Corporate governance: An examination of U.S. and European models

Abstract

As the model for corporate governance has emerged in the US after decades of evolution, culminating with the Sarbanes-Oxley Act in 2002, there has also been interest in corporate governance models used in other countries. This has particular importance considering the increased competition for capital in international markets with investors wishing to make sound financial decisions by seeking information from companies, regardless of their national registry, that is open, accessible and accurate. This paper examines the framework for corporate governance in the US, its evolution over time, and reviews corporate governance models used in the United Kingdom, the Netherlands, Germany and Switzerland. A comparison of these models is provided presenting similarities and differences, strengths and weakness, and obstacles to harmonization.

Influence of the Sarbanes-Oxley Act on Financial Reporting Quality: An Overview of EU Firms Cross-Listed in the USA

“…Literature Review A review of the literature does not reveal a common concept of corporate governance, particularly because of the political, economic, ethical, environmental, cultural and religious systems that states have put in place over the years (Franks and Mayer 2017;Hylton Meier and Meier 2013;Im and Nam 2019). For example, Jackson (2010), Franks et al (2009) emphasise that in the Anglo-American system the governance concept is shareholder-oriented and market-based, while the ownership of corporations is scattered.…”

“…Contrary to this practice, in EU corporate governance, reform is an ongoing process and only in the last decade has the EU successfully pursued a policy for advancing governance practices (e.g. board of directors, audit committees), protecting shareholder rights, increasing the ow of information, establishing CSR indicators and so on (Gamerschlag et al, 2011;Gull et al, 2020;Hopt, 2015;Hylton Meier and Meier, 2013;Maama and Mkhize, 2020). Further, the quality of corporate governance relates to: (1) better functioning of corporate mechanisms and the monitoring and maintenance of the internal controls system for nancial reporting; and (2) rms' internal procedures and adaptability in response to regulatory policy.…”

Corporate Governance Models and the Possibility of Future Convergence

“…According to Meier and Meier (2013), in the USA the interest of shareholders, management and directors are emphasized. The board of directors consists of a single tier system with non-executive directors selected by shareholders.…”

“…This is why the act of Sarbanes-Oxley (SOX) was introduced to solve these problems. Specifically, SOX specified the description of independent director, with the requirement of the majority of directors becoming independent, increasing the scope of audit committee, and limiting the qualification needs for audit committee members (Meier & Meier, 2013).…”

“…According to Meier and Meier (2013), this 'comply or explain' method allows judgements regarding multiple topics, such as the independence of outside directors. So, he argued that this system sets a good example to the significance of the relations among the company and its shareholders and not between the corporation and the regulators.…”