Previous

Page - 4

Super-national governments, such as the European Union, also play a role in regulating corporate governance, the consultation rights of workers, bankruptcy procedures. We exclude other stakeholders, such as customers, suppliers and competitors, because they tend to be less involved with corporate governance.

(1) Board of Directors

The composition of boards of directors also shows strong contrasts across countries. For instance, Japanese companies are renowned for having very large and inefficient boards, sometimes with more than 50 members. Japanese boards also have very few outsiders to monitor managers and the strategic direction of the company.

Italian and French boards are considered medium-sized, although still quite inefficient due to the lack of outsiders. Germany is usual because it tends to have a wide variety of stakeholders represented in the upper supervisory board, such as employees, industrial banks and suppliers. In November 2004, a commission, the German employees association and BDI, the industry federation, concluded that the German co-determination system had become a hindrance to German companies operating internationally and a barrier to inward investment. It recommended changes to the laws, which were last revised in 1976. Under this proposal, individual companies would be free to choose a system of employee representation, taken from three options, ranging from retention of the current system to a looser consultation system separate from the supervisory board.

The most active boards are in the UK and US, in part due to the enforcement of corporate law. In the UK, the Cadbury Report and subsequent codes of good governance have had a great deal of influence in designing efficient boards. In the US, the Sarbanes-Oxley Act of 2002 has also introduced pressure for a higher percentage of outsiders on boards.

Next

* Contributed by: -
Dr. R. P. Verma,
Ex. H.O.D. & Dean, Commerce and Business Management Dept.,
Arabinda Bhandari,
Strategic Management Researcher,
Ranchi University, Ranchi.