Some Conceptual Issues of Corporate Governance

Abstract

A great deal of the discussion on corporate governance has focused on the differences between the Anglo-Saxon market-based model and the German-Japanese relationship-based model. In the UK and US, ownership of equity and debt is dispersed. Corporate governance is exercised by portfolio investors through the enforce¬ment of shareholder and creditor rights and through the market for corporate control. The sole purpose of governance structures is the protection of shareholder value. In Germany and Japan, on the other hand, ownership of equity and debt is concentrated. Banks and large family interests are important in the governance structure. Also substantial cross-holdings of shares exist between companies. The Anglo-Saxon model of corporate governance has come under criticism for some time (Mayer 1990). It has been argued that the Anglo-Saxon model forces management to pursue short-term objec¬tives, and that the German and Japanese models of corporate governance are consistent with superior long-run performance and encourage long-term investment. However, recent experience of many East Asian countries, which have basically the relationship- based corporate governance system and have been hit hard by the financial crisis, and examples of failure of Japanese as well as German banks in acting as effective monitors of companies have cast serious doubt on these criticisms.