Different Corporate Governance Purposes in the Us and Germany

DIFFERENT CORPORATE GOVERNANCE PURPOSES IN THE US AND GERMANY

UNITED STATES

I. 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 board's 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.

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.

GERMANY

I. Corporate purposes:

In Europe, the Codes of corporate governance emphasize that corporate