What is the Anglo-American Governance Model?

Also known as the Anglo-Saxon Model, the Anglo-American Model is commonly utilized as a basis of corporate governance in the USA, UK, Canada, Australia, and other English-speaking nations. It basically suggests how an organization’s stakeholders must relate to each other to maintain good governance. 

This model primarily focuses on shareholders and secondary, other stakeholders including customers and employees. It is also used by businesses to maximize returns and achieve higher growth, with minimal bureaucracy and shareholder participation. 

What is the structure of the Anglo-American model?

The Anglo-American governance model follows a single-tier board structure. In this, the same board of directors governs both management oversight and strategic decision-making. The structure also applies to the separation of ownership and control, in which shareholders entrust the board to manage and make decisions in their best interest. 

What are the characteristics of the Anglo-American model?

Some of the defining characteristics that shape the Anglo-American governance model include:

• Shareholder primacy is central in this model, with decision-making focused on maximizing shareholder value. 
• Flexible, market-driven approach that encourages companies to adapt quickly to changes in the business environment. 
• High level of transparency in operations and a strong emphasis on clear reporting, building stakeholder trust in the long run. 
• Performance-based executive compensation, and also aligns the interests of management with those of the shareholders. 
• Competitive corporate control, as companies are subject to market forces like threats of takeovers or mergers.

What are the advantages of the Anglo-American model?

The Anglo-American model has become a benchmark for corporate governance practices across many countries, making it one of the most widely adopted frameworks worldwide. Below are some advantages that make this model a preferred choice for many businesses.

1. Greater access to capital — The Anglo-American model has a strong appeal to investors, as it is a governance system that prioritizes shareholder value. Hence, companies adhering to this model are perceived as safe and lucrative investments. For instance, the model can foster transparent financial reporting, coupled with a focus on maximizing returns, reassures institutional investors and shareholders alike. 
2. Increased market competitiveness — The model allows organizations to adapt rapidly to shifts in market conditions and consumer demands. It can act as a guide in pivoting strategies without being bogged down by bureaucratic red tape. Therefore, giving businesses an edge over competitors who may be slower in responding to new challenges or opportunities. 
3. Better innovation and risk-taking — Businesses using the model can operate in an environment where management is empowered to take calculated risks in pursuit of growth. For example, investing in electric vehicles and renewable energy was seen as a significant risk at the time, but has better positioned many companies in the automotive industry like Tesla. This level of risk-taking drives innovation, which is facilitated by the Anglo-American model. 
4. Enhanced corporate accountability — The Anglo-American model typically operates within legal frameworks that promote accountability and transparency, particularly in countries like the US and UK. For instance, companies using this model are often required to comply with reporting standards and are subject to legal scrutiny from regulatory bodies like the Securities and Exchange Commission (SEC).