3. Explain the main differences between the ‘shareholder’ and the ‘stakeholder’ models of corporate governance. Which one is better at preventing corporate scandals?
The basic issue underlying the corporate governance debate is the fundamental choice between two competing conceptions of the company (or theories of the firm).
1) Commodity
2) Community
There are two broad families of CG. The difference depends on the goal of the company and the weight given to different stakeholders in the joint activity of the firm.
1) Maximise shareholder wealth
2) Maximise the joint welfare of some or all stakeholders.
Cross-national differences in CG stem from differences in key societal institutions, that is from differences in government regulation; the character of the financial system; corporate law; and cultural values.
Main differences between the two models are found between medium-size companies.
1. Finance and Ownership Structure
2. Structure of Top Management Institutions
Shareholder Model Stakeholder Model