Strong Managers, Weak Owners: The Political Roots of American Corporate Finance

Strong Managers, Weak Owners: The Political Roots of American Corporate Finance

Strong Managers, Weak Owners: The Political Roots of American Corporate Finance

Strong Managers, Weak Owners: The Political Roots of American Corporate Finance


In this major reinterpretation of the evolution of the American corporation, Mark Roe convincingly demonstrates that the ownership structure of large U.S. firms owes its distinctive character as much to politics as to economics and technology. His provocative examination addresses essential issues facing American businesses today as they compete in the new international marketplace.


What follows is frankly fragmentary. I try here more to suggest new lines of research and thinking about the American public corporation than to provide an exhaustive treatment of the viewpoint I present. The American firm and the structure at its top—where the board of directors, shareholders, and senior managers interact—is not just the result of an efficiency-driven economic evolution. It is, more than has yet been acknowledged, also the result of American politics, particularly the politics that influenced and often dictated the way financial intermediaries—banks, insurers, pension funds, and mutual funds—moved savings from households to firms.

In the 1980s, many of the largest American firms restructured, often painfully. Many became more efficient and productive; some became less so. The relationships among shareholders, boardrooms, and senior managers were in upheaval, and still are. Proposals have arisen to change the way the three interact—some by giving shareholders greater voice in the corporate boardroom, some by giving them less. Often unnoticed is that the controversies of the 1980s and 1990s have been shaped by political decisions, many made long ago. These decisions may eventually be reversed, but a stable reversal (and an understanding of why some reversals will be hard to achieve), must deal with the forces—many of which were political—that created the modern American firm and its boardroom. While today's political forces differ from the past's, we can see why, if the past is any guide, broad changes in corporate governance are not in the cards without becoming a political issue. Corporate forms are malleable, and politics helps to shape them. The political history I give in this book suggests that if today's activism, which is visible but low, becomes a fundamental challenge to accepted ways of doing things, the fight will move from the economic to the political arena, where politics will settle it.

This history matters because corporate governance—the relationship among a firm's shareholders, its board of directors, and its senior managers—matters. And corporate governance matters because management matters. Technologies establish the frontier of what the firm can do; management determines how close the firm gets to that frontier.

That corporate governance matters can be seen in the 1990s' newspaper headlines of turmoil in corporate boardrooms; CEOs' tenure has become insecure, and activist boards are holding some firms' CEOs accountable for their firms' performance. The form of today's accountability is new, but the substance is not: the hostile takeovers of the 1980s were also fights about how to govern large firms at the top. And international competition makes . . .

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