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Taking shareholder protection seriously? : Corporate governance in the United States and Germany
(2003)
The paper undertakes a comparative study of the set of laws affecting corporate governance in the United States and Germany, and an evaluation of their design if one assumes that their objective were the protection of the interests of minority outside shareholders. The rationale for such an objective is reviewed, in terms of agency cost theory, and then the institutions that serve to bound agency costs are examined and critiqued. In particular, there is discussion of the applicable legal rules in each country, the role of the board of directors, the functioning of the market for corporate control, and (briefly) the use of incentive compensation. The paper concludes with the authors views on what taking shareholder protection seriously, in each country s legal system, would require.
Taking shareholder protection seriously? : Corporate governance in the United States and Germany
(2003)
The attitude expressed by Carl Fuerstenberg, a leading German banker of his time, succinctly embodies one of the principal issues facing the large enterprise – the divergence of interest between the management of the firm and outside equity shareholders. Why do, or should, investors put some of their savings in the hands of others, to expend as they see fit, with no commitment to repayment or a return? The answers are far from simple, and involve a complex interaction among a number of legal rules, economic institutions and market forces. Yet crafting a viable response is essential to the functioning of a modern economy based upon technology with scale economies whose attainment is dependent on the creation of large firms.