Showing papers on "Corporate group published in 2004"

The Evolution and Restructuring of Diversified Business Groups in Emerging Markets: The Lessons from Chaebols in Korea

Abstract: This paper proposes an evolutionary model of business groups in emerging economies by tracing the evolution and restructuring of business groups in Korea. Underlying our model are two theoretical premises: (1) the value-creation potential of business group diversification depends on the quality of the economic institutions supporting the economy; and (2) the strategy-structure fit is a key determinant of diversified business groups' performance. Combining these two premises, we link business group evolution with institutional context, sources of competitive advantages, diversification strategy, and structure. To illustrate our theoretical arguments, we provide an overview of the evolution of chaebols in Korea and examine the restructuring of two major business groups, LG and Hyundai Motor. We conclude by discussing implications for management, public policy, and future research.

The Impact of Corporate Governance Practices on Firms' Financial Performance: Evidence from Malaysian Companies

Abstract: I Introduction The East Asian financial crisis of 1997-98 demonstrated the importance of effective corporate governance in developing countries (Krugman 1994; Radelet and Sachs 1998; Rasiah 1999) Malaysia was adversely affected by this financial crisis The contraction of the Malaysian economy, along with instability in the exchange rate and a marked decline in share prices, adversely affected the corporate sector This resulted in considerable retrenchment and downsizing of operations, and the closure of many firms Poor governance standards in both private and government-owned firms were blamed in part for the East Asian financial crisis In Asia, corporations tend to follow the "insider" model, with the dominant control held by the original owners and large shareholders (Sycip 1998; Yamazawa 1998) The erosion of investor confidence was identified as one of the major factors that exacerbated the financial crisis in Malaysia and other Asian countries Many commentators, such as Noordin (1999b), argued that the erosion of investor confidence in Malaysia was brought about by the country's poor corporate governance standards and a lack of transparency in the financial system Therefore, the restoration of confidence in the economy by investors will rely on improvements in corporate governance standards, including the adoption of transparency as an important strategy in corporate management With the economic recovery of most East Asian countries, attention has understandably been drawn to addressing and researching the underlying issues and factors that led to the crisis, with a view to learning how to prevent a recurrence of the crisis The primary purpose of this study is to identify, and contribute to current knowledge on, corporate governance practices that affect, either positively or negatively, the rate of return on investments in firms In this context, the objectives of this article are to briefly discuss the current state of corporate practices of firms in Malaysia, and compare these practices with those of developed countries, such as the United States and the United Kingdom, and to establish corporate governance factors that significantly influence the financial performance of firms in Malaysia A related objective of this article is to indicate the corporate governance practices which do not significantly influence the financial performance of companies in Malaysia The next section of the article contains a brief literature review on the topic This is followed by a depiction of the methods and procedures used for this empirical study The results and conclusions follow II Literature Review II1 The Role of Lenders in Corporate Governance The role of lenders as a force in corporate governance has yet to be extensively analysed (Prigge 1998) Lenders are interested in the repayment of credit, in accordance with the credit contract Since the management's actions are one of the factors determining repayment, lenders may be motivated to carry out monitoring Bilimoria (1997) found evidence to indicate that the Chief Executive Officers (CEOs) of highly leveraged firms were paid less long-term emoluments Using three criteria--total voting power at the general meeting, chairmanship on the supervisory board, and liabilities owed to banks--Perlitz and Seger (1994) classify a sample of 110 listed industry companies into two groups: (1) those companies in which banks exert great potential influence on (comprising fifty-eight companies); and (2) those companies in which banks only have a small potential influence (comprising fifty-two companies) They found that the former group of companies has significantly lower profitability and growth than the latter group of companies Similarly, Cable (1985) and Nibler (1995) discover a positive relationship between apparent bank influence on companies and the profitability and growth of companies However, Chirinko and Elston (1996) did not find any significant relationship between bank influence and a company's earnings …

Asset restructuring and business group affiliation in French civil law countries

Abstract: We examine the relationship of environmental antecedents to asset restructuring in nine French civil law countries in Latin America and Europe. In these countries, business group affiliation helps member firms to access resources, take advantage of environmental opportunities, and neutralize threats. Results indicated that environmental antecedents, such as change in country development, increased competition and deregulation led to increased asset restructuring. More importantly, however, we also found that the influence of environmental factors was moderated by business group membership. The relationship between change in country development and restructuring was stronger for group-affiliated firms and the effects of increased competition and deregulation on asset restructuring were stronger for primarily independent firms. Our study offers additional evidence that organizations may respond differently to environmental opportunities and threats depending on the institutional setting. Copyright © 2004 John Wiley & Sons, Ltd.

