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

By Mark J. Roe | Go to book overview

CHAPTER 11
Corporate Ownership in Germany and Japan

IF THE CONSTRUCTION of large firms requires the ownership structures found in the United States, then similar ownership and governance structures should eventually emerge in other countries. If large firms in different countries have persistently different ownership structures, the differences would cast doubt on the prevailing paradigm: there might be several ways to solve the organizational problems of large firms, and politics might help to determine the choice among them. Differences would especially support the political paradigm if they tied in to different political histories. If we found the structures abroad to be identical to those in the United States, our inquiry would be harder. Similarity could undermine the political paradigm, but not if it turned out that similar political forces helped to create the foreign similarities. The complex task then would be to sort out whether politics helped determine corporate structure there too.

Drawing sharp conclusions from corporate dissimilarities also has problems, because the dissimilarities might mean either that the foreign nations lag the United States in financial evolution or that their economic task differed from the American economic task. Different structures might also be cosmetic variations, of little economic significance. Politics might explain the differences in structure and form, but those differences might not affect productivity and firm efficiency.

The complex task of sorting out whether democratic politics everywhere influences firms identically is not yet necessary, because the corporate structures in the world's two recent economic successes, Germany and Japan, differ markedly from those in the United States. Senior managers in Germany and Japan face frequently active intermediaries that, among other things, wield the votes of large blocks of stock. Although the foreign firms' organization below the very top resembles that in the United States in similar industries,1 the structure at the top does not. Managers and intermediaries abroad share power, and there are checks, balances, and accountability. No institution or person—neither a single bank, as is sometimes thought, nor the CEO, as is common in the United States—has complete control. In contrast, the American corporate governance structure has until recently usually focused power in management, and especially in the CEO.

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1
Alfred D. Chandler, Jr., The Visible Hand—The Managerial Revolution in American Business 500 (1977).

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