vodafonemannesmann case - AN EMERGING MARKET FOR CORPORATE...

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A N E MERGING M ARKET FOR C ORPORATE C ONTROL ? T HE M ANNESMANN T AKEOVER AND G ERMAN C ORPORATE G OVERNANCE CG in Germany often described as bank-oriented with blockholder or stakeholder models markets for corporate control have not played a significant role Case study of hostile takeover demonstrates how systematic change during the 1990s have eroded past institutional barriers to takeovers (market for corporate control) Changes include: strategic reorientation of German banks from „house banks“ to investment banking growing consensus and productivity orientation of employee codetermination corporate law reform I NTRODUCTION Markets for corporate control: thought to perform important governance functions in promoting a greater shareholder orientation among corporate management Mannesmann case reflects erosion of previous barriers to hostile takeovers due to both regulatory reforms and incremental changes in social organization of capital markets Tension between distributive and strategic constraints created by takeover markets arise, thereby furthering functional changes in the institution of employee codetermination Significance of these changes should be interpreted in context of existing German „model“ of CG: 1) Capital exhibits strong financial commitment to particular enterprises, stable ownership, more concentrated, usually non-financial corporations, following strategic interests and therefore long-term oriented and more bound to welfare of the firm 2) Employees constitute important force in CG through legal institution of codetermination 3) Mgmt has to contend with voice from both capital and labor duality principle of both long-term profit maximization and employee utility Nonliberal features of German model suspended market mechanism for capital and labor and proved to have substantial institutional complementaries long-term organizational capacities due to parallel commitment of capital to long-term investment and high-trust work organization Strengths: efficiency of production system in lower-volume, high-quality product markets that require high skills Absence of markets for corporate control: necessary for historical development of German model T HE M ARKET FOR C ORPORATE C ONTROL Capitalist economies characterized by exchange of commodities within free markets Political regulation and social insurance historically limited risks associated with commodification of labor power Markets for corporate control: trading of corporate equity occurs on a very large scale and bestows the power to control these corporations
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Economic function of markets for corporate control is most clearly outlined by agency theory Decline in shareholder control over mgmt as ownership stakes grew smaller and more fragmented among a large number of individuals Small shareholders are rarely informed enough to make qualified decisions or monitor mgmt in detail Corporate control undergoes a “market failure” that needs to be remedied by several
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vodafonemannesmann case - AN EMERGING MARKET FOR CORPORATE...

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