenced by the systems of governance followed in the USA and the UK, this system of governance accords primary importance to shareholder interest and as a result, the role played by banking and financial institutions in the governance of an enterprise is drastically reduced.
The shift from other models of governing a body corporate to the current worldwide trend of the Anglo-American Model began as a result of the constant increase in the demand and need for capital by a body corporate.
A brief look at companies around the world would present a picture of a financial crisis at some point of time or the other. One such manifestation of the unhealthy financial situation would be the inability to repay the existing liability of banks and financial institutions. As a result, a restructuring of the loans was in order, and the financial institutions demanded drastic changes in the system of corporate governance of these companies. Being the chief and indispensable source of funds, body corporates were in effect forced to comply with the changes in the set-up of corporate governance. However, as capital requirements grew, companies turned elsewhere in an attempt to finance their operations, and the next logical option was equity financing, or in other words, selling shares of the company to raise capital.
This added a third wheel to the system of corporate governance that prevailed in the body corporates, that of the shareholders- their rights and interests. These shareholders elected the members of the Board of Directors directly, and the Board in turn went on to elect the CEO, giving rise to a single- tiered system of electing the BOD of a company, and banks and financial institutions playing a bare minimum role.
The protection of shareholder interest is the chief characteristic of the Anglo-American Model of Corporate governance and the fundamental principle behind its existence and global acceptance as the most favourable Model of governance in a body corporate.
armalcolite
Gautam
Nehaa
Sameer Boray
one would be interested in the shortcomings of such a model and how it compares with other models of corporate governance.
Critically evaluating this model, I personally am interested in how this model will fare in the Indian scenario which is set to see major public sector industries (about 16 of them) being liquidated in the next 3-4 years… this being the case, shareholder protection assumes a renewed importance.
your views, briefly, on the above?
the shortcomings and the comparison would be dealt with in the next post.
the concern that arises with public sector units and the interests of shareholders being discussed in the same breath is the fact that Indian PSUs are a lot more than profit making (or profit maximization) bodies. the objective of setting up a PSU is definitely broader and encompasses overall economic development, balanced regional growth, employment creation, equitable distribution of income and the like.
while not compromising on any of the aforementioned objectives, PSUs looking at liquidation must now face the added challenge of harmonizing shareholder interests with the same.
while the objectives have a more socialistic outlook, shareholder interests are going to be strictly monetary in nature.
therefore, while it may be feasible to incorporate some elements of this model into PSUs, strict adherence would be disastrous
Hi there,
Good blog, I just stumbled upon it.
Thanks John..