ABSTRACT
In recent years, considerable attention has been devoted to differences across countries in the institutional environments in which corporations operate, and the consequences of these institutional differences for corporate performance. One branch of this literature has been concernedwith corporate governance structures.1 Under the broad heading of corporate governance are usually included (1) the identity and degree of concentration of ownership, (2) the institutional structure bywhich ownersmonitor and controlmanagers bymeans of boards of directors and the like, and (3) the institutional structure for disciplining and replacing managers as, for example, through proxy contests and/or takeovers. A second branch of the literature focuses upon the broader legal environment in which corporations operate. Within this literature would come laws governing a shareholder’s access to various sorts of information about a company, a shareholder’s rights to sue the management for certain actions detrimental to the shareholder’s interests, and so on.2 Although corporate governance structures are imbedded within the broader legal system of a country and thus are affected by it, the two sets of institutions are not synonymous, as we shall explain shortly. One distinction drawn within the corporate governance literature is between
“insider” governance systems in which ownership stakes are concentrated and the major stakeholders are directly represented on the boards that monitor managers, and perhaps in management itself, and “outsider” governance systems in which ownership stakes are dispersed, and owners exercise indirect control on management by electing representatives to the monitoring boards, or perhaps by voting on specific proposals of management. The United States and Great Britain are the most important examples of countries with outsider governance systems, and thus this form of governance structure is often called the “Anglo-Saxon” system. Within the insider category, two rather different structures can be identified.
In the first system, which is common in Germany, Austria, Switzerland, and some of the other Continental European countries, and is therefore often called the “Germanic” system, control is typically unidirectional. A family, bank or Company X owns a substantial or controlling interest in a particular Company Y and has representatives on Y ’s supervisory board. Company Y , in turn, owns a controlling interest in CompanyZ, which in turn controls CompanyW , and so on. Companies Y , Z, andW on the other hand, do not own shares in the organizations
that stand above them in the corporate pyramid. In this waywe can speak of control being unidirectional. In contrast, in the “Japanese-form” of insider system, several companies are
linked together through interlocking directorships, which are backed by crossholdings of one and another’s shares. Within these intertwined groups of firms, there is also typically a bank, which holds shares in several of the companies in the group, and has representatives on their supervisory boards.3 Within the Japanese or zaibatsu style system, therefore, control is multidirectional with each company able to exercise some control over the companies that control it. In this chapter, we examine the characteristics of the different types of corpo-
rate governance systems that exist around the world, the goals of the different actors in each type of system, and the consequences of each system for company performance.
