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Books > Business & Economics > Business & management > Ownership & organization of enterprises
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Political Determinants of Corporate Governance - Political Context, Corporate Impact (Paperback)
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Political Determinants of Corporate Governance - Political Context, Corporate Impact (Paperback)
Series: Clarendon Lectures in Management Studies
Expected to ship within 12 - 17 working days
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Before a nation can produce, it must achieve social peace. That
social peace has been reached in different nations by differing
means, some of which have then been embedded in business firms, in
corporate ownership patterns, and in corporate governance
structures. The large publicly held, diffusely owned firm dominates
business in the United States despite its infirmities, namely the
frequently fragile relations between stockholders and managers. But
in other economically advanced nations, ownership is not diffuse
but concentrated. It is concentrated in no small measure because
the delicate threads that tie managers to shareholders in the
public firm fray easily in common political environments, such as
those in the continental European social democracies. Social
democracies press managers to stabilize employment, to forego some
profit-maximizing risks with the firm, and to use up capital in
place rather than to downsize when markets no longer are aligned
with the firm's production capabilities. Since managers must have
discretion in the public firm, how they use that discretion is
crucial to stockholders, and social democratic pressures induce
managers to stray farther than otherwise from their shareholders'
profit-maximizing goals. Moreover, the means that align managers
with diffuse stockholders in the United States-incentive
compensation, hostile takeovers, and strong shareholder-wealth
maximization norms-are weaker and sometimes denigrated in
continental social democracies. Hence, public firms there have
higher managerial agency costs, and large-block shareholding has
persisted as shareholders' best remaining way to control those
costs. Social democracies may enhance total social welfare, but if
they do, they do so with fewer public firms than less socially
responsive nations. The author therefore uncovers not only a
political explanation for ownership concentration in Europe, but
also a crucial political prerequisite to the rise of the public
firm in the United States, namely the weakness of social democratic
pressures on the American business firm.
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