Politics and Corporate
Governance
Aula 8
Ciência 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 comparisons
c) 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 & Means
The 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
Os 3
Mercados
da
Bovespa
Propriedade Dispersa = Sem Acionista >20%,
Propriedade Dominante = Algum Acionista 20-50%
Propriedade Familiar = Membros de Familia / Fundação >50%
Outras = >50% Ações
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/Arqui
vos/conhecimento/revista/rev906.pdf
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: Financial Systems &
Corporate Governance
Proposition: Inter-Firm Networks
& Corporate Governance
Propositions: Labor Representation
& Corporate Governance
Propositions: Labor Unions &
Corporate Governance
Propositions: Education Systems &
Corporate Governance
Propositions: Management Styles
& Corporate Governance
Propositions: Management
Markets & 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 Politics
and 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
Ownership Structure in German
Corporations, 1978-1998
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: MPIfGJahrbuch 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
Alternatives to Aggregate Analysis and
Sociology of Networks (REDES):
1) Concepts
2) Small-n Comparisons
3) 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
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
Small N Comparison:
Clusters of Corporate Governance
Systems
Hypotheses: Why Differences?
Corporate
Governance
Reforms:
France
Japan
Korea
19962002
Shareholder Profile, Japan 19902003
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 Parties
 Socialist Party LOOSES 2002 Presidential Election
Korea: President Kim Dae-Jung
Used 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/longterm...
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 Hasung, 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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