Global Corporate Governance

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What are the key characteristics of the U.S. model of corporate governance? How does the U.K. model compare with the diverse models in continental Europe and differ to the US model? There are many characteristics of the U.S. model of corporate governance that contribute to its effectiveness. We describe governance in regards to the board of directors, external auditors, the SEC, state laws, and stock exchanges. We then compare the U.S. governance model to that of U.K. and other models in continental Europe. In the U.S., the board of directors is very important in making sure that management acts in the interest of shareholders. Responsibilities of the board include selecting the CEO, evaluating company strategy and capital structure, and ensuring that the company is compliant with relevant laws and regulations. Many measures are taken to mitigate conflicts of interest between management and shareholders, such as restricting executive directors’ participation in auditing committees. The board must have a majority of independent directors, where non-executive directors must meet regularly outside the presence of executive directors. External auditors are critical to the governance process by “ensuring the integrity of company financial statements.” Since the Sarbanes-Oxley Act (“SOX”), auditors are required to assess company internal controls and report to the audit committee to maintain independence. Additionally, non-auditing activities such as consulting are limited to prevent conflicts of interest. The Securities and Exchange Commission oversees primary and secondary markets to protect the rights of security holders and to prevent corporate fraud. The SEC regulates securities exchanges, brings civil enforcement actions against companies who violate securities laws, and oversees proxy solicitations and annual voting processes. State laws govern the majority of corporate governing rights. They allow board of directors to create and amend company bylaws, which...
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