Negotiated shareholder value: the German variant of an Anglo-American practice

Abstract

In comparative political economy it has become commonplace to distinguish between two types of corporate governance systems. In shareholder systems, influence over company management is concentrated with institutional investors holding small percentages of companies' shares. In stakeholder systems, influence is shared between large shareholders, employees, the community and suppliers and customers. This paper contributes to the literature addressing recent changes in the German variant of the stakeholder system by proposing a few new concepts. On the level of institutions, it is argued that the stakeholder system is not being replaced by a shareholder system in Germany. Rather, an augmented stakeholder system is emerging through the inclusion of institutional investors in the old stakeholder coalition of interests. On the level of practice, it is argued that negotiated shareholder value is being adopted in Germany. This German variant of shareholder value is distinct from Anglo-American practice because major changes implementing shareholder value must be negotiated within the augmented stakeholder coalition. As a result, performance incentives for employees tend to be less strong than is the case in the USA and UK.

Keywords:

• Corporate governance
• Shareholder value
• Varieties of capitalism
• Stakeholder model

Acknowledgements

Many thanks to Lutz Engelhardt and Jana Meier for invaluable research assistance, to Pablo Beramendi for helpful comments, and to Martin Höpner and Gregory Jackson for useful clarifications.

Notes

The typical definition of a large shareholding, or blockholding, is that at least five percent of the total outstanding shares of the company are held by the same owner.

Recent reforms in both the UK and USA have attempted to reduce the power of any single individual within the company board system, for example by seeing that the roles of CEO and chairperson are carried out by different persons.

Varta was in the MDAX, the midcap index for German stocks, but its management wished to take it private (i.e. de-list it from the stock exchange) since it felt that its stock was undervalued by small investors.

Höpner and Goyer emphasize the extent to which employees may have a positive interest in international accounting standards. However, the author's interviews with works councillors indicate that relative indifference is probably a more accurate characterization of their actual attitudes towards these changes.

Based on an interview with the chairman of the group works council, September 1999.

The case of Bayer is based on an interview in May 2001 with a works councillor at the subsidiary that was sold.

These data were based on an analysis of company annual reports.