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Politics and Corporate Governance
Aula 8Ciência Política
CGAE FGV-EAESP
Topics
1) Corporate Governance: Definition, Concepts, and Propositions for Management
2) Aggregate Analysis: Politics and Corporate Governance (Sinn & Gourevitch, 2006)
3) Alternatives to Aggregate Analysis:a) Concepts/Categories b) Small n comparisonsc) Case Studies
4 Conclusions: Politics & Corporate Governance
5 Bibliography
1) Definition: Corporate Governance
2004 OECD Principles of Corporate Governance,
“corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate Governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined” (OECD 2004: 11).
Marco Zero = Bearle & MeansThe Modern Corporation and
Private Property, (1932)2 Book I, Property in Flux : 2.1 I Property in transition
– 2.2 II The appearance of the corporate system
– 2.3 III The concentration of economic power
– 2.4 IV The dispersion of stock ownership
– 2.5 V The evolution of control
– 2.6 VI The divergence of interest between ownership and control
3 Book II, Regrouping of Rights: 3.1 I Evolution of the modern corporate structure
– 3.2 II Power over participation accruing to shares of stock
– 3.3 III Power over the routing of earnings as between shares of stock
– 3.4 IV Power to alter the original contract rights of security holders
– 3.5 V The legal position of management
– 3.6 VI The legal position of "control“
– 3.7 VII Corporate powers as powers in trust
– 3.8 VIII The resultant position of the stockholder
4 Book III, Property in the Stock Markets : 4.1 I The function of the public market
– 4.2 II Flotation and bankers' disclosure
– 4.3 III Disclosure by the corporation to the market
– 4.4 IV Management in the market
5 Book IV, Reorientation of Enterprise : 5.1 I The traditional logic of property
– 5.2 II The traditional logic of profits
– 5.3 III The inadequacy of traditional theory
– 5.4 IV The new concept of the corporation
Instituto Brasileiro de Governança Corporativa
http://www.ibgc.org.br/Home.aspx
3 mercados Bovespa
Fonte: Governança Corporativa: Padrões Internacionais e Evidências Empíricas no Brasil nos Anos 90, Nelson Siffert Filho http://www.fundoamazonia.gov.br/SiteBNDES/export/sites/default/bndes_pt/Galerias/Arquivos/conhecimento/revista/rev906.pdf
Propriedade Dispersa = Sem Acionista >20%, Propriedade Dominante = Algum Acionista 20-50%Propriedade Familiar = Membros de Familia / Fundação >50%Outras = >50% Ações
Brasil 1990 Brasil 1997
GRUN, Roberto. Convergência das elites e inovações financeiras: a governança corporativa no Brasil. Rev. bras. Ci. Soc. [online]. 2005, vol.20, n.58, pp. 67-90. ISSN 0102-6909.
Variedades de Governança Corporativa?
Academy of Management Review, 2003, Vol. 28, No. 3, 447–465.
Propositions: Property Rights & Corporate Governance
Propositions: Labor Unions & Corporate Governance
Propositions: Management Styles & Corporate Governance
Core Concepts: Blockholding vs Shareholder Protection
Aggregate Analysis: Shinn & Gourevitch, Politics and Corporate
Governance, Princeton University Press, 2006
Causal Relations & Politics
Political Coalitions and Policy Outcomes
3 Theories about Aggregate Relations:
Varieties of Capitalism (VOC) vs
Minority Shareholder Protection (MSP) vs
Quality Corporate Law (QCL)
Aggregate Analysis: Market Capitalization & Shareholder
Protection
Aggregate Analysis:Foreign Investment & Shareholder
Protection
Aggregate Analysis:Private Pension Assets & Shareholder
Protection
Consensus/Majoritarian Politicsand Blockholding of Shares
Alternative to Aggregate Analysis:
Small-n Comparisons
Question: If France > Germany in Corporate Governance, what impact in markets & Development?
Market Capitalization in Big-5(MSP > VOC)
Mutual Fund Ranking of Investment Destinations, 1997-2005
Price-Earnings Ratios:Germany vs France
Alternative to Aggregate Analysis:
Case Studies
Martin Höpner, “Corporate Governance in Transition: Ten Empirical Findings on Shareholder Value and Industrial Relations in Germany”
Max-Planck-Institut für Gesellschaftsforschung, Köln
MPIfG Discussion Paper 01/5
Source of Firm Finance in Germany, 1984-1999
Shareholder Orientation Index/% Shareholding by Institutional
Investor
Company Image /Shareholder Orientation Index
Origin of German CEOs
Análise de Redes
Höpner, Martin/ Krempel, Lothar (2003): Ein Netzwerk in Auflösung: Wie die Deutschland AG zerfällt, in: MPIfG-Jahrbuch 2003/04, Köln 2004, S. 9-14.
Mendes-Da-Silva, Wesley. Conselhos de Administração no Brasil e Redes Sociais
“Deutschland AG” Source: Höpner, Martin/ Krempel, Lothar (2003): Ein Netzwerk in Auflösung: Wie die
Deutschland AG zerfällt, in: MPIfG-Jahrbuch 2003/04, Köln 2004, S. 9-14.
