Competing Models Of Corporate Governance - 1398 Words

2.1 Corporate governance There are two main competing models in corporate governance. Stakeholder method Under the stakeholder model of corporate governance, firms owned and controlled by small number of major shareholders. This model of corporate governance often called as the relationship based method due to the close relationship maintained between companies and their major shareholders. This close relationship, little separation of ownership and control minimises the agency problem. However, as a result of the minimum separation of ownership and control, firms would experience misuse of power by dominant shareholders. For an instance, little transparency over company’s operations and potential misuse of funds would be unavoidable. Concentration of ownership and control in a small group of dominating shareholders could result in weak investor protection for minority shareholders. [Solommon,2007] Shareholder method Under the shareholder model of corporate governance, majority of large firms are controlled by managers but primarily owned by outside shareholders. Development of agency problem occurred, due to this separation of ownership and control between firm’s managers and owners. Even though internal managers are responsible for business operations, shareholder voting rights provide them with some indirect control over the operations of the firm. Widely distributed ownership in shareholder method offers stronger protection for investors and shareholder democracy.Show MoreRelatedOrganizational Concepts Spread Through National And Cultural Boundaries Essay1211 Words   |  5 Pagesview that contains believes and the distribution of power in corporations and in the general society (Meyer, 2007) . Using the political approach to institutional change requires a lot of tracking in the changing factors in the competing issues. 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