LECTURE - 3
Dr. Malik Azhar Hussain
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Contents
Outlines
History of corporate governance
Models of Corporate Governance
Anglo – American Model
Scope
German Model
Japanese Model
Q + A
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History of corporate governance
Genesis of
CG in US
o
The first trace of corporate governance in history can be made in
1972 when Foreign and Corrupt Practices Act of 1977 (FCPA) was
promulgated in United States subsequent to Watergate Scandal.
o
The FCPA was born in this morality oriented post-Watergate
atmosphere.
o
The FCPA contains two major provisions: an internal accounting
requirement and antibribery provisions. The former provision
requires every issuer of securities to keep accurate records which
fairly reflect disposition of assets and to devise a system of internal
accounting control to regulate the disposition and recording of
assets.
o The term "corruptly" means, according to the legislative
history of the FCPA, "an evil motive or purpose, an
intent to wrongfully influence the recipient.
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History of corporate governance
Genesis of
CG in UK
o
The genesis of corporate governance in UK can be attributed to two
major corporate failures i.e. BCCI and Barings Bank failure.
o
Bank of Credit and Commerce International (BCCI) was indeed an
international bank. The Governor of the Bank of England, Robin
Leigh-Pemberton, was quoted as saying that fraud had been
perpetrated at the highest levels within BCCI
o
Therefore, the Corporate Governance Committee was set up in May
1991 by the Financial Reporting Council, the Stock Exchange and the
accountancy profession to suggest mechanism for accounting
disclosures, financial reporting and accountability. Basic concerns of
stakeholders included lack of confidence both in financial reporting
and in the auditors’ report.
o Cadbury report (1992) states the basis of code of
corporate governance rests on openness, integrity and
accountability and these three principles should go
together.
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ANGLO- AMERICAL MODEL
o This is shareholders oriented model . It is also called
anglo-saxon approach to corporate governance.
Applicable in Britain, Canada, America, Australia.
o Directors are rarely independent of management.
FEATURES
o Companies are run by professional mangers. There is
clear separation of ownership and management.
o Institutional investors like banks and mutual funds are
portfolio investors.
o The disclosure norms are comprehensive and rules are
active.
o The small investors are protected and large investors
are discouraged to take active role in corporate
governance.
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JAPANESE MODEL
o Japanese companies raise significant part of capital
through banking and other financial institutions.
o They work closely with the management of the
company.
FEATURES
o The shareholders and main banks together appoints
the board of directors and the President
o In this model, along with the shareholders, the interest
of lenders is recognized.
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GERMAN MODEL
o It is also called European Model. Workers are one of the
key stakeholders in the Company and they should have
the right to participate in the management of the
Company.
FEATURES
o Supervisory Board: The shareholders
members of supervisory board.
elect
the
o Employees also elect their representative for
supervisory board which are generally 1/3 or ½ of the
board..
o Management Board: The supervisory board appoints
and monitors the management board.
o The supervisory board has the right to re-constitute this
board.
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Q+A