Good Govenance A ND Social Responsi Bility: by Prof. Virnex Razo-Giamalon, MM

GOOD GOVENANCE A
ND SOCIAL RESPONSI
BILITY
By Prof. Virnex Razo-Giamalon, MM
BIG PICTURE A (Week 4-5)
01 ULOa
Identify the Internal and External
Institutions and the Influences of Corporate
Governance
02 ULOb
Recognize the different models of
Corporate Governance
04
LET’S HAVE A REVI
EW FIRST
03
ULOb
Recognize the different models of
Corporate Governance
THREE MODELS OF CORPORATE GOVERNANCE FROM
DEVELOPED CAPITAL MARKETS
Corporate governance structure differs from one company to another,

many custom-based or law-based structures affects corporations in a
similar way. It is possible to label a ‘model’ of corporate governance for
a given country that has certain characteristics which differs the
structure in other countries. There are three models in corporate
governance, as per record and which will be discussed on by one.
ANGLO-US MODEL
It is characterized by share ownership of individual and institutional investors

not affiliated with the corporation known as ‘outside’ shareholders. This model
has a well-developed legal framework defining the rights and responsibilities
of key players and a process for interaction between shareholders and the
corporation itself. Equity financing is the very common way of getting
investments in UK and US that makes them the largest capital market. The
US is also known for being the home of world’s most developed system for
proxy voting and shareholder activism. The Anglo-US model is used in US,
New Zealand, UK, Australia, Canada and several other countries.
Key players
Key players – is known as the corporate governance triangle with three key
players – Management, Shareholders and Board of Directors. Developed in
the context of the free market, there is a separation of ownership and
control in most publicly-held corporations. Investors contributes to capital
and remain the ownership in the ownership while avoiding legal liability for
acts of the corporation by giving the management the operations. This
separation of ownership and control is called ‘agency costs’.
Share ownership pattern
institutional investors held approximately 61% of shares in and individuals

held 21% approximately during year 1990 in UK. While in US, 53.3% is held
by institutional investors that resulted to increase in their influence among
decision making.
Composition of Board of Directors
In Anglo-US model, the board of directors compromises two groups called

‘insiders’ and ‘outsiders’. The insiders are those who are employed as
executive, manager or an employee and contribute to corporate
management. Meanwhile, the outsiders are the board of directors with no
direct relationship with the corporation. In Anglo-US, it is common that the
CEO is also the chairman of the BOD which could lead to various abuses.
This leads to increase in number of outsiders.
Regulatory framework
there are various laws and regulations that protects the relationship
between management, shareholders and board of directors. They have the
most strict and comprehensive laws regarding transparency and disclosure
requirements to ensure that shareholders are well-informed. Although it is
vast, some claim that self-regulations are inadequate and the government
agencies like US Securities and Exchange Commission must be more
effective.
Disclosure requirements
US corporations are required by law to be transparent on wide scope of

information. The following are example of which that is known as the ‘proxy
statements’:
• Quarterly reports of financial data
• Breakdown of corporation’s capital structure
• Background information of nominees for BOD
• Compensation of named executive officers
• List of names of shareholders with 5% or more total capital share of
the corporation
• Vital information if there is a proposed merging and restructuring
• Proposed amendments on articles of incorporation
• Names of individuals/companies who serves as auditors
Corporate actions requiring shareholders approval
Anglo-US model permits proposals sent by shareholders to be included on agenda

during AGM and should relate to corporation’s business operations. Shareholders
with atleast 10% of shares can also held their own extraordinary general meeting
(EGM). The SEC regulates the communication among shareholders. Under Anglo-US
model also, the two routine corporate actions requiring shareholder approval are as
follows:
• Elections of directors
• Appointment of auditors
Non-routine corporate actions that also requires shareholder approval:
Establishment or amendment of stock option plans
• Mergers and takeovers
• Restructuring
• Amendment of the articles of incorporation
Interaction among players
As mentioned above, the Anglo-US model has comprehensive, well-

regulated system for communication. A shareholder has the right to vote
without attending the AGM in person and receives emails and reports of the
proxy statements. They can also vote by proxy. In the Anglo-US model, the
investors and financial specialists monitors the corporation’s performance:
• Specialized investments funds
• Venture-capital funds
• Rating agencies
• Auditors
• Funds that targets investment in bankrupt corporations
JAPANESE MODEL
differs from other models since they focus their connection and
stock ownerships with affiliated banks and companies. They build
long-term, strong links between corporations and banks.
Key players
many-sided in nature, the Japanese model focuses on bank and financial/industrial

network or more known as ‘keiretsu’. Although the main banking system is separate
from the keiretsu from the Japanese model. Banks serves as the provider of loans of
corporate clients, provider of services related to bonds, settlement of accounts, equity
issues and other consulting services. They are also a major shareholder in the
corporation. Japanese model also have connections between affiliated companies
characterized by crossholdings of debt and equity, informal business contracts and
trading of goods and services. The key players are:
• Main Bank
• Affiliated company
• Management
• Government
– In 1990, the Japanese market share ownership is composed of 3%

foreigners, 43% banks and insurance companies and 25% corporations.
Since as mentioned above, banks are key players in Japanese model.
The board of directors in the Japanese model comprises only of insiders –

