Over the past half decade, although there have been a convergence in the economies and business practices, the difference of ownership structures amount countries have continued. Most companies shares the same goals which includes the utilization of resources efficiently, it’s ability to garner new capital, increase the company’s value and improve information for decision making. These goals should see many companies and organizations moving towards a single corporate set of rules and structures that will allow efficient and effective operations.
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However, today we continue to observe differences in corporate governance ownership and structure around the globe. There are two common systems under which most companies operate namely a concentrated ownership system and a dispersed ownership system. A concentrated ownership system, the majority of control is taken up by a small group of individuals, shareholders or bondholders. In dispersed ownership, there is a separation of ownership and control where the executives and directors do not necessarily own any shares or any huge blocks of shares within the company. Under the dispersed system, the markets tend to be very active especially the stock market and large volume of stocks traded daily. Typical example of this type of system is one under which United States of America and United Kingdom operates. Unlike the dispersed system, the concentrated system is weaker and less active than those in the dispersed market. There are also very low standard and accountability in this type of system unlike the dispersed ownership which is more regulated and provide a legal basis on which shareholders can be compensated for breaches and unethical practices. There is a high level of transparency and disclosure requirements for companies especially those listed on the stock exchange compared to the concentrated with very low disclosure standards and transparency .
The emergence of the alternative corporate governance system has led to a number of theorists seeking to justify the existence of such systems. La Porta, Lopez-de Silanes and Schleifer have raised and argued the point in regards to the protection of investors and have indicated that this protection is through the legal rules that exist in the jurisdictions where these securities are being issued. The existing law in a jurisdiction and the enforcement quality are very important factors in determining the rights of shareholders and what protection exists for their investments. These legal protection differences that exist around the world may be able to explain why firms owned and finance the way they do across the globe. LLS & V argued that a contributing factor of the differences in the legal rules that exist across various countries is mainly as a result of the differences in the origins of the legal rules.
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