Agency Problems and Legal Strategies

Abstract: This article is the second chapter of a book authored by R. Kraakman, P. Davies, H. Hansmann, G. Hertig, K. Hopt, H. Kanda, and E. Rock, "The Anatomy of Corporate Law: A Comparative and Functional Approach," (Oxford University Press 2004). The book as a whole provides a functional analysis of corporate (or company) law in Europe, the U.S., and Japan. Its organization reflects the structure of corporate law across all jurisdictions, while individual chapters explore the diversity of jurisdictional approaches to the common problems of corporate law. "Agency Problems and Legal Strategies" establishes the analytical framework for the book as a whole. After further elaborating the agency problems that motivate corporate law, this chapter identifies five legal strategies that the law employs to address these problems. Describing these strategies allows us to more accurately map legal similarities and differences across jurisdictions. Some legal strategies are "regulatory" insofar as they directly constrain the actions of corporate actors: for example, a standard of behavior such as a director's duty of loyalty and care. Other legal strategies are "governance-based" insofar as they channel the distribution of power and payoffs within companies to reduce opportunism. For example, the law may accord direct decision rights to a vulnerable corporate constituency, as when it requires shareholder approval of mergers. Alternatively, the law may assign appointment rights over top managers to a vulnerable constituency, as when it accords shareholders - or in some jurisdictions, employees - the power to select corporate directors. Finally, the law may attempt to shape the incentives of managers or controlling shareholders, as when it regulates compensation or prescribes an equal treatment norm such as the rule that dividends must be paid out ratably. In addition to Chapter 2, Chapter 1 "What is Corporate Law" is available in full text on the SSRN at http://ssrn.com/abstract=568623. The abstracts for Chapter 3: The Basic Governance Structure; Chapter 4: Creditor protection (http://ssrn.com/abstract=568823); Chapter 5: Related Party Transactions; Chapter 6: Significant Corporate Actions; Chapter 7: Control Transactions; Chapter 8: Issuers and Investor Protection; Chapter 9: Beyond the Anatomy are also/will be available on the SSRN.

Corporate values and corporate governance

Abstract: There is growing interest in corporate values but where do they come from? What factors determine corporate values? This paper argues that they are determined by corporate governance in a broad sense of the word. Three governance mechanisms are emphasized: ownership structure, board composition and stakeholder influence. In smaller companies founder‐owners often play a pivotal role in shaping corporate value systems that influence companies for years to come. In larger companies that separate ownership and control, managers and boards come to play a powerful role. In both cases repeated interaction with customers, employees and other stakeholders shape corporate values by way of corporate reputation and corporate culture.

Are Group-Affiliated Firms Really More Profitable than Nonaffiliated?

Abstract: The role of corporate center in influencing the economic performance of business units has been a central research topic in the industrial organization and strategic management literature. A common finding is the limited corporate and business group effects. Recently, an emerging line of studies argues that the market inefficiencies and institutional voids in emerging markets can be overcome more efficiently by large diversified business groups than by non-group small firms. Some empirical evidence also shows that non-group small firms are significantly less profitable than group-affiliated firms. This paper raises this issue by empirically investigating the influence of group affiliation on the return on assets and Tobin's q of 340 group-affiliated firms versus 423 non-group firms in Taiwan, during the period of 1997–1999. The statistical results show that group affiliation can not always create value for member firms. The size of the business group matters. When affiliated with the largest business groups, member firms indeed show improved stock market performance, but when firms are affiliated with small- and medium-sized groups, their accounting performance suffers. Findings of this paper suggest a threshold effect and a U-shape relationship between group affiliation and profitability in emerging economies.

A road map for corporate governance in east asia

Abstract: Recent academic research suggests that there is a systematic difference between countries in terms of the legal protection accorded to minority shareholders. Two distinct trends have emerged, namely, that the least protection for investors is provided in countries in which ownership of corporations is the most concentrated, and secondly, expropriation of outside shareholders arises most significantly where a company is affiliated with a group of companies, all of which are controlled by the same shareholder. The evidence discussed suggests that the common law system provides more protection for investors, as the transfer of assets and profits out of firms for the benefit of their controlling shareholders is more prevalent in civil law jurisdictions. This new scholarship is significant for two reasons, specifically, its emphasis on the centrality of legal protection for minority shareholders, and the assertion that legal regulation can outperform private contracting. In short, both strong legal regulation and effective enforcement are critical to sound and effective corporate governance. These findings have significant policy implications, as good corporate

Choice of Jurisdiction in European Corporate Law - Perspectives of European Corporate Governance

Abstract: This paper addresses the question what will be the impact of the recently admitted choice of corporate law in Europe and how regulators can and should react. Drawing upon the empirical evidence and theoretical insights produced in the abundant debate on charter competition in the United States, this paper argues that the European scenario differs significantly from the American. A look at the most relevant differences and the analysis of European incorporators incentives allows the conclusion, that at the outset no Member State neither occupies at present, nor has proper incentives and political maneuvering space to assume in the future a similarly preponderant position like the winner in the historical American competition for corporate charters. The key to success in the franchise fee-driven American race lay in the easily cognizable edge successful States' corporate law had from an incorporator's perspective as well as these States' ability to commit themselves credibly to maintaining their advantage. At the crack of dawn of a potential European race, no Member State provides a clearly superior corporate law. Franchise fees as a motivation to excel are banned by European law and could, if at all, only induce the smallest Member States to shape their corporate law with regard to incorporator's needs. However, even this faint prospect is further attenuated. Without a wave of re-incorporations, comparable to the rush from New Jersey to Delaware in early 20th century, the timeframe during which the relatively high entering cost to the market for corporate charter would finally amortize probably exceeds the maximum period the Union's tiny States are willing and able to wait. Hence, although individual preferences of decision-makers may motivate some cross-border (re-)incorporations, no dominant state of incorporation will emerge in the European Union in medium-term. Synthesized with the possible restraints Member States can put on corporate law arbitrage, the important conclusion to be drawn from a public policy perspective is that in the European context some monopoly related forces arguably accountable for a socially undesirable pro-managerial tilt in the American market for corporate charter are not present. Thus, the case for remedying centralized legislation is harder to make in the EU. Some of the prospective and existing harmonization are reassessed under this perspective.

