From Institutional Theories to Private Pensions

The objective of this chapter is to show that the focus of modern corporate law theory on the concerns of shareholders is historically and geographically contingent. In doing so, it traces shareholder-stakeholder debates through the 20th century. The most obvious example is the simple recognition in comparative corporate law scholarship that the majority-minority agency problem is more prevalent then the shareholder-manager one in countries where concentrated ownership dominates. However, the focus on these two issues in contemporary debates has drawn away attention from the possibility that other conflicts of interests are equally important. I argue that corporate governance structures relate to how firms interact with other constituencies. For example, strengthening the influence of shareholders on management may make it more difficult to foster long-term commitment to other groups such as employees. In a world with increasing influence of institutional investors whose performance is evaluated on a short-term basis, it has become difficult to permit the development “patient capital” that will permit firms to develop and innovate on a long-term basis. The chapter focuses on the development of 20th century shareholder-stakeholder debates, namely traditional debates (pre-1970s) and the current situation that has its roots in changes that began in the 1970s. The 1970s and 1980s resulted in an economic and political realignment in US corporate governance that changed the dominant coalition and resulted in the current situation where managerial agency problems are so strongly emphasized. Changes in the pension system that began to turn workers into capitalists through their pension holdings were a catalyst for this change, particularly in the US. In Continental Europe, the 1990s and early 2000s saw an incipient realignment that seemed to resemble that in the US, although it is not yet clear whether a permanent trend toward convergence in corporate governance was set into motion, or whether the financial crisis has turned the tide