executive managers or heads of departments. However, if the profit falls
over, the banks and keiretsu members can appoint and remove directors.
The Japanese model also allows retiring officials of the government to
become a member of the BOD.
Government ministries have been traditionally extremely influential in

imposing regulations and policies however, their influenced weakened due
to the following reasons:
• Due to influence of numerous ministries like the Ministry of France
and Ministry of International Trade.
• The increase in globalization of Japanese corporation made them
dependent on their domestic market
• Growth of Japanese companies leads to liberalization and an
opening, though small, to global standards.
The Japanese model are strict and required corporation to disclose the
following important information:
• Semi-annual basis report on financial data
• Capital structure data of the corporation
• Background information of each nominee vying for being the
member of the board of directors
• Compensation of executives
• Information if there is proposed merging and restructuring
• Names of proposed institution/individual as auditors
In the Japanese model, the following actions requires shareholders approval:

• Payment of dividends and allocation of reserves
• Election of directors and appointment of auditors
• Capital authorizations
• Amendment of articles of incorporation
• Payment of retirement bonuses to directors and auditors
• Increase of aggregate compensation ceilings for directors and auditors
Japanese corporations prefer that a majority of its shareholders be

long-term, preferably insiders.
GERMAN MODEL
The German model significantly differs from the two models introduced on the previous
discussion. Although it has a similarity with Japanese model in a sense that, they give
emphasis on relationship among banks as member of the boards. In German model,
banks hold position as board of director even without financial distress. There are three
things that distinguish German model to Japanese and Anglo-US models:
• They prescribed two board of directors with separate members. Management
board who comprises of insiders like executives of the corporation and the
Supervisory board who comprises the employees and shareholders.
• It is set by law in German model, the numbers of the members of the board of
directors
• Voting right restrictions is legal that would limit shareholders percentage of
ownership of shares.
Key players
The key players in the German model are the banks and
corporate shareholders.
During 1990, German banks held 41% of share ownership,

27% are from institutional owners, 3% are from institutional
agents and 4% are from individual owners.
The German model is also stringent in disclosure of wide information to protect

shareholder’s right:
• They require corporations to provide semi-annual reports on corporate
financial status
• Reports on capital structure
• Information on each supervisory board nominee, although limited to name,
hometown, occupation or affiliation
• Compensation of both management and supervisory board
• List of names of shareholders with 5% or more shares
• Data on proposed merging and restructuring
• Reports in case there is proposed amendment of article of incorporation
• Names of individuals or companies who are suggested as auditors
Government ministries have been traditionally extremely influential in

imposing regulations and policies however, their influenced weakened due
to the following reasons:
• Due to influence of numerous ministries like the Ministry of France
and Ministry of International Trade.
• The increase in globalization of Japanese corporation made them
dependent on their domestic market
• Growth of Japanese companies leads to liberalization and an
opening, though small, to global standards.
The German model is also stringent in disclosure of wide information to protect

shareholder’s right:
• They require corporations to provide semi-annual reports on corporate
financial status
• Reports on capital structure
• Information on each supervisory board nominee, although limited to
name, hometown, occupation or affiliation
• Compensation of both management and supervisory board
• List of names of shareholders with 5% or more shares
• Data on proposed merging and restructuring
• Reports in case there is proposed amendment of article of incorporation
• Names of individuals or companies who are suggested as auditors
these are the following actions that requires the shareholder’s approval:
• Allocation of net income
• Ratification of acts of the management board for the previous
year
• Ratification of acts of the supervisory board for the previous year
• Election of supervisory board
• Appointment of auditors
• Capital authorization
• Affiliation agreements of subsidiaries
• Amendment of articles of incorporation
• Increase of the aggregate compensation of supervisory board
The German legal and public-policy framework is designed to

include the interest of corporations, labor, banks and
shareholders in the corporate governance. The German model
is geared towards the interest of the key players.
REFERENCES
Self-Help: You can also refer to the sources
below to help you further understand the
lesson:
*Biore, C.,Gonzales,R.,Caparas,J.L.,Burgos,N.,
&Ballada, W. (2015). Good Governance & Social
Responsibility. Manila. DomDane Pub.
ASSIGNMENT
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GOOD GOVENANCE A

Corporate governance structure differs from one company to another,

It is characterized by share ownership of individual and institutional investors

institutional investors held approximately 61% of shares in and individuals

In Anglo-US model, the board of directors compromises two groups called

US corporations are required by law to be transparent on wide scope of

Anglo-US model permits proposals sent by shareholders to be included on agenda

As mentioned above, the Anglo-US model has comprehensive, well-

many-sided in nature, the Japanese model focuses on bank and financial/industrial

– In 1990, the Japanese market share ownership is composed of 3%

The board of directors in the Japanese model comprises only of insiders –

Government ministries have been traditionally extremely influential in

In the Japanese model, the following actions requires shareholders approval:

Japanese corporations prefer that a majority of its shareholders be

During 1990, German banks held 41% of share ownership,

The German model is also stringent in disclosure of wide information to protect

Government ministries have been traditionally extremely influential in

The German model is also stringent in disclosure of wide information to protect

The German legal and public-policy framework is designed to

Please answer in the Edmodo the

Quality Affordable Quality Education

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