The Slovenia Times

Corporate Governance Models



A substantial number of arguments have been made as to the influences of different corporate governance models on companies at the micro-economic level, as well as to the influences at the macro-economic level on national economies. The goal of this research is to find the optimal, most-effective models of corporate governance for particular economies. Corporate governance models are an essential part of national economies. Today we can find many different corporate governance models in different countries around the world. However, two basic models of corporate governance have been identified: the block holder model and the widely held shareholder model. The distinction between the two is based on the (equity) ownership structure of the company. The basic characteristics of the block holder model arise from the structure of the ownership of the company's shares - namely when the votes of a single shareholder or a group of individual or corporate shareholders constitute a block or a majority of votes at the annual general meeting. In this model, the holders of the blocks of shares have the power to appoint and/or recall the members of the management board (or in a two-tier system, the supervisory board) and the management board has the power to further appoint and/or recall the executive managers (directors). These type of shareholders could be actively involved in the governance of the corporation. The basic difference between the block holder model and the widely held shareholder model is that the ownership structure of the diffuse shareholder model shows many dispersed owners of the company's shares. A large number of shareholders each hold a low percentage of the shares. Therefore, these shareholders don't reach the share threshold which would enable them to play an active role in appointing or recalling the company management. In practice their power is limited to approving the management board members who were suggested by the previously appointed (existing) board at the general meeting of the corporation. In the sense of corporate governance, this means that in this model the shareholders only formally control the corporation, while actual power rests in the hands of the internal management boards of the corporation. In the widely held shareholder model of corporate governance, the stock market is recognized as a mechanism for enabling shareholder control. In this model, because of the low percentages of shares held by individual shareholders, the shareholder who disagrees with the decisions of the management of the corporation has no chance of getting his/her opinion considered or of having any influence on the future plans of the corporation or on its distribution of profits. Such a shareholder doesn't have any voting power, but can show his/her disagreement with the company management by selling his/her shares. It is said that "exit, not voice" controls the management. The shareholders in the diffuse shareholder model of corporate governance therefore need a liquid capital market that quickly responds to the decisions of dissatisfied shareholders to sell their shares. The reaction of the security market (stock exchange) is then seen through changes in the share price. A liquid security market therefore acts as an outside control mechanism on the corporation. On a national and international level, models of corporate governance are developed and changed, affected by the types of investors in the market and the types of investments made. As a result of standards on disclosure and transparency, it has been possible to compare the advantages and disadvantages of the different corporate governance models. The objective of these comparative studies has been to find a better, more effective model of corporate governance. The European Union, as a common market made up of several different economies, currently faces this challenge - as it is well aware. But what about Slovenia?


More from Nekategorizirano