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Types of governance structure - Coggle Diagram
Types of governance structure
The shareholder model of corporate structure is dominant within the UK and the US and areas that historically follow and replicate their organisational ideals, this model is usually controlled by a unitary board of directors, deciding company policy by consensus, acting on behalf of the shareholders
The stakeholder model is found more widely in Germany and Japan and is often associated with differing control structures such as a two-tier board system incorporating a supervisory board and a management board
Shareholder model of governance
The primary interest of shareholders is financial and wealth is created for them through the organisation. They have a priority claim on the wealth of the organisation
Investors are more likely to received a focused higher rate of return through dividend and/or increase in share value
Shorter-term returns are likely to be important to maximise 'cash in hand' returns, in particular with the significant increase of short-term algorithmic investing
Focused decision making
Focused objectives
Focus on market return expectations and comparators
Advantages
For investors
Higher rate of return
Reduced risk
For the economy
Encouragement of entrepreneurship
Encouragement of inward investment
For management
Independence
Disadvantages
For investors
Difficult to monitor management
For the economy
Risk of short-termism
Risk of senior management greed
Stakeholder model of governance
Wealth is created by and for a variety of different stakeholders, each of whom has a claim to an equitable proportion of the wealth of the organisation
The return to investors is likely to be diluted by the wider interests of differing stakeholders
A longer-term perspective can often be taken due to the nature of differing interests
Slower decision making with wider stakeholder involvement
Breadth of differing strategic objectives
Development of own levels of acceptable stakeholder returns
Advantages
For investors
Closer monitoring of management
Longer term decision horizons
For stakeholders
Deterrent to high risk decisions
Disadvantages
For management
Potential interference
Slower decision-making
Reduced independence
For the economy
Reduced financing opportunities for growth