The Oxford Handbook of Business and Government

The Oxford Handbook of Business and Government
David Coen, Wyn Grant, and Graham Wilson
Print publication date: 2010

Print ISBN-13: 9780199214273
Published to Oxford Handbooks Online: May-10
DOI: 10.1093/oxfordhb/9780199214273.001.0001
Corporate Control and Managerial Power
Pepper D. Culpepper
DOI: 10.1093/oxfordhb/9780199214273.003.0022
Abstract and Keywords
This article reviews the existing literature on the politics of corporate

governance. The scholarship discussed has provided an important corrective
to work on the origins of ownership in the law and economics literature,
which focused on the historical origins of legal systems as the primary
determinant of contemporary patterns of share ownership and minority
shareholder protection. New theories of the politics in corporate governance
bring in political agency and possibilities for change over time in individual
countries, both of which were absent from work on legal origins. And indeed,
the new theories of corporate governance are not wrong about the politics
they describe. They provide different and important lenses for explaining the
politics of corporate governance during moments of high political salience.
corporate governance, legal systems, minority shareholder protection, legal systems,

political agency, managerial power
There is an interesting mismatch between theory and data in the political

literature on corporate governance. On the one hand, important new
scholarship has emerged in recent years about the political origins of
corporate ownership patterns. These sophisticated arguments underline the
predominant role of political coalitions and/or political parties in determining
the outcomes of battles over patterns of ownership. This literature claims
to show in detail that managers and large shareholders, who are a small
minority in any political system, have to struggle with other political
actors in order to get their way. And many of the opponents—unions, large
pension funds, and parties of the left—should possess a superior ability
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to dominate the political agenda of democracies. Although these theories
differ importantly among themselves, they agree on this point: the politics
of corporate governance is something that looks like politics in any other
part of a pluralist democracy, and should be understood as a contest among
competing groups acting through parliament.
That, at least, is the theory. The interesting puzzle is that the data do not
fit these theoretical expectations. Indeed, the facts about the politics of
corporate ownership can be summarized far more succinctly: collectively,
managers and blockholders rarely lose. Where liberalization of ownership
is pushed by a party of the left and supported by an electoral system that
creates durable majorities, as was the case in Italy 1996–2002, managers
and blockholders nevertheless succeeded in maintaining highly concentrated
private ownership. Where liberalization is pushed by a party of the neo‐
liberal right, as in the Netherlands between 1994 and 2006, managers
succeeded in defeating government attempts to limit hostile takeover
protections. Indeed, in the rare countries where we actually observe a
breakdown of old ownership patterns—in France and Japan in the late 1990s
—managers of companies are either leading the movement for change (in
France) or indifferent to it (in Japan). These are not outlier cases, whose
findings are part of the inevitably imperfect fit between theory and data
in the social sciences. Instead, they raise a significant puzzle: if corporate
governance is all about democratic politics, how is it that managers and
blockholders almost always wind up on the winning side, regardless of who is
in government?
Much of the answer lies in political salience. Unlike scholars of corporate

governance, most political actors do not care about the technical details of
ownership and control of corporations, at least most of the time. Political
parties may stake out ground on this issue for ideological reasons, as Cioffi
and Höpner argue (2006). Yet any party program is an assembly of issues
that some constituents care strongly about (such as abortion) or that many
voters care at least somewhat about (such as taxes). In parties of the left,
there is no group of voters which has this strong interest; labor unions
certainly do not. And in parties of the right, which often encompass both
managerial and shareholder interests (Callaghan 2009), shareholders
represent more voters. There are only three groups that care strongly about
the politics of ownership and control: managers (whose liberty as agents
of shareholding principals is constrained by these rules); blockholders
(whose prerogatives to control corporations are affected by these rules);
and minority shareholders (whose property rights are also affected by these

