Corporate Governance Models: A Critical Assessment

141 Pages·2021·1.824 MB·English

by  Marco Mastrodascio

Corporate Governance Models
The activities carried out in a business organisation stem from the
contribution of subjects who cooperate in the expectation of obtaining
adequate rewards. The ability of organisations to reach a specific level of
performance is influenced by the ownership structure, while the
management is directed and controlled through a set of rules and
incentives. This set regulates the distribution of rights and responsibilities
among the board, company management and stakeholders and it defines
the corporate governance model adopted by the organisation.
The collapse of global organisations across the world have
undoubtedly revealed the inherent flaws in the contemporary corporate
governance practices. As a result of these international scandals, a great
deal of multidisciplinary research has been growing restlessly to define the
specificities of each corporate governance model, however, lacking a
specific investigation into the presumed existence of the most suitable one.
By favouring the synthesis and the inductive procedure, this book analyses
the potential existence of the most appropriate corporate governance
model based on comparative international analysis of cultural, social and
economic factors influencing the organisation’s choice regarding the
corporate governance model to be adopted.
This volume will be of interest to researchers, academics, professionals
and students in the fields of corporate governance, international business
and law.
Marco Mastrodascio is Post Doc Teaching Assistant at the University
of Rome 'Tor Vergata' and Research Fellow at LUMSA University,
Italy.
Routledge Focus on Business and Management
The fields of business and management have grown exponentially as areas
of research and education. This growth presents challenges for readers
trying to keep up with the latest important insights. Routledge Focus on
Business and Management presents small books on big topics and how
they intersect with the world of business research.
Individually, each title in the series provides coverage of a key academic
topic, whilst collectively, the series forms a comprehensive collection
across the business disciplines.
Conflict, Power, and Organizational Change
Deborah A. Colwill
Human Resource Management for Organisational Change
Theoretical Formulations
Dr. Paritosh Mishra, Dr. Balvinder Shukla and Dr. R. Sujatha
Human Resource Management and the Implementation of Change
Dr. Paritosh Mishra, Dr. Balvinder Shukla and Dr. R. Sujatha
Corporate Governance Models
A Critical Assessment
Marco Mastrodascio
Continuous Improvement Practice in Local Government
Insights from Australia and New Zealand
Matthew Pepper, Oriana Price and Arun Elias
For more information about this series, please visit: www.routledge.com/
Routledge-Focus-on-Business-and-Management/book-series/FBM
Corporate Governance
Models
A Critical Assessment
Marco Mastrodascio
First published 2022
by Routledge
605 Third Avenue, New York, NY 10158
and by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an
informa business
© 2022 Marco Mastrodascio
The right of Marco Mastrodascio to be identified as author of
this work has been asserted in accordance with sections 77 and
78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic,
mechanical, or other means, now known or hereafter invented,
including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from
the publishers.
Trademark notice: Product or corporate names may be
trademarks or registered trademarks, and are used only for
identification and explanation without intent to infringe.
Library of Congress Cataloguing-in-Publication Data
Names: Mastrodascio, Marco, author.
Title: Corporate governance models: a critical assessment /
Marco Mastrodascio.
Description: New York, NY: Routledge, 2022. | Series:
Routledge focus on business and management | Includes
bibliographical references and index.
Identifiers: LCCN 2021038037 (print) | LCCN 2021038038
(ebook) | ISBN 9781032126982 (hardback) | ISBN
9781032127019 (paperback) | ISBN 9781003225805 (ebook)
Subjects: LCSH: Corporate governance.
Classification: LCC HD2741.M338 2022 (print) | LCC HD2741
(ebook) | DDC 658.4--dc23
LC record available at https://lccn.loc.gov/2021038037
LC ebook record available at https://lccn.loc.gov/2021038038
ISBN: 978-1-032-12698-2 (hbk)
ISBN: 978-1-032-12701-9 (pbk)
ISBN: 978-1-003-22580-5 (ebk)
DOI: 10.4324/9781003225805
Typeset in Times New Roman
by MPS Limited, Dehradun
Contents
Preface viii
Acknowledgments x
Introduction 1
1 Origins and Definitions of Corporate Governance 4
1.1 Importance of the Corporate Governance
Concept 4
1.1.1 Definitions and Approaches to Corporate
Governance 8
