What is the Anglo-American governance model?

Experts often say that the ultimate focus of this particular governance model is shareholder return – in other words, governance is structured to make them the most money. 

It is sometimes called the Anglo-Saxon model and exists alongside other examples like the German, Nordic and Japanese models. 

Let’s dive into the details:

It’s the governance model that is most prevalent in English-speaking nations such as the UK and the United States. 

In this model, shareholders are the ultimate focus; every other stakeholder group, such as employees, customers and communities, is secondary. 

• Many independent investors/shareholders who put money into the company but have little or nothing to do with it otherwise. 
• Many of these investors are institutional, like banks or mutual funds. They invest purely for financial gain and have little problem selling their shares if they feel it’s the right move. 
• The board is a single team answerable to the shareholders with minimal bureaucracy. Some management will sit on this board.
• Management personnel come from the industry’s top talent, with salaries to match. 
• Companies tie executive pay to performance with a short-term lens to measure this. 
• Shareholders are kept in regular contact with the board and provided with frequent chances to voice approval or disapproval, as well as thorough reporting.

It’s subjective, differing based on industry and country. But, in general, many companies opt for this model because it allows them to pursue higher growth faster. 

Such a streamlined relationship between shareholders, the board and management means that conducting business involves fewer checks and balances, giving corporate leaders – notably the CEO and board members – more freedom to act.

Shareholders enjoy this model because the top priority is always maximising their returns.

The lack of checks and balances can be a positive in some people’s eyes but a negative in others. 

Realistically, while it gives more freedom, it opens the business up to greater risk-taking, which might not always end up well. 

It also allows executives to amass significant wealth, power and leverage over other stakeholders. In the wrong hands, this kind of runaway leadership can land a company in hot water fast. 

Additionally, some critics don’t like that executive compensation is based on performance. They say it encourages leaders to focus only on short-term gain and forget sustainability.

The Anglo-American (or Anglo-Saxon) governance model prioritises shareholder return, shareholder participation, and minimal bureaucracy. 

People appreciate its ability to boost high growth quickly but criticise it for its lack of a sustainability mindset and risk.