rules). Yet two of these actors—managers and blockholders—have both
small numbers and converging, concentrated interests. Members of the
third group, minority shareholders, generally have diffuse interests and
the problem of coordination inherent in large numbers. Given this interest
calculus, it is not really all that surprising that managers and blockholders
usually win.
The current chapter develops and expands this central point. The next
section first reviews the existing literature on the politics of corporate
governance. The scholarship discussed has provided an important corrective
to work on the origins of ownership in the law and economics literature,
which focused on the historical origins of legal systems as the primary
determinant of contemporary patterns of share ownership and minority
shareholder protection (La Porta et al. 1998; La Porta, López‐de‐Silanes,
and Shleifer 1999). The new theories of politics in corporate governance
bring in political agency and possibilities for change over time in individual
countries, both of which were absent from the work on legal origins. And
indeed, the new theories of corporate governance are not wrong about
the politics they describe. They provide different and important lenses for
explaining the politics of corporate governance during moments of high
political salience. Their mistake lies in taking as a general condition what
is really a special case: high political salience is rare and fleeting in the
domain of corporate governance. To understand the real political dynamics
of the field, we need to endogenize salience. When salience is low, which is
the normal state of affairs, we see very different dynamics than during the
extraordinary political moments when it is high. I illustrate these theoretical
points through the example of the battles over hostile takeover regulation in
the Netherlands between 1994 and 2006. The concluding section returns to
the modern intellectual origins of work on the structural power of business
(Lindblom 1978), considering how an emphasis on policy salience contributes
to understanding the advantages enjoyed by business in lobbying in policy
domains such as corporate governance.
Existing Theories of the Politics of Corporate Governance
Those scholars who write about the political aspects of corporate governance
regulation typically stress two distinct ways of conceptualizing its political
dynamics, though each runs through the parliamentary process. The first
concentrates on the character of social coalitions that emerge to support
legislation calling for change. This interest‐based explanation has much to
recommend it, and is indeed the default way of thinking for most political

scientists: to explain outcomes, look at the interests behind them. The
second sort of explanation is also interest based, but not premised on
interest coalitions. Instead, this work stresses the importance of political
parties—the usual makers of law in parliament—in determining the outcomes
observed in corporate governance politics.1
Peter Gourevitch and James Shinn's (2005) recent book offers the most
compelling statement of the coalitional view of corporate governance
politics: “we explain corporate governance outcomes through public policy
that is generated by the interaction of interest group preferences and
political institutions” (10).2 The outcome they are most interested in is the
market for corporate control: can companies be bought against the will of
existing management, and does that happen on a regular basis? While the
question of markets for corporate control is sometimes conceptualized as
being equivalent to the concentration or dispersion of share ownership,
there are some systems in which managers or other shareholders can
impede the emergence of hostile takeovers or other threats to their control.
Thus, although the data gathered in their exercise are about ownership
concentration, the real implicit variable for Gourevitch and Shinn, as for
others in this literature, is the activity of the market for corporate control.
Thus in the anomalous cases of the Netherlands and Japan, which appear in
international comparison to have relatively diffuse shareholding, managers
actually use other means to impede the development of an active market
for corporate control. Gourevitch and Shinn have correctly identified
the variable of greatest concern to scholars of the politics of corporate
governance: whether one calls it corporate control or patient capital, as
in the varieties of capitalism literature (Hall and Soskice 2001; Amable
2003), this characteristic of control is the outcome on which the national
differentiation of systems of corporate governance fundamentally depends.
For Gourevitch and Shinn (2005; hereafter GS), the winning coalition
determines the political outcome, i.e., whether markets for corporate control
remain limited or become active. There are three potential coalition partners:
shareholders, managers, and workers. None of the coalition partners has
a unique interest. Workers may side with managers to form a corporatist
coalition, when they favor employment protection; or they may instead
side with shareholders against management, when the structure of their
pension funds is such as to make them more interested in transparency than
employment protection (this is the transparency coalition that gets much
discussion in GS). Managers may align with workers (to protect themselves
from shareholders) or with shareholders (to extract rents from workers).

Similarly, shareholders may side with management or workers, depending
on their preferences. Thus if the actors are clear but their preferences are
indeterminate—which is a faithful rendering of political reality, if an unusual
strategy for an interest‐based theory—then any coalition is possible. And, in
the GS telling, any coalition may win or lose.
However, GS rescue their theory from the realm of untestability by predicting

an outcome of a conflict, conditional on a given winner. Thus, if owners
and workers ally in a transparency coalition, and if the transparency
coalition wins, then the outcome should be diffusion, or in different words,
an active market for corporate control (2005: 23). Here we move from
the frying pan of non‐falsifiability to the fire of tautology, since it is not
clear what measure of a transparency coalition's “winning” GS use that is
independent of the outcome observed. The evidence on such measures is
to be found in the dense analytic narratives contained in the later chapters
of their book. In the case of France—one of the few cases of change widely
accepted by scholars—GS note that many observers “see no political
debate over corporate governance issues…That may be quite accurate as a
description of the process, but politics plays an important role in allowing it
to take place” (270). Well, OK, but what politics? What is it we can observe
empirically and independently of the change being explained, to show
that a transparency coalition wins in France? In the end, GS conclude their
causal argument on France this way: “Overall, the decline of statist ideas
on the left and right seem plausibly to explain the movement of French
policy” (271). While that may be a correct statement, there is no connection
here to the transparency coalition and no evidence of the actors involved
in these interest coalitions as actually bringing about the change observed
in France. This important example highlights a more general problem in the
GS mode of explanation: it is unclear what evidence they could observe that
would convince them of the predictions of their model. If the theory is supple
enough to take the absence of clear coalitional mobilization in France as
evidence that its predictions are borne out, then it is difficult to see how its
predictions can usefully be falsified.
In sum, Gourevitch and Shinn elegantly characterize the different possible

