ABSTRACT
This chapter identifies and discusses some fundamental issues of corporate governance in the transition economy. In the first part we present an overview of the generic tendency toward insider control in transitional economies. By insider control, we mean the capture of substantial control rights by the management or the workers of a formerly state-owned enterprise (SOE) in the process of its corporatization. There are variations in the degree and scope of insider control across transitional economies, depending on national conditions. The tendency is generic, however, in the sense that it is an evolutionary outcome of communist legacies. We argue that the mechanical application of the neoclassical model of stockholder sovereignty for corporate governance design in the transition is not effective in coping with the insider control problem; worse, it may even prolong the transition process.
