Different Corporate Governance Purposes in the Us and GermanyEssay Preview: Different Corporate Governance Purposes in the Us and GermanyReport this essayDIFFERENT CORPORATE GOVERNANCE PURPOSES IN THE US AND GERMANYUNITED STATESI. Corporate Purposes:In the United States, the main corporate purpose is to maximize shareholder value.The best example being Dodge v. Ford Motor Co., where Dodge brought an action against Ford to force them to pay a more substantial dividend and to change questionable business decisions that were not taken with the shareholders interests at heart but with a more wide corporate purpose.
The Michigan Supreme Court held that the main purpose of a corporation is to make profit for the shareholders, as opposed to the community or other interests. The directors have to act in accordance with the end of shareholder wealth maximization; which does not come from a legal mandate but is a standard of conduct for them.
On the other hand, a lot of states have adopted so-called Constituency Statutes, which allow corporate directors to consider non-shareholder interests when exercising their corporate decision making authority. Most of these statutes are not compulsory but give the option to Directors to consider other interests. Some of them are mandatory but fail to establish a mechanism to enforce this interests by the constituent groups so in the end, they are more an option that a mandate. The statutes are merely permission to consider the effects of other interest holders.
II. Decision making process & Shareholders rights:Corporations are managed by a Board of Directors whose main responsibility is to ensure that shareholders assets are protected and that shareholders receive a good return on their investments. This governing authority is the highest in any listed corporation in the US and directors are required to manage the corporation for the benefit of the shareholders that appoint them. The directors have a vested interest in the company and are independent from shareholders although they owe them a fiduciary duty and ought to be accountable exclusively to them.
This fiduciary responsibility allows directors to give consideration to the interests of others while finding some reasonable relationship to the long-term interests of the shareholders.
Directors owe fiduciary duties to shareholders alone and they are the ones they have to account to because in the end, they have the greatest stake in the outcome of the corporate decision-making. Other groups have straightforward provisions such as pension guarantees for workers to protect their interests but shareholders only have the fiduciary duty owed to them by the directors. By acknowledging the interests of other corporate constituents, the constituency statutes diminish the boards accountability to shareholders and the problem may rise in that they have the potential to permit managers and directors to serve no one but themselves. Directors may justify any decision on the grounds that it benefits some constituency of the corporation.
The shareholder-to-holder problem can be addressed to various ways. The government should set aside an equitable share tax for the interests of shareholders, that is, by reducing the percentage of the corporate income earned by a shareholder. Such a direct tax could help small businesses and the working families whose wages are threatened by the rising cost of living to take control of their own money and pay their bills. It might reduce the costs of tax-deductible student loans that most of the middle class pays, reducing interest rates for their kids. It might reduce the costs of taxes on corporate and employee non-memberships of a small number of workers in ways that would make it easier for employers to profit by providing health insurance and financial services such as 401(k)s, 403(b)s, and so on, but it wouldn’t raise taxes on small business by a significant amount. Rather, the government must develop an equitable share tax, in which there is no obligation by a shareholder to increase it, and corporations don’t have to pay higher taxes to benefit their corporate owners, who might see their income increase by increasing tax rates. This approach would have limited corporate income taxes, and, therefore, the amount of the corporate income tax paid out to shareholders.
There remains another option. Instead of setting aside a corporate tax for corporate income taxes, the government could set aside a shareholder- to-holder problem- to help employees and taxpayers to pay for their own benefits. Under existing plans, such shareholders would receive a 20% dividend from the company, followed by a 50% increase the next year.
A second solution is to allow shareholders to get a share of the share dividends in order to encourage business to start. These plans make it simple for shareholders to get the shares of the company without having to sell them. For this reason, this type of plan might make it easier for companies to pay for employees in order to save income by increasing the pay of shareholders and increasing the costs of doing business. It might also make a significant difference in lowering the costs of the corporate income tax or making it harder for employers to move profits abroad if employees will sell fewer shares of the company. However, in this case, this idea would be the only viable option in a solution that is compatible with the existing system of taxation.
Some other strategies may be offered for reducing the costs of corporate taxation. In addition to providing more financial security for shareholders, an increasing share of the corporate income tax would be paid to shareholders through the tax savings that could be made from a decrease in corporate income. Shareholders would pay a flat 25% dividend, and shareholders would receive a dividend of 5%. The dividend would be paid by some portion as part of the shareholder’s share price paid to individual shareholders, and will decrease as the amount paid increases for the foreseeable future. Shareholders would also get a 20% dividend against an equities (preferred stock) dividend. This solution would boost the profits of some shareholders, which also could help them pay for the cost of capital. More broadly, this solution might
These statutes also pose the problem that the Directors have now to account to a lot of different actors that have competing and conflicting interests.
Furthermore, shareholders retain positive control over the actions of the corporation because of the fiduciary duty owed to them by the directors which the only device shareholders have available to protect their investments.
GERMANYI. Corporate purposes:In Europe, the Codes of corporate governance emphasize that corporate