The 2008 crash has left all the established economic doctrines - equilibrium models, real business cycles, disequilibria models - in disarray. Part of the problem is due to Smith’s "veil of ignorance": individuals unknowingly pursue society’s interest and, as a result, have no clue as to the macroeconomic effects of their actions: witness the Keynes and Leontief multipliers, the concept of value added, fiat money, Engel’s law and technical progress, to name but a few of the macrofoundations of microeconomics. A good viewpoint to take bearings anew lies in comparing the post-Great Depression institutions with those emerging from Thatcher and Reagan’s economic policies: deregulation, exogenous vs. endoge- nous money, shadow banking vs. Volcker’s Rule. Very simply, the banks, whose lending determined deposits after Roosevelt, and were a public service became private enterprises whose deposits determine lending. These underlay the great moderation preceding 2006, and the subsequent crash.

The Economic Institutions of Capitalism

We address the question of how and why corporate social responsibility (CSR) differs among countries and how and why it changes. Applying two schools of thought in institutional theory we conceptualize, first, the differences between CSR in the USA and Europe and, second, the recent rise of CSR in Europe. We also delineate the potential of our framework for application to other parts of the global economy.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID978942_code791757.pdf?abstractid=978942&rulid=5283126&mirid=5

'Implicit' and 'Explicit' CSR: A Conceptual Framework for a Comparative Understanding of Corporate Social Responsibility

We address the question of how and why corporate social responsibility (CSR) differs among countries and how and why it changes. Applying two schools of thought in institutional theory, we conceptualize, first, the differences between CSR in the United States and Europe and, second, the recent rise of CSR in Europe. We also delineate the potential of our framework for application to other parts of the global economy.

/pdf/implicit-and-explicit-csr-a-conceptual-framework-for-a-38w9ne367r.pdf

“Implicit” and “Explicit” CSR: A Conceptual Framework for a Comparative Understanding of Corporate Social Responsibility

We develop a theoretical model to describe and explain variation in corporate governance among advanced capitalist economies, identifying the social relations and institutional arrangements that shape who controls corporations, what interests corporations serve, and the allocation of rights and responsibilities among corporate stakeholders. Our “actor-centered” institutional approach explains firm-level corporate governance practices in terms of institutional factors that shape how actors' interests are defined (“socially constructed”) and represented. Our model has strong implications for studying issues of international convergence.

https://www.jstor.org/stable/pdfplus/30040732.pdf

The Cross-National Diversity of Corporate Governance: Dimensions and Determinants

Outside the United States and the United Kingdom, large corporations usually have controlling owners, who are usually very wealthy families. Pyramidal control structures, cross shareholding, and super-voting rights let such families control corporations without making a commensurate capital investment. In many countries, a few such families end up controlling considerable proportions of their countries’ economies. Three points emerge. First, at the firm level, these ownership structures, because they vest dominant control rights with families who often have little real capital invested, permit a range of agency problems and hence resource misallocation. If a few families control large swaths of an economy, such corporate governance problems can attain macroeconomic importance—affecting rates of innovation, economywide resource allocation, and economic growth. If political influence depends on what one controls, rather than what one owns, the controlling owners of pyramids have greatly amplified political influence relative to their actual wealth. This influence can distort public policy regarding property rights protection, capital markets, and other institutions. We denote this phenomenon economic entrenchment, and posit a relationship between the distribution of corporate control and institutional development that generates and preserves economic entrenchment as one possible equilibrium. The literature suggests key determinants of economic entrenchment, but has many gaps where further work exploring the political economy importance of the distribution of corporate control is needed.

/pdf/corporate-governance-economic-entrenchment-and-growth-4e2ab431gn.pdf

Corporate Governance, Economic Entrenchment, and Growth

Corporate governance is concerned with the resolution of collective action problems among dispersed investors and the reconciliation of conflicts of interest between various corporate claimholders. In this survey we review the theoretical and empirical research on the main mechanisms of corporate control, discuss the main legal and regulatory institutions in different countries, and examine the comparative corporate governance literature. A fundamental dilemma of corporate governance emerges from this overview: regulation of large shareholder intervention may provide better protection to small shareholders; but such regulations may increase managerial discretion and scope for abuse.

