Question

ASK: Read the article "A Comparative Theory of Corporate Governance" (attached on Moodle) and then answer the following questions:

1. What is corporate governance?

2. What are the differences between stakeholder capitalism and shareholder capitalism?

3. What is codetermination system?

4. What are the characteristics of H-mode and J-Mode?

5. What is the difference in US-UK and Japan decision-making?

6. What is the difference between US-UK and Japanese employment?

7. What three strategies can managers follow?

8. What does Adam Smith say in his theory about "invisible hand"?

Important:

• Use paraphrasing (no "copy-paste")!
• Reference your answers to the page numbers from the article.
• The assignment should be submitted to the professor via Moodle in MS Word document.

Answer 1

As per the theory, the given terms can be explained as:
- Corporate Governance: It term refers to whether firms pursue the interests of shareholders and if the firms are operated in the interests of a wider set of stakeholders, including employees and customers as well as shareholders.
-   Stakeholder capitalism & Shareholder capitalism: Stakeholder Capitalism refers to the capitalism where firms pursue shareholders’ interests the firms pursue the interests of a variety of stakeholders. Shareholder capitalism refers to the capitalism where firms pursue interests only to the shareholders.
-   Codetermination System: A legal system as per which firms do not have a sole duty to pursue the interests of shareholders. Instead, Employees have an equal number of seats on the supervisory board of the company which is ultimately responsible for the strategic decisions for a large corporation.
-   H-mode and J-Mode: The H-mode represents the US hierarchical firm with the Japanese and is characterized by the hierarchical separation between planning and implemented operation and emphasis on economies of specialization firm structure. While as, the J-mode represents Japanese firm structure and stresses on horizontal coordination among operating units based on the sharing of ex post on-site information.
-   US-UK and Japan decision-making: Japan Decision making relies much more on consensus and the use of committees than on the entrepreneurial model favored by the Anglo-Saxon corporation. While as, US- UK Decision making involves a large amount of freedom that are monitored and disciplined by the market or by the corporate hierarchy if the performance is poor.
-   US-UK & Japanese employment: Japanese employment involves cutting down the dividends and maintaining the wages and employment terms to the optimal. Japan has a very different tradition with regard to employment, where a firm is expected to act in the public interest rather than in the interest of shareholders. While as, firms in the UK-US hire and fire employees at will. They only consider the fact whether or not value is created for shareholders.
-   Strategies can managers follow: By introducing methods that can attract young employees, to ensure that the long run viability of the firms is maintained and all employees and the shareholders do well and this approach could be represented as an equilibrium of a coordination game.
-   Adam Smith's theory of "invisible hand": The theory is the key idea underlying the organization of the economy. It says if firms objective is to maximize the wealth of their shareholders and individuals pursue their own interests then the allocation is Pareto efficient. And, if all agents pursue their own interest the resulting outcome will be socially efficient. For firms this means they should pursue the goal of creating value for shareholders.