Varieties of insider corporate governance: the determinants of business preferences and corporate governance reform in the Netherlands, Sweden and Switzerland

Abstract

Recent studies investigating the politics of corporate governance reforms have drawn attention to the importance of corporate ownership structures for the outcome of reforms. This is owing to the impact aggregate ownership structures have on centre-right parties' electoral strategies. In this article, I challenge electoral strategy explanations by underscoring the importance of completing it with an interest group power explanation of corporate governance reforms. Based on the cases of the Netherlands, Sweden and Switzerland, I show that opening up the black box of insider-orientated corporate governance systems is crucial in order to understand how ownership structures influence corporate governance reforms across different ‘insider systems’. My findings suggest that the extent to which insider control relies on legal control enhancing mechanisms strongly influences insider preferences in the political struggles over corporate governance and may influence the outcomes of these reforms.

Keywords:

• Corporate governance
• institutional change
• the Netherlands
• Sweden
• Switzerland

ACKNOWLEDGEMENTS

The research for this article has received funding from the ESRC-sponsored project ‘Law, Finance and Development’ (RES-156-25-00) directed by Professors S. Deakin, J. Armour and A. Singh (Universities of Cambridge and Oxford) and from a grant of the Swiss National Science Foundation ‘Regulations of Swiss Corporate Governance’ (grant no. 1214-068112.02/1) directed by Prof. T. David and Dr. A. Mach (University of Lausanne, Switzerland).

I am grateful to Helen Callaghan, Pepper Culpepper, Tony Edwards, Douglas B. Fuller, Martin Höpner, Gregory Jackson, Hyunji Kwon, Mathias Siems and Matt Vidal for their comments on an earlier version of this article. I am also grateful to three anonymous reviewers for most helpful comments. The usual disclaimer applies.

Notes

To be fair, Callaghan (2009: 757–8) does acknowledge the possibility that channels other than electoral strategies may influence political parties' preferences.

It should be noted that the argument is not that blockholders will in all cases be unwilling to abandon control over their companies. Indeed, historical studies of family companies show that over the generations the odds increase that family members sell out. Nevertheless, families can be expected to oppose political reforms, which would deprive them of the possibility to decide for themselves when they want to abandon control.

Family involvement in management is defined as the Chief Executive Officer, Honorary Chairman, Chairman or Vice-Chairman of the Board being a member of the controlling family.

The 10 variables included in the SPI are: the power of the general meeting to influence the sale of substantial assets; the shareholders' agenda setting power; legal rules facilitating the anticipation of shareholder decisions (e.g., proxy voting by mail); prohibition of multiple voting rights; rules concerning the number of independent board members; feasibility of director's dismissal; the private enforcement of directors' duties (derivative suit); the possibility of shareholder action against AGM resolutions; the existence of a mandatory bid rule; and requirements for the disclosure of major stakes in other companies (Siems et al. 2009: 6–8). The CBR SPI is preferred to La Porta et al.'s anti-director rights index (ADRI) for different reasons. The ADRI has been strongly criticized in the literature for different shortcomings in terms of the consistency of the coding of company laws and the United States-centeredness of the variables included in the index. The SPI remedies these shortcomings and has the advantage of being longitudinal, rather than cross-sectional.

Switzerland introduced a rule in 1991 which limits the maximal distortion of voting rights to 1:10, i.e., no share can carry more than 10 times the voting power of a 'normal' share. In Sweden, such a rule has existed since 1944; however, a ‘grandfather clause’ allows companies that had issued super-voting shares before 1944 to continue issuing such shares.

The only exception was the – at the time small – liberal Volkspartij voor Vrijheid en Democratie (VVD), who asked for the abolition of the structure regime (see minutes of the first Chamber of parliament, session of 6 July 2004, in Handelingen Eerste Kamer [2003/4] 28179; no. 38: 2067–2076, at p. 2069).

Minutes of the first Chamber of parliament, session of 6 July 2004, in Handelingen Eerste Kamer (2003/4) 28179; no. 38: 2067–2076, at p. 2071.

Minutes of the first Chamber of parliament, session of 6 July 2004, in Handelingen Eerste Kamer (2003/4) 28179; no. 38: 2067–2076, at p. 2067.

Cf. Governmental Directive, Översyn av aktiebolagslagen 1990/46: 1–10.

Such a rule was ultimately introduced through the stock listing requirements of Nöringslivets Börskommitte´ (NBK) — a self-regulatory authority supervising stock markets — in 1999 and strengthened in 2003.