coalitions among interest groups in corporate governance politics. This is
a valuable theoretical contribution. Yet their arguments about the causal
determinants of change are difficult to operationalize empirically. Movement
forward in this theoretical domain thus requires the deployment of workable
empirical strategies. Two approaches seem likely to be most fruitful. The
first is to define benchmarks of a “winning coalition”—benchmarks that are

independent of the institutional outcomes to be explained by the theory. Of
particular importance, given the contemporary state of debate, is how to
measure the emergence of a winning transparency coalition, which should
then move systems with inactive markets of corporate control toward having
more active markets. The second empirical strategy is to subject the interest
mechanisms that underlie the theory to scrutiny: is there evidence that
actors behave in the political realm in ways consistent with the influence
imputed to them? In the case of the transparency coalition, we would
expect to see the interest groups that represent workers and shareholders—
respectively, unions and minority shareholder associations—especially active
in politics.
The partisanship literature is the primary political alternative to the

coalitional approach. The pioneer in the partisan approach was Mark
Roe (2003), whose book argues that social democracy is not compatible
with dispersed ownership. In this view, social peace is the predicate of
wealth creation, and countries that gave a prominent role to stakeholder
views in politics in the post‐war period created incentives for large blocks
shareholding. This is because these systems made it difficult for managers
to respond to concerns about shareholder value; blockholding was the
alternative response to the agency problem facing shareholders. Roe's
statistical work then used the significance of left parties in government as
a measure of social democracy—which he equated with the stakeholder
society—and demonstrated a correlation between the extent of blockholding
and the degree of left party control.
Roe's work was pioneering in highlighting the connection between

stakeholders and politics. Yet his use of social democracy as a conceptual
umbrella for the stakeholder society is problematic. As John Cioffi and Martin
Höpner (2006; hereafter CH) show in their work, the stakeholder society
in places like Germany and Italy—and the large ownership blockholdings
on which it was constructed—were politically assembled by friends of the
right, not the left (cf. Höpner 2007). This is the background to Cioffi and
Höpner's work on the contemporary period, in which they stress that parties
of the left are, contra Roe, the fiercest opponents of patient capital and large
blockholding. As an explanation of social change, moreover, they explicitly
part company with Gourevitch and Shinn on the relevant actors for political
change:
Center‐left political actors have taken the lead in advancing
corporate governance reform, rather than unions,
shareholders, or other interest groups. Shareholders are

too poorly organized (as in the United States) or too few in
number (in Continental Europe) to constitute an effective
coalition partner, while labor remains somewhat ambivalent
and peripheral to the politics of financial system and corporate
reform. (Cioffi and Höpner 2006: 491)
Driven by economic changes that bring more of their voters to prefer

increased transparency and attacks on patient capital, mainstream parties
of the left passed legislation challenging the institutions of patient capital
in multiple countries during the 1990s. Rather than being driven by interest
groups, as GS claim, Cioffi and Höpner's view is that political parties are the
striking arm of corporate reform in the advanced industrial countries.
Empirically, CH show very carefully how parties have pursued legislation in

parliament. Their claim that these laws were the product of neither union
power nor minority shareholders casts some doubt on the transparency
coalition thesis of Gourevitch and Shinn. However, Cioffi and Höpner too
easily accept legal change as evidence of institutional change. For example,
in the Italian case they assert that “the decade of reform by the centre‐left
[begun in the 1990s] significantly altered Italian capitalism” (474). Beyond
the Italian privatization reform (which affected only the ownership of formerly
public companies), there was no effect of the left government's policies on
the concentration of private shareholding concentration in Italy (Culpepper
2007). The work of CH suffers from the opposite problem to GS. GS stress
empirical outcomes (correctly) but do little to show the empirical record of
political change. CH, meanwhile, show the empirical record of legal change
driven by political parties (correctly), but do not show the empirical changes
they sometimes assert in the broader structure of the economy.
These shortcomings have a common root: the occupational inclination of

