Political Power and Corporate Control

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.

LIST OF ABBREVIATIONS vii PREFACE xiii CHAPTER ONE: Introduction and Summary Argument 1 Why Fight about Corporate Governance? 3 Great Variance and the "Great Reversals" 4 Putting the Pieces Together: In Search of a Political Explanation 10 Policy Consequences 12 Plan of Attack 14 CHAPTER TWO: Governance Patterns: What Causes What? 15 Outcomes: Dependent Variables and Patterns of Control 16 Capitalist Economic Policies, Minority Shareholder Protections, and Degrees of Coordination 20 Politics: Preferences and Institutions 22 Conclusion 26 CHAPTER THREE: Framing Incentives: The Economics and Law Tradition 27 Origins of the Debate 28 Incomplete Contracts and Private Order 30 Law and Regulation: Minority Shareholder Protections--Information, Oversight, Control, and Incentives 39 Varieties of Capitalism: Degrees of Coordination in Market Economies 51 Conclusion 55 CHAPTER FOUR: Politics: Preferences and Institutions 57 Mapping Financial Interests on Political Processes: A Causal Model 57 Preferences and Coalitions among Owners, Managers, and Workers 59 Political Institutions: Majoritarian and Consensus Mechanisms 67 Alternative Arguments: Legal Family and Economic Sociology 83 Conclusion 93 CHAPTER FIVE: Preference Cleavages 1: Class Conflict 95 Section 1: Owners and Managers Dominate Workers 96 The Investor Model 96 Analytic Narrative 123 Korea: Changing Institutions, Shifting Preferences 123 Section 2: Workers Dominate Owners and Managers 132 The Labor Power Model 132 Analytic Narrative 140 Sweden: The Exemplar of the Labor Power Model? 140 Conclusion 147 CHAPTER SIX: Preference Cleavages 2: Sectoral Conflict 149 Section 1: Cross-Class Coalitions 149 The Corporatist Model: Workers and Managers Dominate Owners 150 Analytic Narrative 159 Germany: From Corporatist Bargain to a Transparency Coalition 160 Japan: Concentration without Owners 167 The Netherlands: The Evolution of "Poldermodel" Corporatism 177 Section 2: Building Coalitions in Authoritarian Systems 187 The Oligarchy Model: Owners Dominate Workers and Managers 187 Analytic Narratives 189 Russia: Oligarchs and Politics 190 China: "Selectorate-Electorate" Coalition 192 Singapore: Shareholder Protections with "Guided" Democracy 199 Conclusion 203 CHAPTER SEVEN: Preference Cleavages 3: Transparency, Voice, and Pensions 205 Section 1: Workers and Owners Dominate Managers 205 From Class Conflict to Corporatist Compromise 206 Analytic Narratives 228 Chile: Authoritarian Roots of the Transparency Coalition 228 Malaysia: Ethnicity and Democracy in Governance Politics 232 Section 2: Managers Dominate Owners and Workers 237 "Managerism" 237 Analytic Narratives 241 The United States: A Contested Path from Oligarchy to MSP 241 United Kingdom: The Power of Majoritarian Political Institutions? 259 France: Without the State, Who Is in Control? 262 Conclusion 273 CHAPTER EIGHT: Conclusion: Going Forward 277 Questions and Answers: What Explains Variance? 277 Shortcomings and Guideposts for Future Research 285 Conclusion: Fighting over the Governance Debate 287 DATA APPENDIX 297 BIBLIOGRAPHY 313 INDEX 333

This is an exceptionally important book, meticulously researched and persuasively argued. It puts today's most pressing questions of corporate credibility and accountability in context, both historical and global. It is filled with information and insights of vital importance to anyone in the corporate world. -- Nell Minow The Corporate Library Gourevitch and Shinn conduct comparative analysis at its best, introducing cross-country quantitative analysis where that is possible and appropriate, but also offering analytical narratives on corporate governance, its likely origins, and the political and legal structures that support it in thirteen countries (mostly in Asia and Europe, but also including Chile and the United States). They combine superb conceptual clarity with informative detail. hard N. Cooper," Foreign Affairs A comprehensive examination of corporate governance. Choice

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