From Cotton Mill to Business Empire: The Emergence of Regional Enterprises in Modern China

Abstract: The demise of state-owned enterprises, the transformation of collectives into shareholding co-operatives, and the creation of investment opportunities through stock markets indicate China's movement from a socialist, state-controlled economy toward a socialist market economy. Yet, contrary to high expectations that China's new enterprises will become like corporations in capitalist countries, management often remains under the control of the onetime bureaucrats who ran the socialist enterprises. The concepts, definitions, and interpretations of property rights, corporate structures, and business practices in contemporary China have historical, institutional, and cultural roots. In tracing the development under founder Zhang Jian (1853-1926) and his successors of the Dasheng Cotton Mill in Nantong into a business group encompassing, among other concerns, cotton, flour, and oil mills, land development companies, and shipping firms, the author documents the growth of regional enterprises as local business empires from the 1890s until the foundation of the People's Republic in 1949. She focuses on the legal and managerial evolution of limited-liability firms in China, particularly issues of control and accountability; the introduction and management of industrial work in the countryside; and the integration and interdependency of local, national, and international markets in Republican China.

Regulatory Competition in EU Corporate Law After Inspire Art: Unbundling Delaware's Product for Europe

Abstract: The decisions of the European Court of Justice in Centros and most recently in Inspire Art will change the business landscape by opening up Europe to legislatory competition in corporate law. This potentially could enable some Member States to enact and enforce corporate law that is preferable for shareholders and managers and thus lure corporate charters away from other Member States with less attractive corporate law. The European debate after Inspire Art will in some part be modeled after the U.S. debate over the "Delaware effect" on American corporate law for well over the past seventy years. Implicit in much of this debate, however, is the assumption, based on the American experience, that legislatory competition in corporate law necessarily means that Member States, after Centros and Inspire Art, will offer both their corporate law and their judicial process for resolving corporate law disputes to managers and investors in other Member States that choose to incorporate abroad. Legislatory competition under this assumption requires the successful offeror of corporate law to offer both an attractive corporate statute and specialized courts that can be relied upon to interpret the law in a predictable manner, thereby inducing managers and investors to incorporate in that jurisdiction. This article suggests that the European experience with jurisdictional competition, at least in the short term and perhaps permanently, could be quite different from that in the United States. We make both a positive and a normative statement that the process of legislatory competition in the field of corporate law in Europe will not and should not follow the American example in all aspects. Using a theoretical framework of New Institutional Economics, we relax the assumptions of perfect information, perfect rationality and zero transaction costs. We also recognize the impact of path dependence and the importance of a learning process in designing regulatory and adjudication frameworks, and we are also aware of the fact that even optimal solutions to regulatory problems may become unstable and suboptimal over time. Although there are many ways in which, because of these factors, the European experience with legislatory competition could be different from that in the United States, we focus in this article on one difference in particular. In the United States, incorporation in Delaware means that corporate law litigation in most cases takes place in Delaware, so that Delaware not only sells corporate charters but also its case law. The buyer has to buy (and is well advised to buy) a bundled product including substantive law (statutory and case law) together with procedural law. This type of bundling of statutory law and adjudication, however, might cause difficulties in Europe. The thesis of this article is that Member States are most likely to survive in the legislatory competition following Centros and Inspire Art if they debundle the corporate law product. Buyers of corporate charters thus should be allowed to choose corporate law of the Member State of incorporation (home country) but have disputes under that law be adjudicated elsewhere, preferably by arbitration panels. A number of factors make it difficult for Member States to offer adjudication to managers and investors in other Member States. These include (i) language barriers (particularly for Member States whose courts do not do business in English), (ii) differences between common law and civil law approaches to adjudication, (iii) procedural differences between courts of Member States that are greater than those between Delaware and other US states, which in turn discourage lawyers from recommending that clients incorporate in Member States outside their own, (iv) the cost to a Member State of building specialized judicial expertise in corporate law, (v) incomplete information about real or perceived judicial bias, (vi) uncertainty concerning conflict of laws within the EU, (vii) uncertainty about mutual recognition of judgments within the EU, and (viii) the fact that an effective adjudication system will require a learning process and that national judges are "poor learners" about the implications of applying national corporate law to international managers and investors. Developing strategies to overcome these barriers to entering the market for a bundled product of corporate statutes plus adjudication may be a realistic long-term strategy for one or more Member States. This article suggests, however, that Member States should also explore strategies to offer their corporate statutes without adjudication by national courts and instead facilitate alternative methods of adjudicating corporate law disputes. Although allowing resolution of disputes under one Member State's corporate law by the local courts of another Member State (probably the "seat" of the corporation) is a possibility, for a variety of reasons we find this to be an unattractive alternative. A more attractive alternative is adjudication by panels of professional arbitrators who specialize in the corporate law of a particular Member State, but who could be citizens of different Member States, and who would apply uniform procedural rules determined by an arbitration association rather than by national courts. This alternative requires that Member States allow corporate charters to provide for arbitration of disputes over corporate internal affairs. A home country, offering its corporate law for corporations having a seat elsewhere (the host country) even could change its national corporate law explicitly to allow for arbitration. If the host country would then try to make that clause unworkable under its own conflict of laws principles this might not be in compliance with the right of establishment as interpreted by the ECJ in Centros and Inspire Art.