political scientists to observe outcomes in capitalist democracies and then
attribute them to democratic politics. It is impossible not to be sympathetic
to such a view. If questions are important in their distributive implication, and
if they are subject to political regulation, how can it be that their outcome is
not a product of the interplay of democratic forces discussed by Gourevitch
and Shinn and by Cioffi and Höpner?
The Problem of Salience in Politics
One reason is that these scholars all emphasize the role of formal institutions
—laws and regulations. Formal institutions are the bread and butter of
political scientists and legal scholars, but they comprise only part of the

institutional frameworks that structure advanced political economies
(Hall and Soskice 2001). Where blockholders exercise control over large
shares of companies, they generally dictate the rules of the game for the
largest companies, which they control. Thus, in assessing why patient
capital broke down in France but did not in Germany or Italy between
1995 and 2005, I have shown in previous work that legal change does
not necessarily drive change in informal institutions (Culpepper 2005,
2007). Where blockholders and their managerial agents have concentrated
economic power, governments have a limited ability to restructure patterns
of private shareholding.3 Those options they do possess—such as outright
nationalization or imposing costs on concentrated ownership of firms—
involve serious challenges to property rights. It is true that governments,
which are the ultimate guarantors and regulators of property rights, could
influence these informal institutions of private shareholding. Yet they do not
and have not, notwithstanding the incentives discussed in GS and CH. Even
taking account of the durability of informal economic institutions, it is not
clear why governments rarely take such steps.
I argue that the answer to this puzzle lies in the role of political salience.4
Political salience refers to how much the electorate in a democracy cares
about a given political issue. Salience is a political construction, but it is
one whose foundations generally lie in the structure of material interests.
In the world of corporate control politics sketched by Gourevitch and Shinn,
the three actors involved—managers, workers, and shareholders—all
have an interest winning the political battle over the policy domain. This
characterization is not true to the world we actually inhabit. In that world,
there are many competing dimensions of politics that attract the attention
of potential interest groups. Only those with very intense interests in the
rules of corporate control are likely to be willing to pay attention to the
complex area of corporate governance regulation. Workers with pension
income invested in companies do not have this sort of interest. They are
likely to be far more concerned about immediate issues of job protection
and wages than the rules that govern companies in which their pension
funds own shares. We should therefore expect that workers will be irrelevant
voices in the politics of corporate control, both uninterested and unlikely to
be heeded when they occasionally do express an interest. With the exception
of institutional shareholders, minority shareholders have too small a stake to
care. Large individual shareholders do care, and they have strong incentive
to monitor managers and ensure that managers do not deviate too far from
their policy preference. This intensity of preferences thus leads two groups
—large shareholders and managers—to have a much more concentrated

interest in the outcomes of policy reform than the other actors engaged in
the corporate governance arena.
In the partisan world of Cioffi and Höpner, political parties of the left are
particularly sensitive to the fact that regimes of patient capital favor
managers and the blockholders who support them (where companies are
large blockholders, managers are effectively also blockholders). Yet political
parties have many policy priorities, and their highest priorities are generally
those that win them the most votes, either with their core constituents or
with crucial swing voters. In most cases, revisions to rules of shareholding
and accounting do not have this sort of priority with parties. Party members
may attempt to become policy entrepreneurs, investing in the acquisition of
knowledge about the arcana of corporate governance in hopes of using that
information draw wider attention to the issue area and to themselves. Yet
given the low political salience of corporate governance issues more broadly,
the entrepreneur's strategy is a long shot. We generally expect there to be a
wide gap between party programs for reforming corporate governance and
actual bills implementing that reform.
Recognizing the importance of policy salience helps to understand the

poor fit between contemporary theories of politics and the actual politics of
corporate ownership and control. First, recognizing the typically low public
salience of corporate governance issues allows us to understand why models
of coalitional and partisan politics frequently mischaracterize the political
maneuvering we actually observe in this policy domain. Those models
assume high salience, and at moments of high salience their projected lines
of cleavage are indeed likely to emerge. Yet moments of high salience are
rare, and thus these models cannot therefore be taken as general models of
the politics of corporate governance.
Salience and the Politics of Corporate Control: A Dutch Illustration
This chapter is not the appropriate forum for a full empirical examination
of the role of business in the politics of corporate control.5 To understand
how low salience fundamentally empowers managers and thus affects the
contours of corporate politics, this section draws on empirical work I have
undertaken on the politics of reform in the Netherlands. The absence of
blockholders in the Netherlands makes it a favorable empirical ground for
theories that emphasize parliamentary politics and formal rules. Unlike
in Italy or Germany, where powerful blockholders can ignore legislation
intended to undermine their blockholdings, patient capital in the Netherlands
has endured throughout the post‐war period without strong concentration of

