Question

What are the similarities and the differences between the two major models of corporate governance?

Answer 1

The two major models of Corporate governance are Shareholders model which is also called outsider model and Stakeholder model which is also called insider model.

The similarities between the two major model of Corporate governance are that they both have the mindset for the upbringing the company by mean of different throughs. They both can affect or can be affected by the decision regarding the company by each other. They both have different rights according to their roles to perform. They both have a common interest in the company. Lastly, they both have a positive visuals regarding the company financials and productivity.

The difference amongst the both are as follows.

The Shareholders model is oriented towards Market- centric where as Stakeholders model are relationship- centric.

Shareholders look business with the virtue of ownership stake while Stakeholders runs the business, not own the business. Hence no ownership in the company.

Shareholders promote Shareholder's interest while Stakeholder's promote Stakeholder's interest.

Shareholders have unitary Board structure where as Stakeholder have a two-tiered or unitary but very large Board structure.

A Shareholders is a Stakeholder of the company in which they have ownership while a Stakeholder is not a Shareholder of the company, he only runs the company.

Shareholders have high probability of risk and but low probability of return proportion with respect to the company's performance while Stakeholders have low probability of risk but high probability of return.

Shareholders have a composition of BOD with a mix of "insider as well as outsider", insider are the executive directors and independent directors while outsider have no direct relationship with the company corporation where as the Management board of Stakeholders is committed of solely of "insiders".