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Corporate governance scholarship is typically portrayed as driven by single factor models, for example, shareholder value maximization, director primacy or team production. These governance models are Copernican; one factor is or should be the center of the corporate governance solar system. In this essay, we argue that, as with binary stars, the shape of the governance system is at any time the result of the interaction of two central influences, which we refer to as capital market completeness and policy channeling. In contrast to single factor models, which reflect a stable normative statement of what should drive corporate governance, in our account the relation between these two governance influences is dynamic. Motivated by Albert Hirschman's Shifting Involvements, we posit that all corporate governance systems undergo repeated shifts in the relative weights of the two influences on the system. Capital market completeness determines the corporate ownership structure and privileges shareholder governance and value maximization by increasing the capacity to slice risk, return, and control into different equity instruments. The capability to specify shareholder control rights makes the capital market more complete, tailoring the character of influence associated with holding particular equity securities and its reciprocal, the exposure of management to capital market oversight. Policy channeling, the real government's instrumental use of the corporation for distributional or social ends, pushes the corporate governance gravitational center toward purposes other than maximizing shareholder value. We show that this pattern is not limited to a particular country, and illustrate our argument by tracing the cyclical reframing of Berle and Means' thesis in the U.S., Japan's sluggish shift from policy channeling in its postwar heyday toward capital market completeness under the Abenomics reforms, and the distinctive case of China, where capital market completeness has itself been used as a policy channeling instrument under the pervasive influence of the Chinese Communist Party, creating the world's most stakeholder-oriented system of corporate governance. We close by examining the means through which the current shift toward policy channeling in U.S. and U.K. corporate governance is taking place – the "stewardship" movement and the debate over "corporate purpose." We view both as a reaction to the reduced managerial discretion caused by the reconcentration of ownership in the hands of institutional investors, and analyze factors suggesting that this reform movement, like others before it, is likely destined to result in a disappointment-driven shift in the opposite direction, what we label a shifting influence.

Unlike the case of cross-border trade, there is no explicit international governance regime for cross-border M&A; rather, there is a shared understanding that publicly traded companies are generally for purchase by any bidder – domestic or foreign – willing to offer a sufficiently large premium over a target's stock market price. The unspoken premise that undergirds the system is that the prospective buyer is motivated by private economic gain-seeking. The entry of China into the global M&A market threatens the fundamental assumptions of the current permissive international regime. China has become a significant player in the cross-border M&A market, particularly as an acquirer. The central claim of the article is that the cross-border M&A regime will require a new rules-of-the-game structure to take account of China's ascension. This is because cross-border M&A with China introduces a new dimension: what we call the "national strategic buyer" ("NSB"), whose objective is to further the interests of a nation-state in the pursuit of industrial policy or out of national security concerns. Thus, China presents a problem of asymmetric motives in the global M&A market: sellers to Chinese firms have private motives for pursuing transactions, while at least some Chinese acquirers have non-economic motivations. Yet distinguishing commercial and financial motives from national strategic motives in Chinese firms is difficult. To date, the only mechanisms for addressing the NSB problem are national security review mechanisms such as the CFIUS process in the United States, as recently expanded through legislative amendment. The EU is moving forward on a screening regulation with a similar objective that contemplates activity both by the European Commission and the Member States. Whether suitably tailored or not, these approaches fail to take on the long-term concern of fully assimilating China as a normal actor in the global economic system. To address the NSB problem, we propose the adoption of a multilateral regime under which firms subject to potential government influence in their corporate decision-making must demonstrate their "eligibility" to engage in outbound M&A. For covered firms, the regime would require a commitment to exclusively commercial/financial motives in cross-border acquisitions, made credible through a corporate governance set-up featuring independent directors (selected by foreign investors) who publicly verify adherence and disclose the source of acquisition financing. Enforcement would consist of a secretariat that can evaluate eligibility and monitor post-acquisition conduct, and national legislation that would permit rejection of an acquisition of a local target by an acquirer that does not meet the eligibility criteria.

