The Global History of Corporate Governance An Introduction
description
Transcript of The Global History of Corporate Governance An Introduction
The Global History of Corporate Governance
An IntroductionRandall K. Morck and Lloyd Steier
Zhu Guangyao
To Whom Dare We Entrust Corporate Governance?• Capitalism is a variegated collection of economics systems • Purpose of this volume• Two features of corporate governance
Does It Matter?• Shareholder Capitalism• Family Capitalism• Bank Capitalism• State Capitalism• Hoarding gold and silver coins• Conclusion
Two Emerging Points & Further Reading
Structure
• A general overview of Capitalism a variegated collection of economic system
In America In much of the rest of the worldWhat is capitalism Independent corporations
compete for customersImmensely wealthy families control great corporations, even gov.
Competition Monopolies are illegal Competition is a mirage
Equity Structure 1)Dispersed, 2)most shareholders are disorganized and powerless, 3)institutional investors give them voice louder
1)concentrated, 2) wealthy families are powerful and control great corporation, 3) few firms are genuinely independent
Management CEO (use or abuse their considerable powers in accordance with their individual political social and economic beliefs)
Professional management (hired to help, subservient to family dynasties that jealously safeguard their power) high cost
To Whom Dare We Entrust Corporate Governance?
• Purposes of this volume: Two Questions
To Whom Dare We Entrust Corporate Governance?
how capitalism came to mean, and to be, such
different things in different parts of the world
How did some economies come to entrust the governance to a
handful of old moneyed families, while others place
their faith in professional CEOs?
To Whom Dare We Entrust Corporate Governance?
• Two features of corporate governance1. corporate governance is entrusted to very different sorts of people and constrained by very different institutions
Individual Wealthy Family Bank State
• La Porta et al.(1999): Mexico: British: Argentina: America: Israel, Hong Kong, Sweden: • Claessens, Djankov, and
Lang(2000), Khanna and Rivkin(2001)
To Whom Dare We Entrust Corporate Governance?
• Two features of corporate governance
2. the pyramidal business group magnifies the economic importance of this difference enough to create genuinely different economic systems structures that permit tiny elites to control the greater parts of the corporate sectors
Single Co.
Apex shareholder(wealthy family)
Listed Co.
Listed Co.
……
To Whom Dare We Entrust Corporate Governance?
Does It Matter?
Shareholder Capitalism
Family Capitalism
Bank Capitalism
State Capitalism
Hoarding gold and silver coins
conclusion
• Capital is allocated to firms that can use it well and is kept away from firms that are likely to waste it• Practiced in the United Kingdom and United States• Entrusted to CEOs and other professional managers• Cost: monitoring cost. How to solve: disclosure, management pay, prohibitions• Problems: good managers are penalized and poor ones rewarded if investors get things wrong, and this seems to happen with some regularity.
Shareholder Capitalism
Does It Matter?
• investors are deeply mistrustful of most companies and prefer to invest to persons of good reputation• The most common system (Japan, Korea etc.)• Entrusted to wealthiest few families• provide investors with fewer legal rights• Problems: governance can deteriorate if the families grows inept, conservative. So they tend to keep the status, keep shareholder rights weak so that the upstarts cannot compete for public investors’ saving.
Family Capitalism
Does It Matter?
• Investors put money in a bank, the bank then lends the money to companies to buy factories, machinery, and technologies. • Germany, Japan, Korea• Entrusted to bankers, bankers intervene the governance of firms• Problems: if a few key banks are themselves misgoverned, the ramifications are much worse and can create problems across all the firms that depend on that bank for capital.
Bank Capitalism
Does It Matter?
• Paying taxes and letting the state provide capital to businesses• China• Entrusted to public officials • Problems: intractable governance problems arise if the public officials have inadequate ability or knowledge to make such decisions or if they skew decisions to benefit politically favored persons or groups.
State Capitalism
Does It Matter?
• only option left if people mistrust all above• Problems: company must grow
using its earnings alone, which is economically inefficient, difficult for impecunious entrepreneurs
Hoarding gold and silver coins
Does It Matter?
conclusion
No country is a pure example of any of these flavors of capitalism
Different variant clearly have different relative importance
Each arise from different circumstances, operate in different ways, and bring different sets of issues to the fore
Does It Matter?
Look Back: Four Capitalism Capitalism Shareholder
CapitalismFamily Capitalism Bank Capitalism State Capitalism
Concept Capital is allocated to firms that can use it well and is kept away from firms that are likely to waste it
Investors are deeply mistrustful of most companies and prefer to invest to persons of good reputation
Investors put money in a bank, the bank then lends the money to companies to buy raw materials
Paying taxes and letting the state
provide capital to businesses
Countries US, UK Mexico, Japan, Korea
Germany, Japan, Korea
China
Entrustee CEOs wealthiest few families
Bankers Public Officials
Problems Cannot truly reflect the skills of managers
Solid, rigidify, conservative
Bankers may misgovern
Public officers may inept or selfish
Two Emerging Points raised by Prof. Shen
• Tendency State Capitalism (China)
• Hong Kong Family capital ratio is decreasing Trust Funds and IPOs are increasing
Further Reading• State capitalism in China Of emperors and kings -China’s state-owned enterprises are on the march <The Economist >, Nov 12th 2011http://www.economist.com/node/21538159#
Criticized the state capitalism, especially aimed at China
State capitalism in China, the economist, Nov. 12th 2011 Main Points: • The Chinese government has quietly obstructed market forces• The great power of State-owned Assets Supervision and Administration
Commission (SASAC) • Genuinely independent firms are starved of formal credit, so they rely on
China’s shadow banking system• Studies show state-owned firms maybe inefficient and not well-managed• Main Reason: state firms must pursue state’s aims• However, SASAC still deserves some praise(running management-training
courses, establishing codes of conduct…)
Further Reading