Corporate Governance Approaches [N a m e] COMPARISON OF THREE MAJOR CORPORATE GOVERNANCE APPROACHES: There are three main approaches of corporate governance which are discussed and compared in this paper. Two of these are versions of capitalism i. e. the concept of ‘free market’ and no government ownership, whereas one is based on the concept of socialism, in which the government has main role in the organizations. Shareholder Capitalism: In this model of corporate governance, the priority is given to maximizing the shareholder value. According to this model, the ownership of the organization is held by the persons who have invested their money in the organization.
These are the people who have put their money or capital on risk and for this reason should be eligible to all profit of the organization. For this reason most of the business analysts and researchers promote the concept of maximizing the shareholder value as the prime and main objective of the organizations. Stakeholder Capitalism: According to the model of stakeholder capitalism, different related parties have their contribution in the process of generating profits, other than the shareholders of the organization.
These parties include important people like, employees and managers of the organization, suppliers, distributors, and even customers and general people along with the government (Tylecote and Visintin, 72). All these important parties should be given representation in the board of governance and directors in order to keep a check on the performance of the organization. State Ownership: This model of corporate governance is directly linked with the socialist theories and concepts. In this model the ownership and decision making authority lies with the government or state. Government is responsible for important policies and strategies formulation. BEST SYSTEM FOR MAXIMIZING LONG RUN ECONOMIC PERFORMANCE OF THE FIRM: Stakeholder capitalism model is best for maximizing long run economic performance of the firm.
As this model take into accounts the benefits and interests of all stakeholders of the organization. Such organizations are able to undertake more effective and efficient competitive strategies in order to not only maximize the shareholder value but also making sure that all other stakeholders are able to reap the benefits. As, a result stakeholder capitalism can ensure that the organization is able to maximize the long run economic performance. ROLE AND IMPACT OF EMPLOYEES IN SUPERVISORY BOARD: The employees of the organization should have representation on the board of directors in almost each corporate governance system.
The employees are more directly related with the operations and activities of the organization and can present more accurate analysis of the organization’s performance. The employees can make sure that the organization is performing all its duties and responsibilities efficiently and effectively. Employees can ensure better corporate governance in the organization. IS STATE OWNERSHIP BENEFICIAL: State ownership is not beneficial for the organizations in the long run.
Different researches and studies have proved that the private owned organizations tend to give more better output and performance as compared to the state or government ownership. According to Arens and Brouthers (2001, p. 377) the private organizations tend to pursue more aggressive and effective competitive strategies as compared to the state owned organizations. On the other hand, the private organizations also are more flexible and adaptable than the state owned organizations, although the difference is marginal. State Ownership can be beneficial when private investors are reluctant to invest due to worsening economic and political conditions. Works Cited Arens, Patrick, and Keith D.
Brouthers. ‘Key Stakeholder Theory and State Owned versus Privatized Firms. ’ Management International Review 41.4. (2001, 4th Quarter): 377-394. Tylecote, Andrew, and Francesca Visintin. Corporate Governance, Finance, and the Technological Advantage of Nations. New York: Routledge Taylor & Francis Group, 2008.