Developing Meaning in Action: (Re)constructing the Process of Embedding Corporate Social Responsibility (CSR) in Companies

Abstract: Popular management literature in general and contemporary publications on Corporate Social Responsibility (CSR) in particular make us believe that implementing CSR in organisations is mainly based on rational, strategic and linear conceptions. In day-to-day reality quite a different, rather "messy” pattern emerges. A pattern that can be characterised as incremental, customised and less linear than common belief would have it. This contribution after a brief introduction elaborating the backgrounds of the research project it is based upon focuses primarily on the nature of this process. For this purpose it introduces and discusses a four-phase approach to implementing CSR characterised as [1] sensitising, [2] discovering, [3] embedding and [4] routinising. Against the background of this (re)constructed approach two theoretical reflections are made after some preliminary observations. One concerning the uniqueness and thus ontological nature of these kinds of approaches and a second one concerning the nature of the organisational change they create. This contribution ends with outlining possible questions to be answered in the research still to come. The Authors: Jan Jonker is Associate Professor and Research Fellow at the Nijmegen School of Management University of Nijmegen (The Netherlands). He is also Visiting Professor at ICCSR since 2003. Jacqueline Cramer is Professor at the Erasmus Centre for Sustainable Development & Management, Erasmus University Rotterdam, PO BOX 1738, 3000 DR Rotterdam (The Netherlands). Drs. Angela van der Heijden is Junior Researcher at the same centre of EUR. Address for correspondence: Dr. Jan Jonker, Nijmegen School of Management University of Nijmegen PO BOX 9108 6500 HK Nijmegen, The Netherlands, [em] ianionker@wxs.nl There are two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle. Albert Einstein (1879 1955) [1] Introduction Corporate social responsibility (CSR) is more and more considered to be an important "trend” in society, which requires a new way of thinking about the internal and external organisational issues of organisations, in particular companies. CSR can be described as ‘... the overall relationship of the corporation with all of its stakeholders. Elements of social responsibility include investment in community outreach, employee relations, creation and maintenance of employment, environmental responsibility, human rights and financial performance. It is about producing and/ or delivering socially and environmentally responsible products and/ or services in an environmentally and socially responsible manner. And it is about a company’s commitment to being a fair and equitable employer. And it is about strategic social investment.’ (The Conference Board of Canada, 1999). CSR is a trend that reflects changing social attitudes regarding the responsibilities that firms have towards the contexts and societies in which they operate. More than before, firms are now expected to take explicitly into account all aspects of their performance, i.e. not just their financial results, but also their social and ecological performance. Openness, accountability and transparency are some of the new key words covering a vast range of issues. A growing group of companies acknowledges this trend towards corporate social responsibility. However, they are faced with the problem of how to put the concept into practice. What does it really mean for companies to shift their attention from purely financial to sustainable profit? What are the implications of this shift and how is it translated into the going concern of the organisation? NIDO These questions led NIDO (National Initiative for Sustainable Development The Netherlands) to launch a major programme entitled ‘From financial to sustainable profit’. NIDO, established in 1999, is a foundation with the purpose of structurally anchoring sustainable initiatives in society and is financed through special funds of the Dutch government. Several programmes have been developed within this

Balancing Social and Corporate Culture in the Global Economy: The Evolution of Japanese Corporate Structure and Norms

Abstract: Japanese corporate law is undergoing a transition with new Commercial Code amendments in 2003 that allow corporations to opt for an Anglo-American model of governance Combined with shifts in securities regulation, shareholder activism, and the notion of Japanese lifetime employment, there is an important issue of whether these shifts represent a move towards an optimal corporate governance paradigm The evolution is tempered by particular cultural norms that drive Japanese corporate law While there is a perception in North America that Japanese corporations have shifted to an Anglo-American model of corporate governance, the reality is more layered It may be that ultimately, the governance model that evolves will adopt the best elements of increased transparency, corporate accountability, enhanced shareholder protection, employee long-term employment protections, and production synergies, that would allow Japanese corporations to compete internationally, but retain those elements of corporate community that have long been considered a primary objective of the social and economic life of Japan

Corporate Governance, Business Group Affiliations, and Firm Performance: Descriptive Evidence from Pakistan

Abstract: This study examines business groups and their impact on corporate governance in Pakistan. We use non-financial firms listed on the Karachi Stock Exchange of Pakistan for 1998-2002 periods in order to select group and non-group samples. Our analysis find that group firms have higher liquidity/short-term debt paying ability, and lower financial leverage than those of the non-group firms in each of the five years and when averaged over five-years. More importantly, we find that for the group firms, the five-year mean values of revenues and the five-year mean values of total assets grew faster than those of the non-group firms. Based on mean values of ROA, we find that group firms are more profitable than non-group firms in each year and over all five-years combined. In contrast, Tobin’s Q results (a market valuation measure) show that the mean values for each year and for all five-years combined are lower than those of the non-group firms. Our industry-level results are roughly consistent with those of the full samples. The divergence between ROA and Tobin’s Q suggests that external shareholders perceive firms affiliated with business groups to have relatively lower transparency and weaker corporate governance mechanisms than firms not affiliated with business groups. As a consequence, the market participants appear to discount the value of group firms even though these firms are more profitable than non-group firms. We interpret this evidence to indicate that investors view the business-group as a mechanism to expropriate minority shareholders. On the other hand, the comparative financial performance results suggest that business groups in Pakistan are efficient economic arrangements that substitute for missing or inefficient outside institutions and markets. We feel that our preliminary work substantially contributes to our understanding of business groups and their relationship to corporate governance and economic development in Pakistan

