“Politics, Institutions, Society: Competing Explanations of Corporate Governance the World Around"...
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Transcript of “Politics, Institutions, Society: Competing Explanations of Corporate Governance the World Around"...
“Politics, Institutions, Society:
Competing Explanations of Corporate Governancethe World Around"
Peter Gourevitch IR/PSUCSD
UC Human Social Complexity VideoconferenceJanuary 5, 2007
May 25, 2006 Northwestern
Key Questions:
What explains variance in corporate governance around the globe?
May 25, 2006 Northwestern
Figure 1.1: Ownership ConcentrationFigure 1: ownership conent.
May 25, 2006 Northwestern
Monitoring the managers: the “incomplete contract”
-- how to avoid:
--getting ripped off by managers (Enron)
--getting ripped off by insider owners (Adelphia, Parmalat in Italy)
-- getting ripped off by the other players: subcontractors, workers, etc.
The corporate governance problem:
May 25, 2006 Northwestern
What works: crony capitalism, arms length market?
Before 1997: Japan, German > US
After 1997: Crony capitalism US> Japan, Asia,
After 2001/02: Enron, World Com, Adelphia, Parmalat, etc.
So, why the variance in systems?
May 25, 2006 Northwestern
Diffuse Ownership Model
Roe, p 2
Roe chart 1 diffuse model
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Dominant stockholder model
Roe, p. 3
Roe Chart two l block
May 25, 2006 Northwestern
External diffuse shareholder model: --many shareholders, elect board, board picks managers; -Strong(MSP-Minority shareholder protection in law--Forbids insider trading; accounting and other informationwith RI-reputational intermediaries; strong market for control
Internal concentrated blockholder model (“stakeholder”) --few large shareowners; control board which picks Managers ---Weak MSP, -- no rules on insider trading, --weak information reporting standards, --weak market for control, weak anti trust -- lots of Cross shareholding or pyramid control
Solution: two models:
May 25, 2006 Northwestern
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Blockho , msp Figure
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What explains strong MSP ?
Politics: authoritative law, regulation and their enforcement.
May 25, 2006 Northwestern
Why Do Corporate Governance systems differ around the world?
Minority shareholder protections (MSP):
Regulations in product markets, competition, prices, education, etc.: Varieties of capitalism
May 25, 2006 Northwestern
Three meanings to Politics:1. Legal formalism
2. Political institutions : de jure forms of power.
3. Political sociology: de facto forms of power: economic/political sociology: interest groups, etc.
May 25, 2006 Northwestern
1. Legal formalism: legal family
Procedures and mechanisms of a particular legal system..
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What determines level of MSP?Standard view in Law and economics:
COMMON VS. CIVIL LAW--LLSV
Common law produces high MSP, and thus high Diffusion
Civil law produces low MSP, thus low diffusion, andBlockholding.
May 25, 2006 Northwestern
COMMON LAW --English Origin. UK, US, Canada, Ireland, Australia, Hong Kong,
India, Kenya, Malaysia, New Zealand, Nigeria, Pakistan , Singapore, South Africa, Sri Lanka, Zimbabwe, plus Thailand, Israel
CIVIL LAW:French—All of France’s former colonies, Spain, most of
Latin America, Turkey, Indonesia, Netherlands, Greece
German law—Austria, Germany, Japan, South Korea, Switzerland, Taiwan
Scandinavian – Denmark, Finland, Norway, Sweden
Common civil distribution
May 25, 2006 Northwestern
I. VARIANCE OVER TIME Countries have changed MSP but not legal system, thus
Japan and France and US. -- not unidirectional. II. Does CODE equal LAW: Any common law country could legislate overrides of protections by judges. Any civil law country could legislate protections
III. ENFORCEMENT Common law country could have poor enforcement, civil law good III. CIVIL LAWS COUNTRIES IN FACT VARY A LOT Scandinavian ones have high MSP but low diffusion
Problems with Legal Family argument
May 25, 2006 Northwestern
R and Z over time
May 25, 2006 Northwestern
Political Processes and Corporate Governance outcomes
Policy expresses outcomes of Political processes:
II. Formal political institutions -- mechanisms which aggregate preferences
III. Preferences and political resources of major groups:
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2. Preferences
Policy expresses social demands on politicians: --
Importance of Civil society what do actors want:
what power resources:
(de facto vs. de jure: De jure cannot bind in the face of de facto: “self enforcing” so
long as they want them):
May 25, 2006 Northwestern
Left right -block diagram
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Left right measures (Roe)
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Law vs. Politics: the combat
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Preferences of groups; form political coalitions . It is not about efficiency, but about who benefits:
--Owners (investors) : -- outsider vs. insider?
--Managers -- autonomous or subordinate?
--Workers -- as employees ?-- as pension asset holders?
