A Taxonomy of Systems of Corporate Governance
This paper argues that debate on corporate governance in an international context is hampered by the lack of a coherent framework. A taxonomy of systems of corporate governance is proposed as a remedy. The taxonomy is based upon eight related, yet discernible characteristics: (1) the prevailing concept of the firm, (2) the board system, (3) the salient stakeholders able to exert influence on managerial decision-making, (4) the importance of stock markets in the national economy, (5) the presence or absence of an external market for corporate control, (6) the ownership structure, (7) the extent to which executive compensation is dependent on corporate performance and (8) the time horizon of economic relationships. For comparative purposes, systems of corporate governance prevailing in the industrialized countries can be divided roughly into ``market-oriented'' systems (Anglo-Saxon countries, e.g. the USA and the UK) and ``network-oriented'' systems, like the Germanic countries (e.g. Germany and the Netherlands), Latin countries (e.g. France and Italy), and Japan. Anglo- Saxon countries
Stakeholders can be identified which can exert a substantial influence on managerial decision-making: the influence of shareholders is strongly institutionalized in these countries. The law strongly protects shareholders. In the Anglo-Saxon countries by-and-large the democratic principle of ``one share, one vote'' applies. Both the executive and non-executive board members are appointed and dismissed by the general assembly of shareholders. Stock markets play a more important role in Anglo-Saxon countries than they do in the other groups of countries. The best known characteristic of the Anglo-Saxon systems of corporate governance is an active external market for corporate control, often referred to as the takeover market. The most familiar takeover techniques are mergers, tender offers, proxy fights and leveraged buy-outs. In...
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