Corporate Governance and Control

1. The Control of Corporate Europe 2. The Separation of Ownership and Control in Austria 3. Shareholding Cascades: The Separation of Ownership and Control in Belgium 4. Ownership and Voting Power in France 5. Ownership and Voting Power in Germany 6. Pyramidal Groups and the Separation between Ownership and Control in Italy 7. Ownership and Control in the Netherlands 8. Ownership and Control of Spanish Listed Firms 9. Ownership and Control in Sweden--Strong Owners, Weak Minorities, and Social Control 10. Strong Managers and Passive Institutional Investors in the United Kingdom 11. Beneficial Ownership in the United States THE LARGE HOLDINGS DIRECTIVE COMPARATIVE TABLES

The control of corporate Europe

Written by an international team of authors, this book provides the first systematic account of the control of corporate Europe based on voting block data disclosed in accordance with the European Union's Large Holdings Directive (88/627/EEC). The study provides detailed information on the voting control of companies listed on the official markets in Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Sweden, the United Kingdom, and, as a benchmark comparison, the United States. The authors record a high concentration of control of corporations in many European countries with single blockholders frequently controlling more than fifty per cent of corporate votes. In contrast, a majority of UK listed companies have no blockholder owning more than ten per cent of shares, and a majority of US listed companies have no blockholder with more than six per cent of shares. Those chapters devoted to individual countries illustrate how blockholders can use legal devices to leverage their voting power over their cash-flow rights, or how incumbents prevent outsiders from gaining voting control. It is shown that the cultural and linguistic diversity of Europe is (almost) matched by its variety of corporate control arrangements. Contributors to this volume - Jonas Agnblad (Nordic Capital - leveraged buy-out fund in Stockholm) Fabrizio Barca (Italian Treasury/Sienna University) Marco Becht (Institute for European Studies/Solvay Business School/Universite Libre de Bruxelles) Erik Berglof (Stockholm School of Economics/CEPR) Marcello Bianchi (Consob - Stock Exchange and Public Companies Italian Authority) Magda Bianco (Bank of Italy) Laurence Bloch (Technical Adviser, French Foreign Trade Ministry) Ekkehart Boehmer (New York Stock Exchange) Ariane Chapelle (Solvay Business School/Universite Libre de Bruxelles) Rafel Crespi-Cladera (Universitat Autonoma, Barcelona) Abe de Jong (Erasmus University, Rotterdam) Luca Enriques (University of Bologna) Miguel Garcia-Cestona (Universitat Autonoma, Barcelona) Marc Goergen (UMIST) Klaus Gugler (University of Vienna) Peter Hogfeldt (Stockholm School of Economics) Rezaul Kabir (University of Tilburg) Susanne Kalss (University of Klagenfurt) Elizabeth Kremp (Ministry of Economy, Finance, and Industry, France) Teye Marra (University of Groningen) Colin Mayer (Said Business School) Luc Renneboog (University of Tilburg) Ailsa Roell (Princeton University) Alex Stomper (University of Vienna) Helena Svancar (Enskilda Securities - Nordic investment bank) Josef Zechner (University of Vienna)

This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its U.K. Focus Fund (HUKFF). In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking. We categorize the engagements and measure their impact on the returns of target companies and the fund. We find that Hermes frequently seeks and achieves significant changes in the company's strategy including refocusing on the core business and returning cash to shareholders, and changes in the executive management including the replacement of the CEO or chairman.

/pdf/returns-to-shareholder-activism-evidence-from-a-clinical-3sc1awv2rf.pdf

Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund

This article reports a unique analysis of private engagements by an activist fund. It is based on data made available to us by Hermes, the fund manager owned by the British Telecom Pension Scheme, on engagements with management in companies targeted by its UK Focus Fund. In contrast with most previous studies of activism, we report that the fund executes shareholder activism predominantly through private interventions that would be unobservable in studies purely relying on public information. The fund substantially outperforms benchmarks and we estimate that abnormal returns are largely associated with engagements rather than stock picking.

/pdf/returns-to-shareholder-activism-evidence-from-a-clinical-3ddbt2dbrz.pdf

Marco Becht

Papers

Corporate Governance and Control

The control of corporate Europe

The control of corporate Europe

Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes UK Focus Fund

Returns to shareholder activism: evidence from a clinical study of the Hermes UK Focus Fund