The Future as History: The Prospects for Global Convergence in Corporate Governance and Its Implications
Coffee, John C., Jr., Northwestern University Law Review
What forces explain corporate structure and shareholder behavior? For decades this question has gone unasked, as both corporate law scholars and practitioners tacitly accepted the answer given in 1932 by Adolf Berle and Gardiner Means that the separation of ownership and control stemming from ownership fragmentation explained and assured shareholder passivity.' Over this decade, however, corporate law scholars have recognized that this standard answer begs an essential prior question: if ownership fragmentation explains shareholder passivity, what explains ownership fragmentation? Although the Berle and Means model assumed that largescale enterprises could raise sufficient capital to conduct their operations only by attracting a large number of equity investors, contemporary empirical evidence finds that, even at the level of the largest firms, dispersed share ownership is a localized phenomenon, largely limited to the United States and Great Britain. Not only does the latest comparative research demonstrate that concentrated, not dispersed, ownership is the dominant worldwide pattern,2 but in-depth studies of individual countries show that shareholder activism increases in direct proportion to ownership concentration.' As a result, these findings, in turn, suggest that the conventional governance nouns in the United States may be more the product of a path-dependent history than the "natural" result of an inevitable evolution toward greater ef ficiency.
Propelling this new inquiry into whether the Berle/Means corporation-with its famous "separation of ownership and control"-is the inevitable and efficient endpoint of economic evolution, or only the artifact of political forces and historical contingencies, is the unavoidable reality of increased global competition in both the product and capital markets. As a result, dispersed and concentrated ownership structures not only differ, but they may be forced to compete. Although scholars have debated the relative merits of these rival models for a decade or more, this prospect of an evolutionary competition-with its implication of a Darwinian "survival of the fittest" struggle-is very new. Ultimately, the issue thus posed is which system will dominate, and why: the stock market centered-system of dispersed ownership first described by Berle and Means, or the blockholder and cross-shareholding systems that now prevail across Europe and Asia? Of course, a clear winner does not necessarily have to emerge. The more one believes that political forces are likely to constrain and override purely economic forces, the more one is likely to expect a more muddled and contextual outcome. Thus, the current debate has two levels that can often become confused: (1) Which system of corporate governance is superior?, and (2) Which set of forces-economic or political-is likely to prove more powerful?
To appreciate this distinction, it is useful to understand that the current debate has progressed through several discrete stages. First, beginning eartier in this decade, a provocative new wave of law and economics scholars advanced "political" theories that explained dispersed share ownership in large American corporations as the product of political forces and historical contingencies, not economic efficiency. An undercurrent in this criticism was the theme that political constraints had produced a suboptimal system of corporate governance, with dispersed ownership implying inherently inadequate corporate monitoring. Some of these scholars argued that the Anglo-American pattern of dispersed ownership was clearly inferior to the bank-centered capital markets of Germany and Japan, because the latter enabled corporate executives to manage for the long run, while U.S. managers were allegedly forced to maximize short-term earnings 5 Still, with the burst of the "bubble economy" in Japan, the more recent Asian and Russian financial crises, and notable monitoring failures by German universal banks, the tide of opinion has lately turned against the presumed superiority of banks as monitors. …