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Corporate Governance
Ondřej Částek

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Content
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1.Owners` status
2.Owners` expectations
3.Owners` power (and its application)
4.Corporate governance models
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Owners` status
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Owners
Employees
Business
Creditors
Suppliers
Customers
State

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Differences according to the type of business entity
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nSole proprietorship
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nLimited/unlimited liability
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nPartnerships/companies/corporations
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Different expectations of owners
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nThe motivation to do business is not always the same.
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nWhile for some the main incentive can be the profit, others prefer stability, some want to carry
on a family tradition or for some it can be a form of self-realization.
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Differences in use of the power
nDepends on:
nParticipation of owners on managing the company
nStructure of the key players
nOwnership structure
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Participation of owners on managing the company
nFully involved in sole proprietorship businesses
nFully involved in companies with unlimited liability, but not necesserily all owners
nMarkedly less involved in limited liability companies
nRarely involved in corporations
nSometimes we talk about managerial ownership
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Structure of the key players
nOwners are the statutory and managing body in sole proprietorships and often in unlimited
liability companies
nPartnership agreement (and law) can determine differently
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nCorporate governance laws define the distribution of rights and responsibilities among
participants in corporations
nThe ownership and management are definitely separated
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Ownership structure
nImportant features of ownership structure are
nOwnership concentration
nType of owner
nNatural person
nInstitutional: investment funds, banks, state, municipalities, other companies
nDomestic, foreign
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Corporate Governance models
nThree basic models are used in developed economies:
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1.Anglo-american (aka Anglo-Saxon model)
2.Continental (often called German model)
3.Japanese
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Anglo-american model
nSo-called one-tier, or external control model
nGeneral meeting elects the Board of Directors (BoD)
-part of them are insiders (executive directors), part of them outsiders (non-executive or
independent directors)
-BoD chairman is often also CEO
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nRequired are liquid stock markets and low ownership concentration
nControl is exercised, among others, through the exit system
nUntil recently, laws against close connections between companies and their banks in the USA
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Ownership pattern
nIn 1990, institutional investors held approximately 61 percent of the shares of UK corporations,
and individuals held approximately 21 percent. (In 1981, individuals held 38 percent.)
nIn 1990, institutions held 53.3 percent of the shares of US corporations.
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Trends and issues
nGrowing share of institutional owners, decreasing share of individuals
nVoting behavior of institutional owners at AGMs
nConcentration of power in the hands of one person or small group of persons
nExcessive executive compensation
nRegulatory framework reacts
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Interactions among key players
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Shareholders
Board of Directors
(Supervisor)
Stakeholders
Officers
(Manager)
Company
Regulatory/Legal system
Creditors
Elect
Appoints and supervises
Manage
Monitors & regulates

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Continental model
nSo-called two-tiered model, or internal control model
nGeneral meeting elects supervisory board and management board
-in some countries supervisory board names members of management board
-it is common that part of the supervisory board is elected by employees (up to 50%, sometimes
depend on the firm size)
nManagement board is the statutory body and is responsible for „daily“ management of the company,
supervisory board si responsible for the strategic control.
nControl is exercised, among others, through the voting system.
nThe connection between the company and a bank can be very close.
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Ownership pattern
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nBanks 27%
nPension funds 3%
nOther companies 41%
nIndividual owners 4%
nForeign investors 19%
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Trends and issues
nThe ownership concentration still increases
nCapital markets are illiquid
ntherefore capital allocation is not perfect
nEuropean commission wants to encourage individuals to invest in securities
nhowever the typical european behavior saved EU from larger impact of 2008 financial crisis
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Interactions among key players
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Supervisory Board
Management Board
Company
Shareholder
Employees and Labour unions
Appoint 50%
Appoint up to 50%
Appoint and supervises
Manage
Own

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Japanese model
nSo-called Keiretsu. Model with even higher interconnectedness among the key players than the
continental model. The key players are:
1.Main bank (a major inside shareholder)
2.Affiliated company or affiliated keiretsu (a major inside shareholder)
3.Management
4.Government
5.Outside shareholders
6.Independent (external) directors
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nTypical is very high ownership concentration and cross-shareholding
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Ownership pattern
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nBanks + insurance companies 43%
nOther companies 25%
nForeign investors 3%
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Trends and issues
nVery non-transparent for outsiders
nVery rigid
nThe strong crossholdin of equity and debt and strong business relationships can woek in favor of
competitiveness, but also against it
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Interactions among key players
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nExecutive Management (Primarily Board of Directors)
President
Supervisory Board (including President)
Company
Main bank
Shareholders
Appoint
Provides managers, monitors and acts in emergencies
Provides managers
Ratifies the President’s decision
Consults
 Managers
Provides Loan
Owns
Own

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Thank you for your attention
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Sources
nGraphics (interactions among key players, 3x) borrowed from Dushyant Maheshwari`s lecture Models
of Corporate Governance, retrieved from SlideShare
nOwnership patterns data obtained from Joy Clarisse Dagala`s Chapter 4: Models of Corporate
Governance, retrieved from SlideShare
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