- Describe corporate governance, name two main
models of it and differences between them.
- How can the Dutch CG characteristics be related
(i.e., level of similarity and differences) to the
shareholder and the stakeholder models of CG?
Corporate governance concerns “the structure of rights and
responsibilities among the parties with a stake in the firm” (Aoki
2001).
Within the theories of CG there are two main models: the
shareholder model (The Anglo-American model) and stakeholder
model (Continental model, a.k.a. The Rhineland model) (Haxhi,
2015).
The shareholder model is characterized by strong shareholder rights, single powerful
CEO and protection of minority shareholders. Prevails mainly in Australia, Canada,
the US and the UK. Here the maximization of ‘shareholder value’ is primary goal of
the firm and shareholders enjoy strong formalized links with top management.
The stakeholder model is characterized by weaker shareholder rights, consensus
leadership and concentrated ownership. Prevails in most of the European continent,
Latin America and Japan. A variety of firm constituencies (including employees,
suppliers and customers and the communities companies are located in) have a say in
the firm and the interests of all of them are balanced in management decision-making.
Differences between the shareholder and the stakeholder models are:
- Shareholder model: financial needs of firms fulfilled through the market.
Stakeholder model: financial needs of firms are fulfilled through bank finance.
- Shareholder model: locus of corporate control and monitoring resides in the
disciplines of the market. Stakeholder model: Monitoring and control function
resides in the dual-board system.
- Shareholder model: Assumption of perfect information flows. Stakeholder
model: Concentrated shareholding and thus illiquid markets.
- Shareholder model: Effective regulatory system. Stakeholder model:
Regulators often allow for asymmetric information flows.
- Shareholder model: Model is based on liquid stock markets and diversification
of portfolios. Stakeholder model: Rights of minority shareholders are not
always protected effectively.
The Dutch corporate governance system is often considered as a
hybrid case between the shareholder and stakeholder model.
The Netherlands is a country of consultation and cooperation: a modus operandi
whereby groups of people try to further their common interest through agreement,
interchange, compromise and cooperation. This relates more to the stakeholder model
(consensus leaderships and concentrated ownership). The Netherlands is an
egalitarian society: no large power distance in society, small income inequalities, no
strong stratification in educational systems. The Netherlands is individualistic but
feminine at the same time. This relates to both shareholder and stakeholder model
, (Shareholder model: protection of minority shareholders) (Stakeholder mode:
concentrated ownership no large power distance).
In the Dutch corporate governance there is an absence of market for corporate control
(hostile takeovers are rare and seldom successful). This relates to stakeholder model,
since in the shareholder model the locus of corporate control and monitoring resides
in the disciplines of the market.
Banks do not have large shareholdings in companies in the Netherlands. This relates
to the shareholder model. Because shareholder model: financial needs of firms
fulfilled through the market and stakeholder model: financial needs of firms are
fulfilled through bank finance.
The Netherlands has a few very big multinationals (big five), but we
also see a large number of small-sized and middle-sized companies.
Companies are faced with a small domestic market, wherefore they
are strong international based. A further important characteristic of
the Dutch business system is the considerable separation of
ownership and control. Dutch public companies have a two-tier
board system; at the top the supervisory board. A Dutch board is
typically a team of equals. Furthermore, takeovers against the will of
a company’s management are almost impossible. It is also worth
nothing that both Dutch employers and trade unions are
represented in the Social Economic Council (SER). Priority is given to
the interest of shareholders. Shareholders and employees have the
same level of influence. Relationships between Dutch firms are
neither particularistic and long term, nor do they cover a variety of
transactions. There is a tendency to short-term market relations.
Overall, however cooperation is not a very develop characteristic of
the Dutch industrial culture.
The Dutch culture can be described as in Hofstede’s terms:
individualistic and feminine. However, the emphasis of individualism
is more on conformity than on individual performance.
The Netherlands has a well-developed capital market, which means
that the shares of public companies are widely dispersed. In
contrast to surrounding continental countries, the Dutch banks were
never engaged in large-scale financial participation in national
industry.
Poldermodel where there always need to be consensus.
The Netherlands can be seen as a continental European country,
since the factors described above are regarded to the market model
of corporate governance.
The Dutch case can be linked to both models, because it is a hybrid
model. The Netherlands have a relative large number of domestic
companies with high stock market capitalization (Anglo-Saxon
model). However, Dutch companies have a dual board system and
models of it and differences between them.