ownership (De Jong and Röell 2005; Gourevitch and Shinn 2005). It seems
reasonable to expect that managers in such a system, without the support
of blockholding owners, would be heavily reliant on the support from the
political system. Thus, the terrain is one that should be favorable for political
theories.
Dutch companies, lacking large shareholders, have created a panoply of

protections against hostile takeovers. These measures—notably preference
shares, but also priority shares and share certification—all serve the function
of weakening the effective capacity for control of ordinary shares acquired
by a hostile suitor. In 1994, when the first purple coalition came to power in
the Netherlands, Liberal Party (VVD) finance minister Gerrit Zalm made the
strict limitation of takeover protections a consistent goal of his. The VVD was
to control the finance ministry for the next twelve years, giving Zalm multiple
potential opportunities to introduce and pass reforms of takeover legislation.
He twice introduced such legislation to parliament—once from 1996 to 1998,
and once from 2005 to 2006, during the implementation of the European
Union's takeover directive. Both times he failed in the wake of a concerted
lobbying effort by the organization of managers of Dutch listed companies,
the VEUO. When he left office in 2006, he had been unable to introduce any
legislation imposing time limits on the use of hostile takeover protections,
and a majority of listed companies continued to use preference shares in
2006, a number virtually unchanged since 1993. Why, given his length of
tenure and his importance in the government, did Zalm fail in achieving
reform in the area of hostile takeover protections?
Gourevitch and Shinn attribute this outcome to the “triumph of the

Netherlands' mangers‐plus‐workers insider coalition” (2005: 186). However,
it is unclear the organizational representatives of workers—unions—cared
much about the rules on hostile takeover protections. Most negotiations on
the content of reform in the Netherlands took place either directly between
the government and representatives of managerial organizations or within
committees appointed by the government and dominated by managerial
organizations. In neither of these fora did unions have any representation.
Unions are represented in the Social and Economic Council (SER), the
peak corporatist organization that advises the government on issues of
general economic policy‐making. Yet the SER was sidelined in the politics
of hostile takeovers, and there is little evidence of direct union influence.
The Labor Party, which Cioffi and Höpner would predict to lead the battle for
reform, was very much ambivalent about change. Its role was important in
defeating the first attempted reform in 1997–8, and it vacillated during the

implementation of the EU directive in 2005–6, by which Zalm attempted to
limit the duration of all takeover protection mechanisms. Neither Labor (the
party) nor labor (the union organization) was a causal factor in defeating
Zalm's attempted reforms. The coalition that triumphed was no manager–
worker coalition, but simply a manager coalition—managers were the
necessary and sufficient members of the coalition to secure its triumph.
Organized managers were able to repel Zalm's attempted reforms through

concerted lobbying efforts and their ability to rely on expertise to persuade
wavering politicians. In the first reform effort in the 1990s, representatives of
the VEUO negotiated the measure with Zalm while simultaneously lobbying
his parliamentary colleagues to kill the eventual bill through a procedural
maneuver. In an interview with the author, he described the difference
of the VEUO from the VNO‐NCW, which is the peak lobbying employers'
association: “they were not very loyal partners in making deals…Probably
with the VNO‐NCW we could have done business more easily, because they
are used to compromise and sticking to compromise.” The VEUO, which
viewed the conservation of hostile takeover protections as its entire raison
d'être, had no commitment to corporatist bargaining, only to defense of its
members' prerogatives. The power of this lobbying, as summarized by a
former VEUO leader, was based on information: “Look, Zalm is not mindless,
he just doesn't have any practical business experience. So you offer him your
expertise there. Because they are not mindless, you can clarify it for them.”
In the reform episode of 2005–6, the VEUO made similar use of its legal
expertise, swinging the Labor Party to its side by convincing key lawmakers
that there was no need for legislation to limit the duration of hostile takeover
protections, since courts could always do this. In both instances, the lobbying
offensives of the VEUO hung not on the threat of disinvestment—the old
Lindblomian structural threat of business—but rather on reasoned (and self‐
interested) arguments buttressed by their access to substantial expertise.