Business Groups in Thailand: Before and after the East Asian Financial Crisis

Abstract: This paper investigates how business groups in Thailand had evolved since the 1950s. We argue that political connections and foreign capital among other factors were contributable to the emerging of Thai business groups. The business groups that owned banks developed fast during the late 1980s and the early 1990s until the financial deregulation, and the establishment of the Stock Exchange of Thailand, and the Bangkok International Banking Facilities. After that the groups that do not own banks have expanded rapidly. We fi nd that the ownership and board structure of the listed firms that belong to the top 30 business groups were not affected by the crisis. Compared to the pre-crisis period, the leverage ratio for the business groups firms has increased while the profitability has declined during the post crisis of 1997-1999. Restructuring appears to work well among group firms since it has helped improved industry-adjusted operating performance of the firms.

An Emerging Third Way?: The Erosion of the Anglo-American Shareholder Value Construct

Abstract: There is an active debate among corporate law professors about the extent to which European companies are converging on the Anglo-American shareholder-wealth-maximizing model of the corporation. In this model, the paramount obligation of corporate officers and directors is to maximize the near-term financial return to the company's shareholders. The American literature has paid far less attention to the opposite phenomenon: factors that are causing British and even American companies to converge on a European stakeholder model of the corporation. The European view authorizes - or even requires - management to take account of the interests of stakeholders, including such constituencies as employees, residents of communities in which the company operates, and advocates for more diffuse social and environmental interests. The enclosed Article analyzes recent developments in the United Kingdom and the United States that are promoting that convergence to varying degrees. In this Article, we describe and evaluate recent legal developments, particularly in the United Kingdom, that are not only causing greater attention to be paid to stakeholders' interests, but that cast doubt on the intellectual construct, Anglo-American corporate governance. We argue that on a number of corporate governance measures, Britain has embarked upon a unique course to encourage enlightened share value as the proper approach to corporate governance. This approach explicitly adopts a long-term shareholder orientation, and assumes that the long-term health of the company will depend in large part on its ability to manage social, ethical and environmental risks. Accordingly, the U.K. has recently moved to require the disclosure of such risks an annual basis. In addition, institutional investors in London are acting to bring social and environmental issues, such as climate change and global labor standards, into the ambit of mainstream concern in a way that is quite different from institutional investor behavior in the United States. These developments, construed together, suggest to us that a divergence is occurring between the United States and the United Kingdom, such that our understanding of the Anglo-American corporate governance model needs to be re-evaluated.

Corporate Anatomy Lessons

Abstract: The book that will lay the groundwork for the corporate law debates of the coming decade is The Anatomy of Corporate Law. Written by seven of the world's leading corporate law scholars - Henry Hansmann, Reinier Kraakman and Ed Rock of the U.S.; Paul Davies of England; Gerard Hertig of Switzerland; Klaus Hopt of Germany; and Hideki Kanda of Japan - The Anatomy of Corporate Law attempts to identify the underlying structure of corporate law, and to provide a framework for understanding the wide range of approaches that different countries take to corporate law regulation. It is hard to overstate the significance - and the success - of this project. Traditional comparative law scholarship tended to explore the differences among jurisdictions in intricate detail. The authors of The Anatomy of Corporate Law insist that these local variations are only that - variations on a single, common theme. Throughout the book, they take a functional approach, an approach that emphasizes the extent to which countries that seem to have very different legal rules nevertheless tend to develop roughly similar solutions to the characteristic problems of corporate law. The central issue for corporate law in every jurisdiction, they argue, is three kinds of agency problem: the potential conflicts between managers and shareholders, between majority and minority shareholders, and between the firm and third parties. To understand how different countries address these conflicts, the authors develop a typology of ten different strategies. The authors divide the strategies into two categories, which they refer to as \"regulatory\" and \"governance\" approaches, and then distinguish strategies that operate ex ante from those that come into play ex post. Having developed their typology, the authors then apply it to related party transactions, control transactions, investor protection and a variety of other key corporate law issues. The great virtue of The Anatomy of Corporate Law is that its typology of strategies provides a simple, user-friendly way to compare the corporate law regimes of a wide range of different countries. Almost as remarkable as the typology itself - especially given that the book is the work of seven different scholars - is the clarity and elegance of the analysis. The authors develop and apply their typology in less than two hundred pages, a succinctness that would fill the editors of that other anatomical guide, Gray's Anatomy, with envy. To say so much in so brief a compass, the authors obviously had to exercise ruthless editorial judgment as what to include and what to omit. After describing the authors' typology and exploring several of their applications, I focus on several issues and perspectives that the authors left out. The most important omission is the bankruptcy or insolvency regime. In recent years, it has become increasingly apparent that bankruptcy - or corporate reorganization - is best seen as a component of corporate law; and indeed that it is impossible to understand other corporate law issues without appreciating the role that bankruptcy plays in shaping the incentives of managers and other constituencies even while the corporation is financially healthy. Second, the authors also omit any sustained discussion of corporate groups - that is, the parent-subsidiary arrangements that characterize nearly every large corporation. Although the authors refer to the extensive regulations of corporate groups in Germany and elsewhere, they have little to say about these regulations and do not offer any analysis of the factors that influence a company's decision whether to set up a new business as a division within an existing corporation, or to locate the business in a separate corporation. Finally, the authors do not consider the distinctive challenges of corporate governance in developing countries. Although the authors suggest that the ten-part typology is relevant to any country, their analysis focuses on five notably developed jurisdictions - the U.S., the U.K., Germany, France and Japan. In the developing nations whose corporate law has been a particular concern in recent years, by contrast, it is important to move beyond the typology in order to account for problems such as limited judicial enforcement. My analysis can be seen as a proposing several friendly amendments to the authors' analysis. The additions suggest ways that the anatomy could be made even more complete.

