Book Reviews
A history of corporate governance around the world: Family business groups to professional managers
By Morck RK (Ed.)
ISBN: 0-226-53680-7; 2007; xii + 688 pages; The University of Chicago Press, Chicago;
Reviewed by Keith Duncan
Accounting and Finance; Director Executive MBA, Bond University, Gold Coast QLD
(A National Bureau of Economic Research Conference report)
The purpose is as the title implies, to provide a historical summary of the forces and events that have shaped the varied manifestations of corporate structures and control systems around the world. Corporate control, ownership and management have melded and morphed along complementary and contrasting paths in many countries around the world into quite different corporate governance practices we see today.
The diversity in the paths taken and the consequential impact on economic and social growth makes this volume fascinating especially in light of recent governance issues. The spate of recent corporate governance and financial system failures, particularly in the US, has many asking the question what is the 'best' way to control business entities and financial markets? Even Alan Greenspan is questioning his unswerving faith in the market system and its ability to self manage the derivative market.
It is therefore enlightening to read about the development of the company form and associated control, monitoring and market systems over the last two centuries that have underpinned the economic growth of the developed and developing world. As we work through yet another financial market melt down one wonders what have we really learned from the last 200 hundred years of business and economic growth? However the global history of corporate governance, presented by Morck (2007) and co-contributors provides some perspective in that what we are experiencing today is simply another chapter in the ups and downs of our financial history. With '20-20 hind sight' 2008 may even be seen as a mere blip in our economic timeline.
The initial chapter provides an overview of global corporate governance and provides a framework through which to view the empirical evidence presented in the text. The remaining chapters are structured as an edited series in which the authors for each chapter detail the history of corporate governance for a different country. The chapters cover the leading industrialised Group of Seven (G7) nations (Canada, France, Germany, Italy, Japan, United Kingdom and United States) as well as the Netherlands (the oldest capitalist economy), Sweden (an example of socially tempered capitalism) and the two fast developing nations India and China.
The development of corporate governance in these eleven countries has been shaped by many similar and also difference forces. How the systems in each economy have responded to the issues of development and periodic economic crises have impacted on growth and development within the respective economies. The outcome in each case is the system of corporate governance we see in place today. Figure 1 on page 3 provides a compelling illustration of the governance diversity by comparing the percentage of larger corporations in 27 countries held either widely (i.e. no controlling shareholder), by governments, wealthy families, financial institutions and other institutions. The mix ranges from 100% family controlled in Mexico to 100% widely held in the United Kingdom. Most other countries are characterised by 15-20% family ownership, the traditional form of control in many countries until the 20th Century. There are also the well documented special cases of countries like Germany exhibiting a large proportion of bank ownership and Japan with large percentage of 'friendly' ownership by other companies.
While the financial histories of each country are complex there are still some common threads that have influenced corporate governance development. These forces include accidents of history (such as the various stock market crashes through time) and the related developments in ideology and innovation. This saw the US break up pyramidal groups (i.e. the anti trust legislation) and spreading economic power after the depression. While in Sweden the socialist government concentrated economic power with the wealthier families and in Germany share holding became concentrated with the banking sector whose role is still maintained today.
Families have also played a huge role on the development and control of business over the last 2 centuries. As you read the various cases and histories from around the world it is clear that family 'groups' of companies can be very effective structures for economic development. They can also be the worst examples of business management. Some wealthy business families have recognised the value in stepping back and professionalising management while others have seen the value in a strategy of risk minimisation through diversification. Various chapters provide evidence of how family control has given way to shareholder control over time while creating value (a good example are the cases of mergers and acquisitions in the UK).
Trust is identified as a key risk reducing factor that is naturally present for families of high reputation. But networks of trust are manifest in other ways such as the Japanese keiretsu business groups. Regulation and securities law can also promote trust in the systems or corporate control process. The countries with common law systems are characterised as promoting shareholder rights and protections where as the evidence suggests civil law based systems tend to protect the rights of the powerful. Hence the former are more associated with earlier and faster adoption of widely held share structures. Legal structures are intertwined with the transplanting of governance systems across Europe and Asia associated with changes in empires and post war rebuilding.
Inertia and entrenchment also characterise reluctance to change and there are many examples in the books that are consistent with this force. But intuitional change can be more easily effected in times of turbulence such was post-war or post a depression or market failure. Finally it is not that surprising that political involvement in corporate governance, other than as a regulator, are generally not supported throughout the chapters of the text.
Anyone interested in ownership, control and corporate governance should have a copy of this book. The book is a useful resource for business people, regulators, students and academics. There are many insights and learnings for a diverse audience from this thorough review of two centuries of governance history of the major economies in the world. Many forces have conspired to shape the path from pre-industrial family businesses to large widely held global corporations. For those collectively trying to define the normative world of tomorrow, one of the best learning grounds is to look at what various countries have tried at different points in history. The current rattling of financial markets around the world reinforce that we are still learning from our history of financial market failures as we strive towards a system of corporate governance that underpins a robust global financial market.
