What are the definitions of the insider and outsider models of corporate governance respectively?

Since the rise of corporate governance structure in developed western countries in the 1990s, it has been mainly summarized into two models: the American-British model and the continental model. The former is the outsider model, represented by the United States; the latter is the insider model, represented by Japan. Enterprises in the two countries are unique in their development background, market structure, and cultural traditions, and they have led to significant differences in their corporate governance structures. The following is a comparison of the U.S. and Japanese models of corporate governance structure from three aspects: the background of the emergence of corporate governance structure, the external governance structure model of the company and the internal governance structure model.

1. The background of the U.S. and Japan's corporate governance structure

The United States from the Constitution to 1840 more than half a century of time, is still a predominantly agricultural economy of the country. At this time, the United States has not yet existed over the joint-stock company. But from 1840 onwards, the U.S. joint-stock companies to the development of railroads as a starting point and the rapid rise of this modern enterprise system and then quickly spread to wholesale, retail, finance, manufacturing and other major industries. The United States has become the birthplace of the modern corporate enterprise, the United States company's organizational system, management methods, etc. for other Western countries to follow.

The rapid development of joint-stock companies in the United States has led to the rapid concentration of the country's economic power in the hands of a few large joint-stock companies, but the concentration of economic power and the dispersion of ownership of joint-stock companies is synchronized. In the trend of increasingly decentralized ownership of joint-stock companies, in which the amount of shares required to hold a "meaningful stake" is also decreasing. As a result, the modern joint-stock company is dominated by a minimum number of shares, and even operators with no shares at all can exercise dominant power. Into the 1970s and 1980s, the trend toward ownership of U.S. joint-stock companies continued to grow. According to statistics, in 1982, the number of direct holders of shares of listed companies in the United States amounted to 32 million, and together with the number of indirect holders (i.e., registering and holding shares with stockbrokers), the number was as high as 133 million, accounting for about 60% of the population of the U.S. This does not include shareholders of unlisted companies, which account for more than 95% of the total number of joint-stock companies in terms of number, a situation which is other Western countries cannot be compared with other western countries. This dispersion of ownership and operation generates agency costs, and a high degree of equity dispersion generates even greater agency costs. To reduce such costs, it is necessary to set up an appropriate mechanism to incentivize and constrain operators to act in the interests of shareholders, which is the corporate governance structure. The shareholding structure of U.S. companies is very decentralized, the cost of direct supervision, including the cost of obtaining information, is too high, and the power of external shareholders to use ownership to directly constrain is insufficient, resulting in the formation of the U.S. corporate governance structure featuring indirect regulation of the capital market.

The Japanese corporate structure is a typical corporate shareholding structure. Before World War II, the share of equity of large Japanese companies by the family as the core of some of the zaibatsu absolute control, and even reach 100% holding, constituting the pre-war Japanese enterprise ownership characteristics. The U.S. occupation of Japan after World War II resulted in a major structural reorganization of this system. Most of the family-centered zaibatsu were forcibly dissolved, completely eliminating the individual majority shareholders, whose positions were occupied by corporate shareholders. Japanese law does not impose many restrictions on corporate shareholding, unlike the strict restrictions imposed by U.S. legislation. This has led to mutual shareholding among Japanese financial institutions and enterprises. Japanese law for legal person shareholding green light, become the post-war Japanese legal person shareholding rapid development of important reasons.

The cultural traditions that Japan has strengthened the color of its unique corporate shareholding structure. Between Japanese companies, companies and workers, all believe in "harmony", "loyalty", Japanese people have a strong sense of collectivism. These cultural characteristics are reflected in economic activities, that is, the merger between Japanese enterprises rarely occurs, not only because the employees of the merged enterprise is reduced to the subordinate of others, losing the sense of honor of an independent enterprise, but also the employees of the merged enterprise will resist the entry of an unfamiliar group. Therefore, the promotion of corporate expansion through mergers is difficult to realize in Japan. In this way, Japanese companies can only be mutually controlled through mutual investment, cross-shareholding to form a crisscrossing economic network each other, and continue to expand.

2. Comparison of the External Governance Structure Models of U.S. and Japanese Companies

The perfect market system provides a good external environment for the operation of U.S. companies. In the U.S. corporate governance structure model, the market plays an irreplaceable role. The United States is a country with a relatively developed and perfect market economy, and its sound and effective product market, capital market, technology market, and labor market provide convenient monitoring for all relevant stakeholders of its companies. Among them, the product market and the technology market make a quick evaluation of the products and technology of the enterprise and affect the enterprise's finance; and the changes in the enterprise's finance are disclosed through the information disclosure system of the financial market. Financial markets respond through equity and debt markets, which are manifested in the rise and fall of a firm's stock price and the possibility of external financing; transparent securities markets enable potential acquirers of a firm to acquire the firm's stock without hindrance, thereby causing ownership of the firm to change hands, and new shareholders to fire incompetent managers by restructuring the firm's managerial hierarchy; the managerial labor market evaluates the manager's human capital, which results in the incompetent manager's human capital is devalued, which ultimately affects the firm's revenues. Product markets, financial markets, and managerial labor markets constitute a system of external regulation of firms and managers.