- How can the Dutch CG characteristics be related
(i.e., level of similarity and differences) to the
shareholder and the stakeholder models of CG?
Corporate governance concerns “the structure of rights and
responsibilities among the parties with a stake in the firm” (Aoki
2001).
Within the theories of CG there are two main models: the
shareholder model (The Anglo-American model) and stakeholder
model (Continental model, a.k.a. The Rhineland model) (Haxhi,
2015).
The shareholder model is characterized by strong shareholder rights, single powerful
CEO and protection of minority shareholders. Prevails mainly in Australia, Canada,
the US and the UK. Here the maximization of ‘shareholder value’ is primary goal of
the firm and shareholders enjoy strong formalized links with top management.
The stakeholder model is characterized by weaker shareholder rights, consensus
leadership and concentrated ownership. Prevails in most of the European continent,
Latin America and Japan. A variety of firm constituencies (including employees,
suppliers and customers and the communities companies are located in) have a say in
the firm and the interests of all of them are balanced in management decision-making.
Differences between the shareholder and the stakeholder models are:
- Shareholder model: financial needs of firms fulfilled through the market.
Stakeholder model: financial needs of firms are fulfilled through bank finance.
- Shareholder model: locus of corporate control and monitoring resides in the
disciplines of the market. Stakeholder model: Monitoring and control function
resides in the dual-board system.
- Shareholder model: Assumption of perfect information flows. Stakeholder
model: Concentrated shareholding and thus illiquid markets.
- Shareholder model: Effective regulatory system. Stakeholder model:
Regulators often allow for asymmetric information flows.
- Shareholder model: Model is based on liquid stock markets and diversification
of portfolios. Stakeholder model: Rights of minority shareholders are not
always protected effectively.
The Dutch corporate governance system is often considered as a
hybrid case between the shareholder and stakeholder model.
The Netherlands is a country of consultation and cooperation: a modus operandi
whereby groups of people try to further their common interest through agreement,
interchange, compromise and cooperation. This relates more to the stakeholder model
(consensus leaderships and concentrated ownership). The Netherlands is an
egalitarian society: no large power distance in society, small income inequalities, no
strong stratification in educational systems. The Netherlands is individualistic but
feminine at the same time. This relates to both shareholder and stakeholder model
, (Shareholder model: protection of minority shareholders) (Stakeholder mode:
concentrated ownership no large power distance).
In the Dutch corporate governance there is an absence of market for corporate control
(hostile takeovers are rare and seldom successful). This relates to stakeholder model,
since in the shareholder model the locus of corporate control and monitoring resides
in the disciplines of the market.
Banks do not have large shareholdings in companies in the Netherlands. This relates
to the shareholder model. Because shareholder model: financial needs of firms
fulfilled through the market and stakeholder model: financial needs of firms are
fulfilled through bank finance.
The Netherlands has a few very big multinationals (big five), but we
also see a large number of small-sized and middle-sized companies.
Companies are faced with a small domestic market, wherefore they
are strong international based. A further important characteristic of
the Dutch business system is the considerable separation of
ownership and control. Dutch public companies have a two-tier
board system; at the top the supervisory board. A Dutch board is
typically a team of equals. Furthermore, takeovers against the will of
a company’s management are almost impossible. It is also worth
nothing that both Dutch employers and trade unions are
represented in the Social Economic Council (SER). Priority is given to
the interest of shareholders. Shareholders and employees have the
same level of influence. Relationships between Dutch firms are
neither particularistic and long term, nor do they cover a variety of
transactions. There is a tendency to short-term market relations.
Overall, however cooperation is not a very develop characteristic of
the Dutch industrial culture.
The Dutch culture can be described as in Hofstede’s terms:
individualistic and feminine. However, the emphasis of individualism
is more on conformity than on individual performance.
The Netherlands has a well-developed capital market, which means
that the shares of public companies are widely dispersed. In
contrast to surrounding continental countries, the Dutch banks were
never engaged in large-scale financial participation in national
industry.
Poldermodel where there always need to be consensus.
The Netherlands can be seen as a continental European country,
since the factors described above are regarded to the market model
of corporate governance.
The Dutch case can be linked to both models, because it is a hybrid
model. The Netherlands have a relative large number of domestic
companies with high stock market capitalization (Anglo-Saxon
model). However, Dutch companies have a dual board system and
