Anglo-American corporate governance system can be understood only in the context of a competitive capital market. Basic tenets of this system are:

1. Managers are separate from shareholders. So shareholders can easily sell and buy shares in the stock exchange.

2. Shareholders' interference in management is to be avoided provided managers manage firms in the interest of shareholders.

3. Managers will have clear information about shareholders' expectations and shareholders will have enough information to judge whether their expectations are being met or not. This information-exchange will take place primarily in the form of stock prices.

This system is a many-layered arrangement of parts which are both internal and external to a firm. The first part is the Board of Directors which has to be sensitive to the changing circumstances and changing perceptions and expectations of shareholders. Large shareholders usually appoint their representative to the board. Small, dispersed shareholders do not enjoy this facility and so the second part emphasizes adequate disclosure and transparency in communicating with them. The third layer, is occupied by auditors who report to shareholders about firm performance. The fourth layer, provides for the exercise of voting rights of shareholders and for raising their collective voice over contentious issues through proxy fights. This internal arrangement is designed to give ‘voice’ to investors.

Capital market directly supplements this arrangement. Stock prices indicate investors' assessment of firm performance and by disposing off their shares, shareholders can communicate their displeasure to managers. Similarly, investors and entrepreneurs notify management about its under-performance through a takeover bid. The stock exchange gives ‘exit’ option to investors.

Till the 1990s, exit option dominated voice option in Anglo-American corporate governance.