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 viiPREFACE 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