On the Nature of Corporations

Abstract: Legal experts traditionally distinguish corporations from unincorporated business forms by focusing on such corporate characteristics as limited shareholder liability, centralized management, perpetual life, and freely transferred shares. While this approach has value, this essay argues that the nature of the corporation can be better understood by focusing on a fifth, often-overlooked, characteristic of corporations: their capacity to lock in equity investors' initial capital contributions by making it far more difficult for those investors to subsequently withdraw assets from the firm. Like a tar pit, a corporation is much easier for equity investors to get into, than to get out of. An emerging school of theorists has begun to explore the implications of this idea for corporate law and practice. The idea is still novel enough to lack a uniformly-accepted label - in addition to the phrase capital lock-in, scholars have described this aspect of incorporation as affirmative asset partitioning, the absence of a repurchase condition, and asset separation from shareholders. Whatever label one chooses, the idea shows great promise for illuminating a variety of thorny problems that have long troubled corporate scholars and practitioners. In illustration, this essay considers how the idea of capital lock-in sheds light on three corporate mysteries: the sui generis nature of corporate directors' fiduciary duties; the rise of the large modern service partnership; and lawmakers' enthusiasm for meddling with corporate governance rules.

State-corporate relationships in an era of shifting regime: The case of corporate law reform in Israel

Abstract: Different aspects of the relationship between state and economy have traditionally been examined, yet corporate governance and specifically corporate law have received less attention. This article focuses on the legislation of the new corporate law in Israel at the end of the 1990s, which took place during regime transformation from an interventionist state to a regulatory state. The article makes specific reference to three disputes: the lifting of the corporate veil, the separation of the positions of chairman of the board and chief executive officer, and the obligation of private firms to disclose financial reports. This article suggests that despite the transformation of the regime, state actors have continuously been involved via corporate law in the governance of corporations and their relationship with the environment. However, corporate law enables corporations to constrain state power and the state's influence on property rights.

Concentrated ownership, market for corporate control, and corporate governance

Abstract: The paper studies corporate governance in non-listed firms. We analyze the effect of ownership concentration on the controlling owner’s incentives to share with outside investors in the presence of a threat of takeover. A simple model predicts that up to a certain level, an increase in ownership concentration improves corporate governance (defined as the costs of diverting profits). Using a dataset on ownership and corporate governance in Russian non-listed industrial firms we find that this model is consistent with the data. ∗This paper is based on a report on MPSF SETT project Guriev et al. (2003). We thank Erik Berflof, Mike Burkart, Boris Kuznetsov, Pavel Kuznetsov, and seminar and conference participants at CEFIR, Federation Council, Higher School of Economics, MPSF, Carnegie Moscow Center. The authors gratefully acknowledge financial support from USAID and Moscow Public Science Foundation through the Strengthening Economic Think Tanks Program, and from Ford Foundation through NES Research Center’s 2002-03 “Demand for economic institutions” project. †Department of Economics, Princeton University, and New Economic School, Moscow. E-mail: sguriev@princeton.edu ‡CEFIR. E-mail: olazareva@cefir.ru §CEFIR. E-mail: arachinsky@cefir.ru ¶Institute for the Economy in Transition, Moscow. E-mail: tsouhlo@iet.ru

The Decline of Conglomerates in Post-Soeharto Indonesia: The Case of Salim Group

Abstract: A double shock of the Asian currency crisis and the collapse of long-standing Soeharto rule brought about dramatic changes of political economic system in Indonesia. The nexus between state and capital that had been forged during the Soeharto regime underwent reconfiguration or dismantling in the post-Soeharto reformasi (reform) era. Conglomerates were not only hit hard by the economic crisis, but also suffered a blow from the political changes. An extreme case of this capital dismantling was the Salim Group, Indonesia's largest business group. The Group had already grown out of a politically-leveraged business into a multinational conglomerate with high competence. However, the Indonesian public regarded the Group as a symbol of Soeharto-linked ethnic Chinese conglomerate because of close ties between the Group's founder, Liem Sioe Liong, and Soeharto. The Group's domestic business was dismantled primarily because of the political reason, while its overseas business was restructured owing to heavy debt burden. This case shows how Indonesia dealt with dominant ethnic Chinese capital on the occasion of regime change and also how a highly-diversified and highly-leveraged conglomerate totally transformed itself through the crisis.