In contrast, Japan is relatively weakly marketized, and strong government intervention colors its external corporate governance structure. In the Japanese model, the government strengthens cooperation with firms and participates in their internal governance by formulating economic strategies and applying appropriate industrial and trade policies. The Japanese government uses a variety of means to maintain regular contact with enterprises, exchange information, **** with the discussion, formulation, adjustment, implementation of relevant policies, measures and programs, in this way, to make enterprises operate in accordance with the intentions of the government.

A high degree of transparency in business operations is another feature of the U.S. external governance model. In the United States, a high degree of transparency in business operations is ensured through a four-pronged approach of accounting, external independent auditing, internal oversight systems, and information disclosure to provide an external regulatory environment that is effective in detecting abuses of power by operators. Without full disclosure of information, abuse of power by operators would be difficult to detect. The high degree of operational mechanisms, effective transparency, developed accounting, independent auditing and sound internal controls that characterize U.S. businesses essentially ensure that all business transactions are recorded in a satisfactory manner and disclosed in a fully publicized manner.

Japanese firms, on the other hand, form an external watchdog over the behavior of operators through the camera control of the main bank. In contrast to the United States, where the market is the model of corporate governance, the bank becomes the center of the Japanese model. Although the bank has a small stake in the company it lends to, it can exert significant influence, including: sending personnel to the company as shareholders or creditors; requesting access to relevant information about the company; and negotiating with company executives to understand the company's business situation and deciding whether to make additional loans based on that information. In this way, the bank has a fuller understanding of the company's information, and therefore can form an effective supervision of the company, so that the performance of the stable growth. Government intervention in corporations weakens the governance of corporations by the securities market, and the lack of a functioning market for corporate monitoring rights can lead to serious insider control problems. The main banking system provides a new way of thinking to solve this problem, and forms a strong supervision of the management of enterprises.

3. Comparison of Internal Governance Structure Models of U.S. and Japanese Companies

The internal governance structure of the U.S. consists mainly of the general meeting of shareholders, the board of directors, and the managerial layer. Its well-developed securities market exerts great external pressure on the management aspect of the company. In the financing structure of US companies, it is mainly characterized by equity-based, highly decentralized shares, and the shares are mostly held by institutional investors. This decentralized characteristic leads to the indirect control of ownership, that is, the shareholders through the stock market to buy and sell shares to evaluate the performance of the operator to influence the company's business decisions, rather than through the shareholders' meeting to achieve the owner's control of the enterprise, which has been compared to the image of "voting with their feet". Due to the dispersed small shareholders are difficult to bear the expensive cost of monitoring the problem, but also due to "free-riding" and weaken the constraints on the agent problem. Therefore, the United States through the "vote with your feet" to curb this inefficient internal monitoring shortcomings. It is simple, convenient, low-cost constitute an indirect constraint on the ownership of the U.S. shareholders to become the inevitable choice.

The decentralized nature of U.S. companies leads to an unstable shareholding structure, where shareholders cannot unite to control the company, and therefore the general meeting of shareholders is virtually non-existent. The board of directors and managers operate separately, with the managers responsible for the day-to-day work of the company and the board of directors responsible for making decisions on major projects and supervising the managers. Traditional corporate boards of directors are often made up of internal staff and are therefore unable to fulfill their oversight responsibilities. As a result, modern U.S. companies emphasize the independence of the board of directors. Its directors must not be employed by the company or its subsidiaries, nor be relatives of any company employee, and must not provide any services to the company. These provisions ensure the independence of the board of directors so that its powers can be effectively enforced.

In the Japanese model, the business operator becomes the actual power holder. Japanese corporate shareholders hold shares in each other and in cross combinations, accounting for an absolute share of the enterprise's shares. The mutual ownership of shares by corporate shareholders often causes the influence of the shareholders to cancel each other out. In addition, different corporate shareholders have a tacit understanding of each other, do not interfere with each other, and generally do not oppose the company's proposals, and do not constitute a threat to the decision-making of the operator. Individual shareholders are very decentralized and basically have no influence on the decision-making of the managers.

The governance structure of Japanese companies consists of a general meeting of shareholders, a board of directors, and a board of managers. The board of directors of Japanese companies are mainly from within the enterprise group, this situation makes the top leadership of Japanese companies is both the highest decision-making body, and the highest business executive body, which formed its decision-making and decision-making implementation of the integration of characteristics. Japanese enterprise company directors nominally elected by the shareholders, in fact, by the manager directly nominated by the shareholders' meeting, and the manager is elected on the board of directors, which is tantamount to the manager to elect their own, and in practice led to the operator has a special power beyond the shareholders' meeting.