Varieties of Capitalism

Corporate Governance
Our Topic

Varieties of Capitalism Corporate Governance.

Choose and compare two countries and companies and their corporate governance.

Assess the pros and cons of different types of governance

Structure
Definiton

Theories

Country Comparison (USA vs Germany)

Pros & Cons of LMEs and CMEs

Company Comparison (General Motors vs Daimler AG)

Corporate Governance
Relations between parties with a stake in the firm and how their influence on
corporate decision making shaped by their institutions

Owners (Shareholders) Capital

Manager
Management

Employees Labour

2 focuses:
Corporate Governance Models

Anglo-American
Continental European

LME
CME
Theories

Agency Theory
Institutional Theory

(undersocialized)
(oversocialized)

Principal- agent conflict role of nation model&

country on actions
Country Comparison
USA vs GERMANY

Systems of corporate governance, like a societys other important institutions,

contain its cultural values. Block and Gernster, 2016.

Board Structures

Property Rights of Shareholders

Capital Structure

Control and Monitoring

Management
Board Structures - USA
One tier board, managerial & supervisory responsibilities

Other members are independent directors: challenge strategy and monitor

business

Do not maintain seats for employees

One-Tier Board
Advantages

Regular meeting

Greater and faster decision making

Disadvantages

Personal relationships

Independent director may be reluctant to monitor

Board Structures - Germany
Mandatory Two-Tier Board Structure

Tasks of Management Board and Supervisory Board

Role of Banks

Codetermination law

Compensation is set by the supervisory board

Two-Tier Board
Advantages

Efficient monitoring through seperation

Employees are represented - codetermination

Disadvantages

Conflicts of interest

Interlocking directorships
Property Rights of Shareholders - USA
Voting power > dominance

Right to transfer ownership

Dividends (appx 25% payout ratio)

Free trade of shares on stock market

Restricted insider trading

Property Rights of Shareholders - Germany
Restricted exchangeability of shares

Authorized proxy (banks)

Less dividends (appx. 15% payout ratio)

No barriers for transfer of ownership, but for control

Non-voting shares
Capital Structure Comparison
Control and Monitoring - USA
Auditors and external directors as agents

Selected executives provides advisory instead of monitoring

Lack of monitoring > Enron scandal

Control and Monitoring - Germany
Supervisory board monitors management board

Banks may fulfill the monitoring

Critisicms for monitoring of supervisory board - Jurgen Schneider case

Management - USA
Autonomous

US Managers educated in management

Financial success driven

High board compensation depends on company performance (59% of total)

Excessive focus on share price > Enron scandal

Management - Germany
Committed

German managers educated in technical fields

Functional success driven

Against individual dominance

 LME - PRO LME - CON

more competitive -> leads to radical

innovation Possible domination of CEO.

Short-term plans
CME - PRO CME - CON
Not gaining immediate profits
Higher levels of specific skills
Hard for new business to enter the
Stability market

Long-term relations -> Possible conflicts on two-tier board

system
trustworthy

Better workers right

incremental innovation
General Motors Case - LME Example
American multinational corporation

Founded at 1908

Global revenue $166.3 billion

215,000 employees

Listed on New York Stock Exchange

Daimler AG Case - CME Example
German multinational automotive company

Founded at 2007 (Benz & Company -1883)

Global revenue 153.261 billion

285,000 employees
Daimler AG Case - CME Example

Supervisory Board
Management Board
consists of twenty members, of whom ten are elected by the shareholders decisions on strategies

and ten are representatives of the employees. financial statements

Daimler- Supervisory Board
The core functions of the Supervisory Board include the control and monitoring of executive management, appointments to
the Board of Management and the approval of the Operative Planning and important corporate decisions.

The Supervisory Board shall not include more than two former members of the Board of Management of Daimler AG.

The Supervisory Board advises and monitors the Board of Management in its management of Daimler AG.
Daimler AG - Management Board
References
Aguilera, R. and Jackson, G. (2003). The Cross-National Diversity of Corporate Governance: Dimensions and Determinants. The Academy of
Management Review, 28(3), pp.447 - 465.

Block, David and Gerstner, Anne-Marie, "One-Tier vs. Two-Tier Board Structure: A Comparison Between the United States and Germany" (2016). Comparative
Corporate Governance and Financial Regulation. Paper 1.

Dimsdale, N. and Prevezer, M. (n.d.). Capital markets and corporate governance. 1st ed. pp.237 - 256.

https://www.daimler.com/documents/company/corporate-governance/supervisory-board/rop-sb-2017-internet-as-per-january-2017.pdf

https://www.daimler.com/company/corporate-governance/board-of-management/

https://www.gm.com/mol/shareholder-information.html