Overcoming Resistance to Diversity in theExecutive Suite: Grease, Grit, and theCorporate Promotion Tournament

Abstract: I Interdisciplinary ProspectsThe dominant strains of corporate governance theory are far removed from the scholarship in employment and discrimination law The two fields occupy distant workspaces and almost never talk to each other The principal reason is that most corporate legal scholars have deliberately defined their field so that it addresses only a single, if crucial, subject: the allocation of control over firms between managers and suppliers of capital-investors1 So restricted, the field leaves to others the task of thinking about the legal relationships between the firm and other stakeholders, including those who supply its laborSome corporate scholars chafe under this restricted vision and seek to redefine the boundaries of corporate law so as to encourage2-or in some cases even require3-the board of directors to take into account the interests of employees, bringing employment law and corporate law into closer contact But their project has yet to gain anything close to the upper hand Some of the resistance is no doubt ideological-there is a strong conservative streak within the community of corporate scholars, and many of the critics of the narrow vision of corporate law have an openly progressive agenda I suspect, though, that others fear that the field will lose its intellectual specialty if it expands too far in the direction of open-ended constructs like "team production"4 or "connected contracts"5 Yet regardless of the eventual scholarly consensus on whether corporate law should shift away from exclusive attention to investor interests, the corporate theory informing that inquiry uses a much wider-angled lens Economists, whose ideas orthodox corporate law scholars habitually borrow, certainly have no similar self-imposed limits on their interests "Theory of the firm" work translates into a strong interest in employment contracts and structural relationships, resulting in a melding of economics and human resources6 Economists studying the principal-agent problem have long been interested in institutional arrangements that optimize the efficiency and productivity of the firm, something hardly limited to the resolution of conflicts between managers and investorsSince the early 1970s, work in corporate law has closely followed the interests of the economists, and it continues to follow in this direction7 Having gained some fluency with more expansive ideas about how firms are organized, scholars who think of themselves as "corporate" are seeing connections to other legal disciplines and are applying their skills and insights to problems in the borderland I suspect that this expansion of interests will gradually transform "scholarship of the firm" Following the lead of corporate scholars like Margaret Blair, more attention will be paid to institutional arrangements-both contract and legal design-that facilitate productivity through more sophisticated approaches to human resources within organizations8 We already see some signs of this increased attention in work on "virtual corporations"9 and in David Millon's exploration of employment security inside the firm10 Stephen Bainbridge's writing on the connections between corporate decisionmaking and participatory workgroup arrangements11 is another nice inquiry into this type of issue, as is-in a very different direction-research by Stewart Schwab and Randall Thomas on the exercise of shareholder voting rights by labor unions and pension plans12This Article follows in that spirit Once we open the corporate governance/human resources nexus to deeper inquiry, mutual scholarly interest in diversity and discrimination follows naturally13 Firms have complex motives to take nondiscrimination and the promotion of diversity seriously First, at least certain forms of discrimination are both unlawful and socially illegitimate and hence present threats of potential liability and injury to reputation Second, human resources demands are such that attracting and motivating a diverse workforce is a competitive imperative …

Corporate Governance à la Française – Current Trends

Abstract: The recent evolution of the practice of corporate governance in France reveals a manifest convergence with the guiding principles preached by Anglo-Saxon law. However, a particularism emerges in practice and in the field of application. In France, it is by way of legislation that the principles of corporate governance have been imposed indeed, not only on listed companies but (at least some principles) on all corporations. Moreover, the topic of corporate governance surpasses the limits of our corporate laws: the employee-shareholders are implied in the running of their business, and the non-listed companies must publish information on how they account for the social and environmental impact of their activity. While remaining an essential condition for the development of capital markets, a good practice of corporate governance must also take social, environmental and even political interests into account. The management of corporations is not restricted to the technicalities of corporate law, but concerns the whole of our society.

Democracy and the Dominance of Delaware in Corporate Law

Abstract: Among the grandest debates within corporate law is whether the dominance of Delaware is the result of a "race to the bottom" - toward a legal regime that benefits managers at the expense of the shareholders - or a "race to the top" - toward an efficient, shareholder-centric governance framework. This paper argues that this debate is largely beside the point. Even if Delaware's dominance is the result of a competition resulting in law that efficiently serves the interests of shareholders, it is nevertheless illegitimate. This is because the internal affairs doctrine, on which Delaware's preeminence depends, in effect allows corporations to choose the corporate governance laws that will apply to them, whether or not the state they choose has any other contact with the corporation. This is inefficient as an economic matter and illegitimate as a democratic matter. Indeed, of the thousands of corporations with charters from Delaware, few have their headquarters or significant numbers of employees or shareholders there. Delaware law can therefore be crafted without attention to the political influence of any important stakeholder unless that influence can be transformed into market terms. Delaware law reaches beyond its borders to affect all the corporation's stakeholders even though they have no political influence over what the laws are. The internal affairs doctrine has allowed Delaware to externalize the costs of its rules on other stakeholders and indeed other states. The central argument of this paper is that this practice of deferring to Delaware law is undemocratic. Indeed, if areas of the law can be evaluated on their susceptibility to democratic or political pressures, then corporate law must be among the least open to political influence. In a democracy, this should be seen as a serious flaw in the framework of corporate law. Because the internal affairs doctrine is merely a special exception to conflict of laws principles, individual states can simply change it by asserting their own interests in the corporate governance of companies operating in their states. Typical conflicts of laws principles suggest that the state with the greatest interest in regulating the behavior in question should provide the governing law for the behavior. But the internal affairs doctrine allows a state that has little genuine interest in regulating the corporate behavior at issue to dictate the rules governing that behavior. Of all the areas of law that control and limit corporations, it is only corporate law that is left to the corporation itself to choose. From the standpoint of democratic legitimacy, it is no more justifiable to allow corporations to choose the state that provides the corporate governance laws to govern them than it is to allow such corporations to choose which state should provide the tort law or environmental law that governs them.

