Comparative Corporate Governance Essay Example | Topics and Well Written Essays - 2500 words

Comparative Corporate Governance - Essay Example There are several causes that have been cited for the crisis, including the conflicts of interests of Board members and auditors. (Deakin and Konzelmann, 2003:583). But the most relevant one that has been offered is the inherent defects in the shareholder model that the Company had adopted. This model focuses on maximization of shareholder value to the exclusion of other strategic corporate interests. The other major corporate governance model – Rhineland Model, on the other hand, is known as the stakeholder model because it is less susceptible to the kind of financial crisis that afflicted Enron due to the financial manipulation that was taking place. This essay will examine the proposition that the Enron financial scandal might not have occurred if the Company had implemented the Rhineland model rather than the Anglo Saxon model. The Anglo Saxon system of corporate governance places its emphasis upon â€Å"free market operation†, where the ultimate objective of organizational function is the achievement of shareholder value.(Berghe and deRidder, 1999:40). The German system which is based on the Rhineland Model, is much more concerned with a â€Å"socially corrected market economy.†(Berghe and deRidder, 1999:40). This Model attributes a much wider role to the corporation than the maximization of shareholder value. Attention is also directed to other stakeholders in the corporation in terms of objectives, criteria for performance as well as the corporate governance structure and processes. The basic assumption of the Rhineland model is that both labor and capital are necessary and cooperation between the two is important. As a result, it is not only the interests of the shareholders that will be of paramount importance, but also those of employees, customers and suppliers (Vitols:337). When there is a conflict of interest, the interests of the enterprise will take precedence over the interests of shareholders. Hence, the major difference