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Internal and External Actors

in Different Corporate Governance Perspectives

Course: Supervisor: Authors:

International Corporate Governance Benjamin Maury, Ph.D. Johanna Gunnlaugsdottir, Olga Neselevska

Black box study?

What actors are there in the CG world? Who are the internal and external actors? What factors does this classification depend on? What are the legal approaches to defining internal/external actors, in the countries with civil and common law?
What are conclusions and possibilities analysis implications for different countries?

Internal and external actors in different CG models - Board of directors: models and roles Perception of insiders and outsiders in different legal families - UK - USA - Germany


Theoretical background
Corporate governance actors:
- biased definitions of CG;

- focus on the relationships between different parties.

Board of directors: importance of the insider/outsider diversity:

- psychological and financial independence, independence in time, knowledge and information; - election VS selection; - Boards roles.

Roles of the Board


The corporate governance framework

should ensure the strategic guidance of the company,

the effective monitoring of management by the board, and board accountability to the company and the shareholders.
OECD Principles of Corporate Governance (2004)

Roles of the Board

Institutional role

We are very pleased to have Roger join our board of directors. With his international and management expertise, Roger will bring a wealth of experience to our board that will help us continue to grow our business globally.

John Haley

Roles of the Board

Strategic role

We trust our board of directors will make decisions in the best interest of our shareholders. Denny Lynch "There isn't a board of directors in the world that isn't smiling over what they gave away.

Frank Dzubeck

Anglo-Saxon board model

Continental board model

Perception of insiders and outsiders in different legal families

Differences in the legal systems from a CG perspective Case study
- UK

- Germany

Legal Systems around the World

Common law Strong legal investors protection Main source of the CG regulation codes, articles and recommendations One tier board
- Independence compromised?

Walker Report

Common law Strong legal investors protection Main source of the CG regulation (public companies) listing rules Example: NYSE listing rules, section 303A.
- Partly mandatory, but flexible
- Majority must be independent directors Finacial and Psychological Independence

Civil law Weak investors legal protection Main source of the CG regulation detailed and mandatory laws Two tier board system
- Supervisory and Management board

- Individual independence

Independence is a crucial concept to understand and should be defined clearly in corporate governance laws and codes. Due to differences in the legal system and the social-economical and political environment, the perception of independence is different.

Due to the one tier board composition in common law countries the concept of independence is clearly defined in the codes and the Articles of Association. Financial and psychological independence is the background for requirements. Mainly the attention is given to the public corporations and financial institutions. Based on the German example civil law legal systems appear to be less strict regarding the independence of supervisory board members. The shift is towards the group independence perception and not the individual independence.