A comparison of corporate governance systems in the US, UK and Germany

Abstract

This paper compares corporate governance principles in the US, UK, and Germany. The U.S. and UK represent shareholder models of ownership and control whereas in Germany a stakeholder approach to corporate governance provides greater input for creditors, employees and other groups affected by corporate decision making. Recent changes in the US and UK as evidenced by the Sarbanes-Oxley Act and a variety of reports including the Cadbury Committee Report recognize the importance of a more independent board of directors, completely independent audit committee, and strong internal controls. In Germany, some of these initiatives have been suggested as well. The U.S. can learn from their British counterparts and endorse governance advances such as to separate out the role of the chair of the board of directors and the CEO. Other changes that would strengthen governance in the U.S. include to: limit the number of boards on which a person can serve; recognize the rights of stockholders to nominate directors; and give shareholders a more direct role in board oversight. The U.S. should consider adopting some of the German attributes in their governance system by incorporating employees and employee representative groups into the oversight process. After all, it was the employees that worked for Enron who suffered the most as a result of corporate fraud including a loss of jobs and the near wipe-out of their 401K retirement plans