Comparison Between Corporate Governance Models

Comparison between Corporate Governance Models Objective

Anglo American Maximize the shareholders’ profit

Continental European Maximize shareholders’ profit

Oriented towards Interest party

Stock Market Shareholder

Banking Market Shareholders

Shareholder Concentration

Low, shareholders group hold small percentage of total shares Most are agents of financial institutions

High, shareholders group hold large percentages of total number of shares Most are private companies (20%-40%), followed by financial institutions (10%30%) and then private persons (15%-35%) Fewer companies are publicly traded. People mostly invest on an individual basis.

Shareholder Identity

Liquidity of Market

Discipline Mechanism Management Control

Agency Problem

Many companies are listed and their shares publicly traded. Pension plan provides financial resources for the stock market External discipline mechanism. Executive directors and nonexecutive directors Control is concentrated in the hands of a small number of investors with a variety of interests Interest between managers and dispersed shareholders

Japanese Ensuring firms are run by using society’s resources efficiently and taking into account a range of stakeholders. Banking Market Shareholders, employees, suppliers and customers. High, majority of the companies are founded and ran by families Mostly are private persons who founded and ran the company and financial institutions Fewer companies are publicly traded. People mostly invest on an individual basis.

Internal discipline mechanisms

Internal discipline mechanisms

Supervisor Board and Board of Directors Control is concentrated in large number of anonymous investors

Board of Directors and revision commission Control is concentrated in majority shareholders

Interest between controlling shareholders and powerless minority shareholders.

Interest between managers and firm

Insider/Outsider System Decision Making Long term/ short term oriented Corporate Control Financial resources

Dual structure of CEO

Majority of the board Compensation

Anglo American Outsider system Management Short term Hostile Takeover Over investments, decision making will be the management’s interest. Authority pressures to separate function of CEO and Chairman. However, most of the CEOs in US companies are also the chairman of the board in 1991. External directors Wages based on the nature of job done, no

Continental European Insider system Shareholders with large percentages of shares Long term

Limited, ownership is concentrated, only few owners are equity suppliers Separate function of CEO and Chairman.

Internal directors Wages and allowance for personal circumstances.

Japanese Insider system Subject to the influence of employees and owners Long term Cross-shareholdings Limited, ownership is concentrated Separate function of CEO and Chairman

Accounting System Employees Mobility Influences

GAAP High Foreign influences

Focus

Role of free market based on it to exercise a control over the companies’ owners

Evaluation of governance efficiency Issues covered by governance Ethical Principal

Financial performance

Return on social capital

Internal directors Wages based on the stock prices and allowance for personal circumstances. GAAP and IFRS Low Government or familial control and local control Business network acting in an interdependent way and on the own interests of all involved parties. Return on human capital

Capital market

Transactions

Corporations network

Utilitarianism

Deontological

Deontological

IFRS Low Government or familial control and local control Produces richness and being the engine of national wealth

Corporate Governance Framework in Malaysia According to Bursa Malaysia, the corporate governance framework in Malaysia has adopted a Hybrid Approach which consist of mandatory and voluntary guideline as shown in the figure below:

Acts and Guidelines for Corporate Governance in Malaysia: 1. The Companies Act 1965 2. Capital Market and Services Act 2012 3. Securities Commission Act 1993 4. Security Industries (Central Depositories) Act 1991 5. Security Industry Act 1983 6. Futures Industry Act 1993 7. Demutualisation (Kuala Lumpur Stock Exchange) Act 2003 8. Bursa Malaysia Listing Requirements 9. Asset Valuations guideline 10. Financial Reporting Act 1997 11. Malaysia Code on Corporate Governance 2012 12. Bursa Malaysia Corporate Governance Guide 13.Bursa Malaysia Sustainability Guide for Directors