Transcript
Page 1: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

The Global History of Corporate Governance

An IntroductionRandall K. Morck and Lloyd Steier

Zhu Guangyao

Page 2: The Global History of Corporate Governance An Introduction Randall 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

Page 3: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 4: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 5: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

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

Page 6: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 7: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 8: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

Does It Matter?

Shareholder Capitalism

Family Capitalism

Bank Capitalism

State Capitalism

Hoarding gold and silver coins

conclusion

Page 9: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 10: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 11: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 12: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 13: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

• 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?

Page 14: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

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?

Page 15: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

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

Page 16: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

Two Emerging Points raised by Prof. Shen

• Tendency State Capitalism (China)

• Hong Kong Family capital ratio is decreasing Trust Funds and IPOs are increasing

Page 17: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

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

Page 18: The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

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


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