Different corporate governance models have become increasingly scrutinized and analyzed as globalization takes hold in world markets. It has also become increasingly clear that corporate environments and structures can vary in substantive ways, even when business objectives are generally universal. Three dominant models exist in contemporary corporations: the Anglo-Saxon model, the continental model and the Japanese model.
In one sense, the differences between these systems can be seen in their focuses. The Anglo-Saxon model is oriented toward the stock market, while the other two focus on the banking and credit markets. The Japanese model is the most concentrated and rigid, while the Anglo-Saxon model is the most dispersed and flexible.
The Anglo-Saxon Model
The Anglo-Saxon model was, not surprisingly, crafted by the more individualistic business societies in Great Britain and the United States. This model presents the board of directors and shareholders as controlling parties. Managers and chief officers ultimately have secondary authority.
Managers derive their authority from the board, which is (theoretically) beholden to voting shareholders’ approval. Most companies with Anglo-Saxon corporate governance systems have legislative controls over shareholders’ ability to assert practical, day-to-day control over the company.
Capital and shareholder structure is highly dispersed in the Anglo markets. Moreover, regulatory authorities, such as the U.S. Securities and Exchange Commission, explicitly support shareholders over boards or managers.
The Continental Model
The term “continental” refers to mainland Europe. The continental model grew out of a mixture of fascist and Catholic influence in the early to mid-20th century. Corporations in Germany and Italy typify this model.
In the continental system, the corporate entity is seen as a coordinating vehicle between national interest groups. Banks often play a large role financially and in decision making for firms. Special protections are offered to creditors, particularly politically connected creditors.
These companies usually have an executive board and a supervisory council. The executive board is in charge of corporate management; the supervisory council controls the executive board. Government and national interest are strong influences in the continental model, and much attention is paid to the corporation’s responsibility to submit to government objectives.
The Japanese Model
The Japanese model is the outlier of the three. Governance patterns take shape in light of two dominant legal relationships: one between shareholders, customers, suppliers, creditors and employee unions; the other between administrators, managers and shareholders.
There is a sense of joint responsibility and balance to the Japanese model. The Japanese word for this balance is “keiretsu,” which roughly translates to loyalty between suppliers and customers. In practice, this balance takes the form of defensive posturing and distrust of new business relationships in favor of the old.
Japanese regulators play a large role in corporate policies, often because corporations’ major stakeholders include Japanese officials. The central banks and the Japanese Ministry of Finance review relationships between different groups and have implicit control over negotiations.
Given the interrelationship and concentration of power among the many Japanese corporations and banks, it is also not surprising that corporate transparency is lacking in the Japanese model. Individual investors are seen as less important than business entities, government and union groups.