the global history of corporate governance an introduction randall k. morck and lloyd steier zhu...

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

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The Global History of Corporate Governance An Introduction

The Global History of Corporate Governance An IntroductionRandall K. Morck and Lloyd Steier

Zhu GuangyaoStructureA general overview of Capitalism a variegated collection of economic systemIn America In much of the rest of the worldWhat is capitalismIndependent corporations compete for customersImmensely wealthy families control great corporations, even gov. Competition Monopolies are illegalCompetition is a mirageEquity Structure1)Dispersed, 2)most shareholders are disorganized and powerless, 3)institutional investors give them voice louder1)concentrated, 2) wealthy families are powerful and control great corporation, 3) few firms are genuinely independentManagementCEO (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 costTo Whom Dare We Entrust Corporate Governance?Purposes of this volume: Two QuestionsTo Whom Dare We Entrust Corporate Governance?To Whom Dare We Entrust Corporate Governance?Two features of corporate governancecorporate governance is entrusted to very different sorts of people and constrained by very different institutions

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

To Whom Dare We Entrust Corporate Governance?Does It Matter?conclusionCapital is allocated to firms that can use it well and is kept away from firms that are likely to waste itPracticed in the United Kingdom and United StatesEntrusted to CEOs and other professional managersCost: monitoring cost. How to solve: disclosure, management pay, prohibitionsProblems: good managers are penalized and poor ones rewarded if investors get things wrong, and this seems to happen with some regularity. Shareholder CapitalismDoes It Matter?investors are deeply mistrustful of most companies and prefer to invest to persons of good reputationThe most common system (Japan, Korea etc.)Entrusted to wealthiest few familiesprovide investors with fewer legal rightsProblems: 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, KoreaEntrusted to bankers, bankers intervene the governance of firmsProblems: 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 CapitalismDoes It Matter?Paying taxes and letting the state provide capital to businessesChinaEntrusted 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 CapitalismDoes It Matter?only option left if people mistrust all aboveProblems: company must grow using its earnings alone, which is economically inefficient, difficult for impecunious entrepreneursHoarding gold and silver coins

Does It Matter?conclusionDoes It Matter?Look Back: Four Capitalism CapitalismShareholder CapitalismFamily CapitalismBank CapitalismState CapitalismConceptCapital is allocated to firms that can use it well and is kept away from firms that are likely to waste itInvestors are deeply mistrustful of most companies and prefer to invest to persons of good reputationInvestors 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

CountriesUS, UKMexico, Japan, KoreaGermany, Japan, KoreaChinaEntrusteeCEOswealthiest few familiesBankersPublic OfficialsProblemsCannot truly reflect the skills of managersSolid, rigidify, conservativeBankers may misgovernPublic officers may inept or selfishTwo Emerging Points raised by Prof. ShenTendency State Capitalism (China)

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

Further ReadingState capitalism in China Of emperors and kings -Chinas state-owned enterprises are on the march , 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 forcesThe great power of State-owned Assets Supervision and Administration Commission (SASAC) Genuinely independent firms are starved of formal credit, so they rely on Chinas shadow banking systemStudies show state-owned firms maybe inefficient and not well-managedMain Reason: state firms must pursue states aimsHowever, SASAC still deserves some praise(running management-training courses, establishing codes of conduct)

Further Reading