Divergence or convergence: paradoxes in corporate governance?

Abstract

Purpose

This review paper aims to compare the various dimensions in the finance literature pertaining to the Anglo-Saxon Model (Stockholder Model) prevalent in the USA and the UK with the German Model (Stakeholder Model) of corporate governance prevalent in Germany and continental Europe. The present study identifies different strands of research on the various dimensions of these models, along with aspects of governance in emerging economies and the phenomenon of the convergence of these governance mechanisms.

Design/methodology/approach

The literature review on corporate governance models has been carried out on the themes of internal and external governance mechanisms. The review considers agency theory along with principal–principal (PP) conflicts as the fundamental blocks explaining the need for governance structures.

Findings

The traditional models of governance, along with the incorporation of PP conflicts, will result in a hybrid model inculcating the best of both the traditional models. However, convergence in the true sense may not be possible owing to fundamental differences pertaining to cultural, economic, legal and socio-economic aspects of the firm.

Originality/value

This paper proposes a framework incorporating the interplay of managerial talent and controlling shareholders to understand the governance system that may be applicable for firms in emerging economies.

Citation

Chhillar, P. and Lellapalli, R.V. (2015), "Divergence or convergence: paradoxes in corporate governance?", Corporate Governance, Vol. 15 No. 5, pp. 693-705. https://doi.org/10.1108/CG-05-2015-0066