Modelling Intra-Group Relationships

Abstract: Within a group of companies, a model is given for management of the relationships between the parent company and its subsidiaries. This is particularly relevant for groups originating from mergers and takeovers, because firms acquired often differ substantially in organizational structure from each other and from the parent company. The model provides a means of harmonizing the organizational structures of parent company and subsidiaries, so as to provide a complete coverage of necessary activities without duplication, and a means of identifying which activities should, in economic terms, be centralized by the parent company, and which should be delegated to the subsidiary. Finally, there is an empirical application of the model to one of the principal Italian banking groups.

Groups of small and medium-sized firms in industrial districts in Italy

Abstract: Literature on industrial districts has emphasised the’ systemic’ dimension of such productive organisation. Two ‘levels’ have drawn the attention of scholars: i) the ‘interfirm network’, i.e. the set of firms exchanging goods and services within a production chain (Staber, 2001; Whitford, 2001); ii) the ‘local system’, which is composed not only of firms located in a specific area but also of the social and political institutions that characterise the area1.

Corporate Code of Conduct Bill 2000: Overcoming Hurdles in Enforcing Human Rights Obligations against Overseas Corporate Hands of Local Corporations

Abstract: In the background of the Corporate Code of Conduct Bill 2000 (Aus) - which sought to impose and enforce internationally recognised human rights standards on the overseas activities of Australia corporations - this article examines the (mis)use of the doctrine of forum non conveniens by multinational corporations to avoid or delay their liability for human rights violations, and the effect of the twin principles of separate personality and limited liability on the question of liability within a corporate group. It is argued that the instant Bill should have stated that the Australian courts would not dismiss proceedings on the ground of forum non conveniens; imposed liability for human rights violations within a corporate group on the enterprise principle or a theory of 'limited eclipsed personality'; and acknowledged the intrinsic limitations in court-based extraterritorial enforcement of human rights obligations against overseas corporations. The article also charters an alternative mechanism of social enforcement of human rights which, it is argued, would not encounter the intricacies associated with the judicial process.

The Proprietary Foundations of Corporate Law

Abstract: Recent work in both the theory of the firm and of corporate law has called into question the appropriateness of analysing corporate law as 'merely' a set of standard form contracts. This article develops these ideas by focusing on property law's role in underpinning corporate enterprise. Rights to control assets are a significant mechanism of governance in the firm. Practical circumstances dictate that such rights must be shared. Property law protects the rights of co-owners against each other's opportunistic attempts to grant entitlements to third parties. At the same time, it uses a range of strategies to minimise the costs such protection imposes on third parties. The choice of strategy significantly affects co-owners' freedom to customise their control-sharing arrangements. This theory is applied to give an account of the 'proprietary foundations' of corporate law, which has significant implications for the way in which the subject's functions are understood and evaluated.

Corporate Groups: Competences of the Shareholders Meeting and Minority Protection. the German Federal Court of Justices recent Gelatine and Macrotron Cases Redefine the Holzmüller Doctrine

Abstract: There are few cases in the law of corporate groups that have provoked as much interest, applause and critique as the Holzmuller decision of the Federal Supreme Court. On February 25, 1982, the 2nd Zivilsenat (Chamber of civil cases) of the Bundesgerichtshof (BGH – Federal Court of Justice), the highest court with assigned competences for company law, adopted what would later be known as the Holzmuller doctrine. Since then the Holzmuller case has influenced the course of countless shareholders’ meetings, been relied on in numerous shareholder actions and has initiated intensive academical as well as practical debate. What is it all about? At the core, Holzmuller deals with the balance of power between the Hauptversammlung (shareholders’ meeting) and the Vorstand (board of directors) of a German Aktiengesellschaft (AG – stock corporation) within the context of corporate groups. Practically, the protection of minority shareholders of a corporate group's parent company is a major underlying issue.

The Dividend Divide in Anglo-American Corporate Taxation

Abstract: In this Article, I seek to understand why the United States and United Kingdom take such different approaches to the taxation of corporate income. Generally, the U.S. has taxed corporate income twice and the U.K. only once. In the last several years, however, both countries have undertaken major reforms of their respective corporate tax systems designed to change these traditional approaches. Far from being an isolated turn of events, this pattern of corporate tax reform behavior typifies Anglo-American corporate taxation over the last century. While both countries started with an integrated approach, they diverged in the 1930s and have been moving toward and away from each other in successive periods of reform ever since. Why did the U.S. and U.K. - two countries with similarly developed economies and corporate cultures - originally diverge in their approaches to corporate income taxation and why have they continued to vacillate on this issue over time? This Article concludes that it is a result of a divergence in firm dividend policies in the two countries. While firms in both countries maintained liberal dividend policies during the nineteenth century, U.S. firms began to retain more earnings after the turn-of-the-century and this necessitated a change in the method of taxing corporate income. In subsequent years, both countries have undergone major corporate tax reforms during periods of concern about the direction of firm dividend policies in their respective countries. I suggest that this has important implications for predictions about the future of corporate income tax design.