Fig. 21.1 Number of articles per year on takeover protection, 1995–2006
Notes: N=679. A standard search protocol in Lexis‐Nexis identified all articles

on this topic in the four most widely read newspapers in the Netherlands—De
Telegraaf, Algemeen Dagblad, De Volkskrant, and NRC Handelsblad, as well
as the Financieele Dagblad, the business press equivalent of the Financial
Times or the Wall Street Journal. The search terms used were “bescherming!
[protection*] and (overname! [takeover*] or bod [bid]).” Articles from De
Telegraaf were only available through Lexis‐Nexis from 1999. This search
initially yielded 2,727 articles, many of which were on examination not
relevant to the issue of takeover protection in the Netherlands. Articles
were classified as relevant if they made some mention of the existing Dutch
rules on hostile takeover protection. Roughly 25% of the articles (679 of the
original 2,727) were relevant to the broader question of takeover rules in the
Netherlands.
The ability to use information asymmetries to dominate the debate on reform

depends on the generally low public attention paid to the issue of hostile
takeover protections in the Netherlands. Fig. 21.1 shows the number of
newspaper articles dealing with hostile takeover protection in the Dutch
press between 1995 and 2006.
This figure shows the number of articles that appeared per year in all five
papers on the subject of hostile takeovers. If only one article appeared
per month on takeover protection in each of the five papers searched—
an extremely low baseline—that would result in an annual figure of sixty
articles. Fig. 21.1 illustrates that there were only three years during which
the media paid attention to the issue of takeover protection: 1995, 1996, and
2006, which were the years of Zalm's most intense conflict with managers.
Even during those three years, there was an average of 102 articles per
year dealing with this topic, which means that on average Dutch newspaper
readers saw fewer than two articles per month dealing with this subject.
These are the sort of political conditions—those of extremely low salience—
under which we would expect the lobbying capacity of business to be most
successful.
Conclusion
Since 1990, managers in France, Germany, Italy, Japan, and the Netherlands
have all faced challenges to their systems of ownership. During this time,
managers have never lost a legislative battle that has then had effects on

private ownership structure. In the first three countries, most of those battles
have not taken place in parliament. In the Netherlands, they did take place in
parliament, and organized managers won every time. In Japan, there was a
breakdown of long‐term shareholdings, which was tolerated by managers as
a useful reallocation of capital. In terms of legal changes allowed, Japanese
employer organizations have created the possibility for companies to
adopt different board structure, but those organizations have opposed any
attempts to make mandatory a move to American board structure (Gilson
and Milhaupt 2005; Vogel 2006: 91–5). Once they engaged in political fights
over hostile takeover protections, they succeeded in achieving their goals
through the Corporate Value Working Group, an informal body convened
by a government ministry, in which managerial interests were very well
represented.
In all these cases, the politics of corporate control have been dominated by
managers and managerial interests. This runs counter to the expectations
that emerge from most of the existing literature on the politics of corporate
control. Gourevitch and Shinn's coalitional analysis, while theoretically
persuasive, does not capture the fact that the force behind the preservation
of patient capital in the countries reviewed here is not a corporatist
coalition between managers and workers, but managers alone. Rajan and
Zingales (2003), who have importantly recognized the power resources
of incumbents, nonetheless claim that the major source of financial
development is the combination of trade and financial liberalization. The
Dutch case, one of the world's most open economies in terms of both trade
and investment, suggests that there are many other attributes of managerial
power that must be considered. Cioffi and Höpner's analysis of the role of
parties of the left in pushing for greater transparency in financial markets is
a useful corrective to the mistaken conflation of the “stakeholder society”
with “social democracy.” Yet their political analysis suffers from an overly
formalist structure, glossing over the fact that legal reforms in Germany
and Italy were unable to promote a breakdown of existing models of patient
capital (Culpepper 2005).
In this chapter I have suggested the failure of many of these theoretical

approaches to explain the outcomes observed in national systems of
ownership since 1990 lies in their neglect of policy salience. The fact that
most people, most of the time, do not care about corporate governance is
one of the most powerful factors which allows managerial organizations to
dominate it. The complexity of the policy area, combined with the fact that
companies constitute the productive tissue of the economy, makes their

expertise in corporate governance issues a particularly potent lobbying
weapon. Legislators will defer to this expertise in various ways, including
in the process of bill-writing and in the decision about which issues to
delegate to institutions of private interest governance. Absent a crisis
or entrepreneurial effort which renders the rules of corporate control of
high public salience, these advantages give managers and their political
organizations a systematic advantage in promoting policies that are
congruent with their interests and impeding the passage, implementation,
and enforcement of policies they oppose.
Corporate politics is not always a low‐salience affair. When events or political

