Political Power and Corporate Control

Political Power and Corporate Control: The New Global Politics of Corporate Governance

Copyright Date: 2005
Pages: 368
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  • Book Info
    Political Power and Corporate Control
    Book Description:

    Why does corporate governance--front page news with the collapse of Enron, WorldCom, and Parmalat--vary so dramatically around the world? This book explains how politics shapes corporate governance--how managers, shareholders, and workers jockey for advantage in setting the rules by which companies are run, and for whom they are run. It combines a clear theoretical model on this political interaction, with statistical evidence from thirty-nine countries of Europe, Asia, Africa, and North and South America and detailed narratives of country cases.

    This book differs sharply from most treatments by explaining differences in minority shareholder protections and ownership concentration among countries in terms of the interaction of economic preferences and political institutions. It explores in particular the crucial role of pension plans and financial intermediaries in shaping political preferences for different rules of corporate governance. The countries examined sort into two distinct groups: diffuse shareholding by external investors who pick a board that monitors the managers, and concentrated blockholding by insiders who monitor managers directly. Examining the political coalitions that form among or across management, owners, and workers, the authors find that certain coalitions encourage policies that promote diffuse shareholding, while other coalitions yield blockholding-oriented policies. Political institutions influence the probability of one coalition defeating another.

    eISBN: 978-1-4008-3701-4
    Subjects: Business, Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
    (pp. vii-xii)
    (pp. xiii-xx)
  5. CHAPTER 1 Introduction and Summary Argument
    (pp. 1-14)

    Enron, WorldCom, Tyco, Adelphia, Ahold (a Dutch firm), Hollinger (Canadian), Vivendi (French), Parmalat (Italian)—these names have long been staples of theFinancial TimesandWall Street Journal, but more recently they have become scandalous and exotic fare on news dailies and TV networks. Since the Enron scandal began in the fall of 2001, these firms, their bankruptcies, and their miscreant executives have become “above the fold” headlines and evening news clips.¹

    In addition to providing entertainment, these examples of financial failure have graphically demonstrated that there is, in fact, what some delicately refer to as a “corporate governance problem.”...

  6. CHAPTER 2 Governance Patterns: What Causes What?
    (pp. 15-26)

    How do politics shape the type of corporate governance we find in various countries? The previous chapter summarizes our ideas. This chapter lays out the operationalization of those ideas and presents a schematic summary of the sequence of causality in our argument.

    We expose the reader to a plethora of numbers and data sets in this book and believe it is wise to introduce at the outset the kinds of data we are using. Different data sets are used to establish both correlation and causation throughout the subsequent chapters, so we think it helpful to lay out the sources of...

  7. CHAPTER 3 Framing Incentives: The Economics and Law Tradition
    (pp. 27-56)

    We repeat the key question of this book: Why is there variance among governance systems? We have seen in the previous chapter that governance patterns vary substantially across countries and across time. Awareness of this variance is relatively recent—only a decade or so old—in the academic literature on corporate governance, though references to variance among countries and over time can be found in a few historical and comparative treatments. With that awareness has come a vigorous debate over explanations of the phenomenon. In this book we wade into the fray.

    The assumptions of our approach are consistent with...

  8. CHAPTER 4 Politics: Preferences and Institutions
    (pp. 57-94)

    Corporate governance confers benefits: it distributes income, power, and authority. Different models of corporate governance distribute benefits differently across groups in society. Naturally enough, groups in any society will push for the system of corporate governance that helps them the most, and oppose the system that hurts them the most. They work through politics to create the public policy regime that reflects their preferences in corporate governance.

    Efficiency considerations alone do not explain corporate governance outcomes. There may be several ways to govern an efficient firm. Distribution issues will influence the outcome. The struggle for power inside the firm is...

  9. CHAPTER 5 Preference Cleavages 1: Class Conflict
    (pp. 95-148)

    Corporate governance practices are the result of policies, which in turn are created by political processes. Policy thus reflects the preferences of social actors as processed by political institutions in each country. Scholarly debates about which political variables really count in determining outcomes often turn on more basic disagreements about the structure of social actors’ preferences, arguments about the pattern ofcleavagesthat sort people into opposing camps on the policy issues.

    Chapter 4 laid out in condensed form our understanding of those cleavage patterns in preferences for corporate governance outcomes. In the next three chapters we probe these models...

  10. CHAPTER 6 Preference Cleavages 2: Sectoral Conflict
    (pp. 149-204)

    The previous chapter explored political cleavages along the class divide between capital and labor to explain variation in corporate governance across countries. In so doing, we identified several cleavages that cut across class. We found different kinds of owners: blockholders and external minority shareholders (“insiders” and “outsiders”), as well as institutional investors with strong links to management and others whose primary allegiance was to their beneficiary shareholders. We found workers with preferences similar to shareholders, and those less sympathetic. In this sense, both the investor and the labor models are flawed, in our view, by their oversimplification of the preferences...

  11. CHAPTER 7 Preference Cleavages 3: Transparency, Voice, and Pensions
    (pp. 205-276)

    In the investor model, workers are irrelevant. The labor, corporatist, and transparency models, in contrast, explicitly acknowledge the significance of workers as both employees within firms and voters within a polity. Employees are active players in the formation of corporate governance practices. Moreover, in the investor and labor models, workers’ preferences are uniformly portrayed as antagonistic to those of “capital.” But in the corporatist and transparency models, both labor and capital are internally divided, so that bargains across the class divide can, and do, occur.

    That owners and workers can have conflicting goals surprises no one. That managers and workers...

  12. CHAPTER 8 Conclusion: Going Forward
    (pp. 277-296)

    In this concluding chapter we return to the core questions of this book and sum up the answers we submit, including some brave speculation about the future trajectory of corporate governance. We then frankly acknowledge the manifold shortcomings of our argument and data, in the spirit of humility appropriate to scholars exploring a relatively new area, based on statistics and country cases that are necessarily incomplete. These shortcomings provide guideposts for future research. After declaring these caveats, we close by exploring some of the theoretical and public policy implications of our findings.

    In this book we have been trying to...

  13. Data Appendix
    (pp. 297-312)
    (pp. 313-332)
  15. INDEX
    (pp. 333-344)