Corporate Governance

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Why does corporate governance matter from an employment relations perspective?

Introduction:

Define. Types of CG.

Corporate governance is defined as the customs, policies, laws and institutions affecting the way in which companies are controlled or operated. The two archetypal governance systems are Market Outsider system usually associated with US and the UK, and Relational Insider system associated with Japan and Germany. The types of systems will impact the way the company is controlled and will hence automatically impact the way the factors of production are handled, one of the most important being labour. These two differing types have different priorities, and so emphasis put on the employers will differ according to their characteristics- this consist of the balance of interests, time frames, business strategies and commitment.

Market Outsider system sources its finance from external capital from debt and equity markets. Due to the dispersed nature of the ownership, shareholders can exercise voice through the threat of exit leading to equity markets having to be forever placated for fear of takeover or exit. This implies that the relationship between investors and management will be prioritized over the relationship between management and labour, and capital being of the utmost importance for this type of system. Management’s effort would be channeled more into pleasing the shareholders through increased dividend payments to avoid the financiers from ‘exiting’ rather than distributing the firm’s profits to the workers. In times of low profits, workers would once more be ‘sacrificed’ by having lower wages in order to maintain the same amount of profit. Workers who work under this type of system would have experience less security and stability because of the threat of redundancy of unstable wages compared to the Relational Insider system. The relational insider system, however, puts emphasis on labour. Due to their culture norms and...
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