entrepreneurs give the area much higher salience, the existing literature
acquires much surer explanatory footing. The characters of the coalitions
described by Gourevitch and Shinn become important determinants of
political victory, because the rules of corporate control become politicized.
The swing of left parties in favor of transparency and away from supporting
patient capital, which Cioffi and Höpner's work has demonstrated, becomes
an important factor during these periods of high salience. When corporate
politics acquires high salience because of a financial or accounting scandal,
such as Enron in the United States or the crisis of 2008, this is especially
damaging to managerial power, because it undermines a key source of
managerial authority during times of low salience: expertise. Managers will
try to influence the character of national discussion during such moments of
high salience. Their ability to do so, I suggest, is likely to be contingent on
the degree to which their expertise has been compromised. The more the
politics of corporate governance is about the politics of financial malfeasance
or systematic misperception of credit risks, the poorer the outlook for
managerial victory.
The occasional increase in salience in the rules of corporate control is one

reason managers do not always win. Even when they do win, managers
in different countries may favor different particular arrangements: thus
managers may be willing to accommodate a more active market for hostile
takeovers because of the wide availability of golden parachutes. The lack
of widespread availability of such insurance mechanisms for managers is
one reason, among others, why German managers have not been quick
to embrace the emergence of an active market for corporate control.
So managerial advantages in the policy process are not likely to lead to
regulatory convergence across countries over time.

The point of this chapter has been to underline that the literature on the
politics of corporate governance has been too quick to conceptualize the
policy arenas of capitalist democracies as democratic, but less quick to
recognize some of the advantages of capital in the democratic arena.
Charles Lindblom's enduring point about the structural advantage of capital
—that business does not have to do anything, since politicians know that
companies can disinvest if they do not like political decisions—is well
remembered in theory. Yet Lindblom enumerated two other powers of
business in capitalist democracies—special access to government and the
capacity to bias citizens in favor of business preferences (1977: 189–213)
—which are less frequently cited (for an exception, see Mitchell 1997).
The importance of special access to government matters because of the
informational expertise which business possesses and governments need
in order to make good policy (cf. Bernhagen and Bräuninger 2005). Studies
of the influence of American business on public policy have found that
the capacity of framing to influence public opinion is one of the business
community's most potent tools (Smith 2000; Guber and Boss 2007).
Highlighting the variability of policy salience provides a way to better
understand the conditions under which both lobbying and framing tools
will be effective. The effectiveness of lobbying declines as salience rises,
because rising salience directly increases the visibility of the process (the
press starts to care more) and the incentive for policy‐makers to develop
alternative sources of information. Framing effects, conversely, should
increase in relative importance for the business lobby as salience rises,
because business is only able to win on high salience issues by bringing
public opinion onto its side (Smith 2000).
While this chapter has illustrated some of these processes with empirical
examples from recent developments in the Dutch politics of corporate
control, these hypothetical relationships constitute a research program
for the future rather than a set of firm empirical findings. As the chapter
has shown, however, the current literature on the politics of corporate
governance is faced with a set of empirical developments it has difficulty
explaining. The way forward, I have argued, involves a return to the
emphasis on the power resources of business and the effects of policy
salience on these power resources. These claims also have implications for
the literature on comparative political economy. The theoretical emphasis
on the institutional differences among types of capitalist democracies, as
in the varieties of capitalism literature, has resulted in the development of
better conceptual tools for understanding the institutions of national political
economies. That literature's emphasis of institutional distinctions should not,

however, overshadow commonalities in the way in which business influences
economic policy across all different types of capitalist democracies (Swenson
2004). In the area of corporate control and corporate governance more
broadly, there are good reasons to suspect that the political salience of the
policy domain is an important variable for understanding the dynamics of
political continuity and change.
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Notes:
(1.) Yves Tiberghien's (2007) innovative work on political entrepreneurship

in the area of corporate law fits neatly into neither of these conceptual
categories. Its focus on the central role of politicians and bureaucrats in
effecting institutional change brings it closer to the partisan approach, but
its emphasis on the constraining role of international investors on political
action owes much to the coalitional mode of explanation. Like both, it tends
to concentrate only on institutional changes in the formal legal sphere.
(2.) Other versions of the coalitional approach are Rajan and Zingales (2003)
and Pagano and Volpin (2005).
(3.) Privatization can be used to affect the structure of shareholding, but the
Italian attempt to do so failed in the late 1990s (Culpepper 2007).
(4.) The next few paragraphs summarize and draw on an argument

developed fully in the manuscript of my forthcoming book. James Q. Wilson
(1974, 1980) was a pioneer of the study of salience in American regulatory
politics.
(5.) In addition to the previously cited work by Gourevitch and Shinn, Roe,
and Cioffi and Höpner, see the following work for more complete empirical

results on the political dynamics of changes and continuity in national
systems of ownership: Culpepper (2005, 2007, forthcoming); O'Sullivan
(2007); Deeg (2005); Tiberghien (2007); and Aoki, Jackson, and Miyajima
(2007).


