> Focus is on compliance but not on the quality of information and decision making process or output measures

> LOGIC - Learning, Oversight, Guidance, Information and Culture

> Also Considers Behavioral Aspects : Decision Making, Quality of Information, Culture of decision making, proces
results of oversight and guidance of BOD
> Corporate Governance Structure are determined by several factors.

ANGLO-US MODEL JAPANESE

GENERAL DESCRIPTION Shared Ownership High Stock Level Ownership

Equity Financing is Common Affiliated banks and companies

Investors are Outsiders Long term links with Banks

Institutional Investors - is a term

for entities which pool money to
purchase securities, real property, Keiretsu (A keiretsu is a set of
and other investment assets or companies with interlocking business
originate loans. Institutional relationships and shareholdings. It is a
investors include banks, insurance type of informal business group).
companies, pensions, hedge funds,
REITs, investment advisors,
endowments, and mutual funds.

Insiders are the major BODs &

shareholders
Foreign ownership is small

Bank representatives are elected to

Board (only during financial distress)

Corporate Governance Triangle - Open-Ended Hexagon: Linked

Management, Shareholders & Government, Bank, Management &
KEY PLAYER BOD: Agency Costs - Separation of Keiretsu ; Non-linked Outside
Ownership & Control Shareholders & Independent Directors
 Financial Institutions and Corporations
hold Equity Market;
Significant are Institutional Owners Insurance Companies and
SHARE OWNERSHIP PATTERN followed by Individual Investors Banks hold significantly of the equity
market;
Banks are key Shareholders

Composition of the Board is made

up of Insiders (has direct
relationship) & Outsiders (no direct Composed of Insiders; Main Bank &
relationship); Chairman of the Keiretsu may remove and appoint
COMPOSITION OF THE BOARD Board & CEO is assigned to one BODs; Appointing retiring government
person and subject to abuses
(page 4-5) ; UK have non-executive bureaucrats to Corporations; larger
number of Boards
directors; Increased Trend in
Corporate Governance & Outsiders
on the BOD (see page 4-6)

Wide range of laws and regulatory

codes ; US has the most regulatory Government Ministries are most
REGULATORY FRAMEWORK requirement; UK based on influential
parliamentary acts and rules

Most Stringent and

DISCLOSURE REQUIREMENTS Comprehensive Disclosure Relatively Stringent (page 4-12)
Requirements in the US (page 4-7)

Routine and Non-Routine

CORPORATION ACTIONS Corporate Actions ; UK has a
shareholder vote in dividend Routine and Non-Routine Corporate
REQUIRING SHAREHOLDER proposal unlike in the US; permits Actions (page 4-13)
APPROVAL SHAREHOLDER PROPOSALS (see
page 4-8)

Complex, well-regulated system for

communication and interaction Links & strengthens relationships;
between shareholders and
corporations; May exercise voting outside shareholders are small
INTERACTION AMONG KEY constituency; shareholders dissent are
PLAYERS rights even absent; Institutional discouraged; annual stockholders'
investors and financial specialists meeting held same day each year.
monitor performance and
corporate governance.
ocess or output measures

e of decision making, processes

GERMAN

Banks representatives are elected Board

Two-tiered Board Structures (Executive &
Supervisory Boards)
Size of the Board set by Law (Industrial
Democracy Act and the Law on Employee Co-
Determination)

Voting rights restriction is legal

Prefers Bank Financing (Small Market

Capitalization)
Conservative Investment Strategy

Preserves relationships

Percentage of foreign ownership is significant

Globalization change the way to do business

Banks & Corporate Shareholders (to a lesser

extent) Aktiengesellschaft AG - German
Public Limited Company; Neither Banks nor
Corporations are key institutional investors
Corporations, followed by German Banks are
dominant shareholders

Two-tiered Board the Supervisory Board (no

Insiders) and Management Board (insiders).

Strong Federal (Federation) & State Laws

Relatively Stringent (page 4-16) allowed to

amass considerable reserves.

Routine and Non-Routine Corporate Actions

(page 4-17) SHAREHOLDER PROPOSALS are
also common

Focus on the interest of key players; majority

of German shares are issued in bearer;
shares are purchased through the bank and
the banks vote on behalf of the one they
hold on deposit.