1997
Reformas Financeiras 2002
1) Concepts2) Small-n Comparisons3) Case Studies
“Global Forces, Political Mediation, and the Fragmentation of Corporate Governance Patterns: The Cases of France, Japan, and Korea”
Yves Tiberghien, Harvard Academy & WCFIA, work in progress, 2004
Alternatives to Aggregate Analysis and Sociology of Networks (REDES):
Concepts: Outsider vs Insider Systems
“outsider systems” = UK, Canada, Australia, New-Zealand, US
“insider systems” = other OECD, most non-OECD countries
Outsider - Liberal Anglo-Saxon systems: Direct financing through capital markets, Dispersed corporate ownership,Flexible labor markets. Liberal Arts Generalist Education Systems
Insider - Non liberal systems: Complementary set of industrial organization (large
groups, cross-shareholdings),Stable employment practices, Bank-centered corporate finance, Welfare corporatism.Technical-Vocational Education Systems
3 Insider Systems
Hypotheses: Why Differences?
Shareholder Profile, Japan 1990-2003
Japan: Corporate Governance Reforms
Foreign Equity Inflows
BOLD = Institutional Change or major political signals with a significant impact on the process of corporate reforms, i.e. Political decision (Diet, Cabinet, Coalition)
Politics Corporate Governance?
Critical Idea: if too many variables, not enough cases (statistics, experiment not possible) THEN CASE STUDIES AND SMALL N COMPARISONS OFTEN REVEAL
“PATH DEPENDENCE” 4 Causal Paths:1) political entrepreneurship, 2) bureaucratic mediation, 3) institutional boomerang, 4) shareholding activist organizations
1st path: political entrepreneurship
Party leaders rise above position: gamble = shift blame of reforms to others reach out to voters
stay in power until reform benefits visible.
Prime Minister Junichiro Koizumi in Japan: pro-investor reform program against the majority of his own party.
Able to keep enough party support to pass legislation by enlarging the support base of his party, shifting the blame to opponents to reforms (who thus limit the benefits of reforms) and cultivating groups of lawmakers.
Political Entrepreneurship Path: France & Korea
France: Dominique Strauss-Kahn & Laurent Fabius in France: pushed a pro corporate governance agenda as finance ministers vs majority of socialist party.
Tied (corp. gov.) reforms with other policies that strengthened social rights (35-hour work week, law of social modernization to tighten anti-layoff regulations).
Left Voter Split to Far Left PartiesSocialist Party LOOSES 2002 Presidential Election
Korea: President Kim Dae-JungUsed 1997 Financial Crisis Hurry Corporate
Governance Reforms
Path 2: bureaucratic mediation (unique to state-coordinated
systems)
Government bureaucracy includes cross-sectoral elites (Treasury in France, METI and MOF in Japan) with superior training, extended networks, and long-term time horizons.
France & Japan as models: Liberalize, capitalize, but retain banks/long-term...
Mettenheim, Kurt. “European Banking: A Review of Trends and Policies for Reassessment of Bank Reform and Sustainable Development in Brazil and Latin America.”
Paper to be presented at International Seminar: Financial Institutions, Markets, and Ethics: Mixed Approaches
in the European Context. Panel: Financial and Banking Transformation in a Macro
Perspective.European University Institute, Florence, 25-6 May 2007
Path 3: institutional boomerang:
Elite bureaucrats & political entrepreneurs international institutions/markets
encircle opponents or penetrate strongholds with a Troyan horse.
Examples: France: Recourse to European Union in in the 1980s and mid-1990s)
Korea: IMF agreement in the wake of 1997 financial crisis.
Theory: “Boomerang” = Domestic International Domestic Politics (Sikkink & Keck, 1996)
Path 4: shareholder-activist & NGOs
Example 1: 2001 victory of small French association for the defense of minority shareholders (ADAM) over traditional corporate interests blocked merger between Schneider Electric & Legrand.
(Alliance: International Investors & Shareholder Activists).
Example 2: Economic Democratization Committee, People’s Solidarity for Participatory Democracy (PSPD) (Jang Ha-sung, Finance Professor, Korea University),
Denounce chaebols’ attempt to cheat trust fund investors.
Alternative to Aggregate Analysis: Case Studies
Yet another key concept: “Fallacy of Aggregation”
If Plot Corporate Governance CONCEAL CAUSAL FORCES
Lijphart: If Too Many Variables & Too Few Cases Case Study & Comparative Method
Conclusions: Politics & Corporate Governance
1. Different TYPES of corporate governance and change. 2. Reforms everywhere: NEITHER CONVERGENCE NOR STABLE
DIVERGENCE.3. Change = Convergent components and enduring stickiness
in political economic systems.4. Two external forces: converging international codes and
equity markets.5. States = regulators and referees in intensely political
processes.6. Coalition politics & partisan politics not enough: political
entrepreneurship, bureaucratic mediation, institutional boomerang, and shareholding activist organizations.
7. Case Studies (France, Japan, Korea): Reform = irregular bouts, unstable transitional equilibria. (elite-mediated reforms grassroots/party backlash new reforms.
8. Unstable triad of opposite poles: political interests, economic efficiency, and global norms.
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