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The Oxford Handbook of Business and Government

David Coen, Wyn Grant, and Graham Wilson

Print publication date: 2010

Corporate Control and Managerial Power

Abstract and Keywords

This article reviews the existing literature on the politics of corporate

corporate governance, legal systems, minority shareholder protection, legal systems,

There is an interesting mismatch between theory and data in the political

Page 1 of 22 Corporate Control and Managerial Power

Much of the answer lies in political salience. Unlike scholars of corporate

Page 2 of 22 Corporate Control and Managerial Power

Existing Theories of the Politics of Corporate Governance

Page 3 of 22 Corporate Control and Managerial Power

Page 4 of 22 Corporate Control and Managerial Power

However, GS rescue their theory from the realm of untestability by predicting

In sum, Gourevitch and Shinn elegantly characterize the different possible

Page 5 of 22 Corporate Control and Managerial Power

The partisanship literature is the primary political alternative to the

Roe's work was pioneering in highlighting the connection between

Page 6 of 22 Corporate Control and Managerial Power

Driven by economic changes that bring more of their voters to prefer

Empirically, CH show very carefully how parties have pursued legislation in

These shortcomings have a common root: the occupational inclination of

The Problem of Salience in Politics

Page 7 of 22 Corporate Control and Managerial Power

Page 8 of 22 Corporate Control and Managerial Power

Recognizing the importance of policy salience helps to understand the

Salience and the Politics of Corporate Control: A Dutch Illustration

Page 9 of 22 Corporate Control and Managerial Power

Dutch companies, lacking large shareholders, have created a panoply of

Gourevitch and Shinn attribute this outcome to the “triumph of the

Page 10 of 22 Corporate Control and Managerial Power

Organized managers were able to repel Zalm's attempted reforms through

Page 11 of 22 Corporate Control and Managerial Power

Notes: N=679. A standard search protocol in Lexis‐Nexis identified all articles

The ability to use information asymmetries to dominate the debate on reform

Page 12 of 22 Corporate Control and Managerial Power

In this chapter I have suggested the failure of many of these theoretical

Page 13 of 22 Corporate Control and Managerial Power

Corporate politics is not always a low‐salience affair. When events or political

The occasional increase in salience in the rules of corporate control is one

Page 14 of 22 Corporate Control and Managerial Power

Page 15 of 22 Corporate Control and Managerial Power

Amable, B. 2003. The Diversity of Modern Capitalism. Oxford: Oxford

Callaghan, H. 2009. “Insiders, outsiders and the politics of corporate

Page 16 of 22 Corporate Control and Managerial Power

Culpepper, P. D. 2005. “Institutional change in contemporary capitalism:

—— 2007. “Eppure, non si muove: legal change, institutional stability and

—— Forthcoming. Quiet Politics: Business Power and Corporate Control.

Deeg, R. 2005. “Remaking Italian capitalism? The politics of corporate

Page 17 of 22 Corporate Control and Managerial Power

Höpner, M. 2003. Wer beherrscht die Unternehmen? New York: Campus

Page 18 of 22 Corporate Control and Managerial Power

La Porta R., López‐de‐Silanes, F., and Shleifer, A. 1999. “Corporate ownership

—— —— —— and Vishny, R. 1998. “Law and finance,” Journal of Political

Lindblom, C. E. 1977. Politics and Markets: The World's Political‐Economic

Mitchell, N. J. 1997. The Conspicuous Corporation: Business, Public Policy,

O'Sullivan, M. 2007. “Acting out institutional change: understanding the

Page 19 of 22 Corporate Control and Managerial Power

Roe, M. J. 2003. Political Determinants of Corporate Governance: Political

Smith, M. A. 2000. American Business and Political Power. Chicago:

Swenson, P. A. 2004. “Varieties of capitalist interests: power, institutions and

Tiberghien, Y. 2007. Entrepreneurial States: Reforming Corporate Governance