Groups in corporate governance conflict
May 25, 2006 Northwestern
Table 1.xxx.x Political Coalitions andOutcomes
Coalitional Lineup Winner Model Outcome
Pair A: Class ConflictOwners + Managers vs.Workers
Owners +Managers Investor Diffusion
Owners + Managers vs.Workers Workers Labor Blockholding
Pair B: SectoralOwners vs. Managers +Workers
Managers +Workers Social Bargain Blockholding
Owners vs. Managers +Workers Owners Oligarchy Blockholding
Pair C: Property andVoiceOwners + Workers vs.Managers
Owners +Workers Transparency Diffusion
Owners + Workers vs.Managers Managers Managerism Diffusion
table Coalitions
May 25, 2006 Northwestern
POLITICAL VARIABLES -- alternative alignments:
--LEFT VS. RIGHT PARTISANSHIPLABOR VS. CAPITAL -
--CROSS CLASS--SECTOR: WORKERS AND MANAGERSVS. OWNERS - CORPORATIST COMPROMISE
--CROSS CLASS: VOICE TRANSPARENCY--WORKER AND OWNERS VS. MANAGERS(Pension funds and external shareholders)
Coalitions
May 25, 2006 Northwestern
Coalition Combinations -- external investor dominant: MSP high
--manager, internal blockholders, labor: MSP low
--transparency coalition: labor pension funds plus external investors: MSP high Several examples of this in US, Germany, SouthKorea, an important development in politics of corporate governance-- pension funds:
May 25, 2006 Northwestern
Pension Assets&
MSPs
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PensionDebt &MSPs
Figure 7.1 Implicit Pension Debt and Shareholder Protections
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3 .Political Institutions:
Institutions: == Mechanisms for aggregating demands
Vary the political institutions, you get different results.
-- parchment institutions, formal rules, procedures, constitutions.
May 25, 2006 Northwestern
Aggregating mechanisms
a. Consensus institutions --
PR electoral laws, multi party coalition governments: CONSENSUS == weak MSP
b. Majoritarian institutions -- single member districts, two party systems --- produce stronger MSP
MAJORITARIAN == strong MSP
See Pagano Volpin AER 2005, Gourevitch and Shinn, 2005
May 25, 2006 Northwestern
Political institutions and Block-holding
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INSTITUTIONS INFLUENCE COALITIONS
Impact:
Small electoral shifts have larger consequences in Majoritarian than in Consensus systems, so undermines basis for cross -class corporatist bargains, more policy variance, and leads to the diffuse market model.
May 25, 2006 Northwestern
Preferences(Owners, Managers,
Workers)
Institutions(Majoritarian,Consensus)
Shareholder Diffusionor
Blockholding
POLITICS
Minority Shareholder Protections
VoC = LME/CME
POLICIES OUTCOMES
Causal Schema
May 25, 2006 Northwestern
Conclusion: Lessons
The argumentation summary:
a. Legal family depends on politics
b. Politics turns on interaction of institutions and social demands
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a. Codes are converging but laws and
practice are not:
Corporate Governance: widespread adoption of Codes of practice ( OECD and other) -- following the legal family approach: what does this mean? What are actual behaviors:
a) From codes to Law: Does the adoption of codes lead to change of laws?
b) From Laws to enforcement: does the adoption of laws lead to enforcement?
May 25, 2006 Northwestern
b. Political Framing
What are the disputes on governance?
•is it More vs. Less regulation ? :
•Or is it “Interest group differences” : who benefits from specific regulations, who wants, who opposes ?
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c. Institutional Investors: -- Cross nationally: pension fund structure correlates with MSP.
--Investors: a coherent group, or fragmented category?
needs more research: there is a lot of variance AMONG institutional investors, on how proactive they are on corporate governance -- :
CalPERS Wisconsin, Ohio Fund and Vanguard vs. Private firms, Fidelity, Merrill Lynch
Role of “reputational intermediaries” understudied:
May 25, 2006 Northwestern
d. One size does not fit all
No sure fixes: institutions and social patterns interact
Since de facto influences de jure, purely institutional arrangements will vary in how they operate.
So , solutions will vary by country, should not assume all do the same .
May 25, 2006 Northwestern
f. Regulations need a politics of support
Designing regulations requires evaluating the support coalitions that make them work:
Designing institutions that encourage lobbies for “good regulations”
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g. De jure vs. de facto institutions
De jure institutions seek to constrain the users: congealed preferences, to bind players over time.
De facto: distribution of political resources in society
De jure vs. de facto institutions ( see Acemoglou, Johnson, Robinson)
May 25, 2006 Northwestern
De facto forms of power
Types of power in civil society:
-landowners,
--money for lobbying, votes
-functional leverage: ability to strike , both labor and capital
--demonstrations:
--paramilitary
-media, schools, churches, ideas
May 25, 2006 Northwestern
De jure vs. de facto forms of power
Causal Hierarchy: 1. Political Institutions trump legal code, de jure
trumps legal code2. De facto trumps de jure:
De facto power can undermine de jure commitments
--a coup--altering interpretation of the rules--changing the laws--changing enforcement
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End!!!
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Ownership concentration
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MSP are not the full story
"…world’s wealthy democracies have two broad packages: (1) competitive product markets, dispersed ownership and conservative results for labor; and
(2) concentrated product markets, concentrated ownership ,and pro labor results. These three elements in each package mutually reinforce each other.” Roe, 2002
May 25, 2006 Northwestern
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May 25, 2006 Northwestern