Originally uploaded at SSRN.

Abstract

Public corporations in the United States and the United Kingdom are - from the global perspective - so very similar that it has become a commonplace in the comparative corporate literature to treat them as if they were practically identical. Notably, large American and British corporations tend to finance their operations through public offerings of stock to passive, dispersed investors, whereas their counterparts elsewhere tend to be financed and dominated by controlling families, banks, corporate groups, or the government. Likewise, the U.S. and U.K. corporate governance systems emphasize generating returns for public shareholders more than other systems do, reflecting a relatively shareholder-centric perspective fairly described as uniquely "Anglo-American." I argue, however, that the U.S. and U.K. corporate governance systems exhibit substantial differences that have received insufficient attention in the comparative corporate literature. Simply put, shareholders in the United Kingdom are, in fact, far more powerful, and far more central to the aims of thecorporation, than are shareholders in the United States.

In this article I describe this divergence, offer an explanation for it, and explore its practical and theoretical implications. Part I begins with an examination of methodological challenges faced in comparative corporate governance. Part II, then, provides an overview of corporate governance structures reflecting the substantial divergence in shareholder orientation between the U.S. and U.K. systems. In Part III, I argue that a complete explanation of this divergence requires addressing the range of regulatory structures affecting relationships among various stakeholders within the public corporation, including employees. Through an examination of political, social, and cultural forces at work in each country during critical periods in the development of their corporate governance systems, I argue that stronger stakeholder-oriented social welfare policies and legal structures have permitted the U.K. corporate governance system to focus more intently on shareholders without giving rise to political backlash - and conversely that weaker stakeholder-oriented social welfare policies and legal structures have inhibited the U.S. corporate governance system from doing the same. In so doing, I distinguish my approach from other political theories of corporate governance, which I argue fail to account for the observed U.S.-U.K. divergence.

This analysis, I conclude, holds important implications for comparative corporate governance and for domestic debates regarding the future of corporate governance in the United States. In Part IV, I argue that my analysis exposes substantial shortcomings in comparative theories predicting or advocating convergence on a shareholder-centric model, to the degree that they fail to address the political, social, and cultural factors conditioning the degree of shareholder-centrism in U.S. and U.K. corporate governance. More broadly, I argue that my analysis casts doubt on the descriptive power of economically driven theories of corporate governance built on the portrayal of the public corporation as a purely private endeavor.

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