1.2 The Separation Between Ownership and
Control 15
1.2.1 Open Corporation 16
1.3 The Guiding Principles of Corporate
Governance 29
1.4 The Historical Evolution of Corporate
Governance 33
1.4.1 The Origin of the Public Company 35
1.4.2 Corporate Governance in the New
Millennium 43
1.5 Corporate Social Responsibility (CSR) 45
1.5.1 Verification Tools and Social Reporting
Models 48
References 56
vi Contents
2 Corporate Governance Systems in Capitalist Countries 60
2.1 Corporate Governance Theories 60
2.1.1 Managerial Approach 60
2.1.2 The 'Law and Finance' Approach 61
2.1.3 The Contingency Approach 62
2.1.4 The Transaction Costs Theory 62
2.1.5 The Theory of Property Rights 63
2.1.6 The Theory of Institutional Asset 63
2.2 International Models of CG 64
2.2.1 Outsider and Insider System 65
2.2.2 One-Tier and Two-Tier System 67
2.3 The United States of America: The One-Tier
System 71
2.3.1 Case Study: Ford Motor Company 73
2.4 Germany: The Two-Tier System 74
2.4.1 Case Study: Hugo Boss 77
2.5 Japan: The Hybrid System 79
2.5.1 Case Study: Nikon Corporation 81
2.6 France: The Choice Between One and Two-Tier
System 82
2.6.1 Case Study: Renault 84
2.7 The United Kingdom: The One-Tier System 85
2.7.1 Case Study: British Airways 87
References 89
3 Corporate Governance in Italy 92
3.1 The Structural Peculiarities of the Italian
Capitalistic System 92
3.2 The Traditional Model of CG 96
3.3 The One-Tier Model of CG 98
3.4 The Two-Tier Model of CG 99
3.4.1 Case Study: Intesa San Paolo S.p.A. 100
3.5 The Italian Corporate Governance Code of Best
Practice (Preda’s Code) 102
3.6 The International Corporate Governance Codes of
Best Practice 106
3.6.1 The United Kingdom 106
Contents vii
3.6.2 France 107
3.6.3 Germany 109
3.6.4 Japan 111
3.6.5 The United States 112
References 116
4 What is the Most Suitable Corporate Governance
Model? 117
4.1 The Evolution of CG 117
4.2 One-Tier, Two-Tier or the Traditional
CG Model 119
4.3 Features of a Good CG Model 121
References 124
Conclusion 125
Index 127
Preface
Corporate governance is defined as the set of economic and legal
mechanisms through which organizations are governed (Denis and
McConnell, 2003). By minimizing agency conflicts, Corporate
governance allows suppliers of finance to earn a return on their
investment, thereby contributing to long-term value creation (Shleifer
and Vishny, 1997). However, to do so, corporate governance systems
have to precisely define the rights, responsibilities and roles of all
agents involved in the corporate governance process.
In the last two decades, multiple corporate scandals (e.g.,
Volkswagen, Lehman Brothers) have shown how current governance
frameworks might be inadequate in the current business environment.
Despite being designed to reduce agency conflicts, some governance
frameworks have de facto encouraged opaque business practices. This
has, in turn, generated a strong mistrust towards the current economic
system. In response to these scandals, multiple regulations (e.g., SOX)
were enacted to limit misbehaviour and improve firms’ governance.
Nonetheless, it is still unclear what defines good governance. The
answer to this question is likely to vary across countries as each
governance system is shaped by national factors, such as the level of
capital market development or the degree of investor protection. In
this respect, this book provides a comprehensive overview of each
governance system (i.e., one-tier, two-tier and traditional models) by
analysing their respective strengths and weaknesses. Furthermore, the
authors provide several case studies that allow examining their
practical implementation.
In my view, this book constitutes a valid first step towards bridging
the gap between academic and professional views of corporate
governance. Furthermore, I believe this book is timely. The current
Covid-19 and climate crisis have emphasised the importance of
resilience for corporations. Sound governance mechanisms can play
Preface ix
a vital role in ensuring this. For example, a proxy fight has recently
allowed a small hedge fund to install three directors on Exxon’s board
with the aim to address the company’s environmental footprint.
Finally, recent years were characterised by an increasing trend
towards greater transparency. In this respect, good corporate
governance can spur companies to increase their ESG and financial
transparency, thereby helping to rebuild trust in the economic system.
References
Denis, D. K., and J. J. McConnell. 2003. International Corporate Governance.
Journal of Financial and Quantitative Analysis 38 (1): 1–36.
Shleifer, A., and R. W. Vishny. 1997. A Survey of Corporate Governance.
Journal of Finance 52 (2): 737–783.
Michele Pizzo
(Full professor of Business Administration
at the University of Campania ‘Luigi Vanvitelli’)