CORPORATE OWNERSHIP AND CONTROL IN THE U.K., GERMANY, AND FRANCE
This paper is a revised version of a paper entitled “Ownership and Control” that was written for the International Workshop at the Kiel Institute on “Trends in Business Organization: Increasing Competitiveness by Participation and Cooperation,” June 13 and 14, 1994. It is based on an inaugural lecture that was given by Colin Mayer at the University of Warwick on February 1, 1993. It is part of a project funded by the ESRC (no. W102251003) on “Capital Markets, Corporate Governance and the Market for Corporate Control.” We are grateful to participants at the workshop for helpful comments and in particular to our discussant, Martin Hellwig. We are also grateful to Marc Goergen and Luis Correia da Silva for research assistance on the project.
Abstract
Like its U.S. counterpart, the U.K. corporate ownership and governance system can be characterized as an outsider system with a large number of public corporations, widely dispersed ownership (though with growing concentrations of institutional shareholdings), and well-developed takeover markets. By contrast, the much smaller number and proportion of publicly traded German and French corporations are governed by insider systems--those in which the founding families, banks, or other companies have controlling interests and in which outside shareholders are not able to exert much control.
The different patterns of ownership in the U.K. and in France and Germany give rise to different incentives and corporate control mechanisms. Concentrated ownership would seem to encourage longer-term relationships between the company and its investors. But, while perhaps better suited to some corporate activities with longer-term payoffs, concentrated ownership could also lead to costly delays in undertaking necessary corrective action, particularly if the owners receive “private” benefits from owning and running a business. And, although widely dispersed ownership may increase the likelihood that corrective action will be sought prematurely (as outsiders rush to sell their shares in response to a temporary downturn), the presence of well-diversified public owners may also be more appropriate for riskier ventures requiring large amounts of new capital investment.
Thus, concentrated ownership, while having the potential to reduce information costs and to strengthen incentives to maximize value, can also impose costs in two ways: (1) by forcing managers and other insiders to bear excessive company-specific risks that could be transferred to well-diversified outsiders; and (2) by allowing insiders to capture private benefits at the expense of outsiders.