Unlike the case of cross-border trade, there is no explicit international governance regime for cross-border M&A; rather, there is a shared understanding that publicly traded companies are generally for purchase by any bidder—domestic or foreign—willing to offer a sufficiently large premium over a target's stock market price. The unspoken premise that undergirds the system is that the prospective buyer is motivated by private economic gain-seeking. The entry of China into the global M&A market threatens the fundamental assumptions of the current permissive international regime. China has become a significant player in the cross-border M&A market, particularly as an acquirer. The central claim of the article is that the cross-border M&A regime will require a new rules-of-the-game structure to take account of China's ascension. This is because cross-border M&A with China introduces a new dimension: what we call the "national strategic buyer" ("NSB"), whose objective is to further the interests of a nation-state in the pursuit of industrial policy or out of national security concerns. Thus, China presents a problem of asymmetric motives in the global M&A market: sellers to Chinese firms have private motives for pursuing transactions, while at least some Chinese acquirers have non-economic motivations. Yet distinguishing commercial and financial motives from national strategic motives in Chinese firms is difficult. To date, the only mechanisms for addressing the NSB problem are national security review mechanisms such as the CFIUS process in the United States, as recently expanded through legislative amendment. The EU is moving forward on a screening regulation with a similar objective that contemplates activity both by the European Commission and the Member States. Whether suitably tailored or not, these approaches fail to take on the long-term concern of fully assimilating China as a normal actor in the global economic system. To address the NSB problem, we propose the adoption of a multilateral regime under which firms subject to potential government influence in their corporate decision-making must demonstrate their "eligibility" to engage in outbound M&A. For covered firms, the regime would require a commitment to exclusively commercial/financial motives in cross-border acquisitions, made credible through a corporate governance set-up featuring independent directors (selected by foreign investors) who publicly verify adherence and disclose the source of acquisition financing. Enforcement would consist of a secretariat that can evaluate eligibility and monitor post-acquisition conduct, and national legislation that would permit rejection of an acquisition of a local target by an acquirer that does not meet the eligibility criteria.

The economic and geopolitical implications of China's rise have been the subject of vast commentary. However, the institutional implications of China's transformative development under state capitalism have not been examined extensively and comprehensively. Regulating the Visible Hand? The Institutional Implications of Chinese State Capitalism examines the domestic and global consequences of Chinese state capitalism, focusing on the impact of state-owned enterprises on regulation and policy, while placing China's variety of state capitalism in comparative perspective. It first examines the domestic governance of Chinese state capitalism, looking at institutional design and regulatory policy in areas ranging from the environment and antitrust to corporate law and taxation. It then analyses the global consequences for the regulation of trade, investment and finance. Contributors address such questions as: What are the implications of state capitalism for China's domestic institutional trajectory? What are the global implications of Chinese state capitalism? What can be learned from a comparative analysis of state capitalism? ; https://scholarship.law.columbia.edu/books/1019/thumbnail.jpg

The post-war experience of developing countries leads to two depressing conclusions: only a small number of countries have successfully developed; and development theory has not produced development In this Article we examine one critical fact that might provide insights into the development conundrum: some autocratic regimes have fundamentally transformed their economies, despite serious deficiencies along a range of other dimensions. Our aim is to understand how growth came about in these regimes, and whether emerging democracies might learn something important from these experiences. Our thesis is that in these economically successful countries, the authoritarian regime managed a critical juncture in the country's development--entry into global commerce by the transition from small scale, relational exchange, to exchange where performance is sup ported by government action, whether based on the potential for formal third party enforcement or by the threat of informal government sanctions. Compared to a weak democracy, a growth-favoring dictator may have an advantage in overcoming political economy obstacles to credibly committing that rent seeking will not dissipate private investment. We explore this hypothesis by examining the successful development experiences of three countries in the late twentieth century: Chile under Augusto Pinochet; South Korea under Park Chung-Hee; and China under Deng Xiaoping and his successors. Although the macroeconomic policies and institutional strategies of the three countries differed significantly, each ruler found ways to credibly commit his regime to growth. Decades of law reform activity by the World Bank, IMF, and other international organizations, along with a vast academic literature, assume that an impartial judiciary is the key to the transition from relational to market exchange. Our study reveals that a variety of alternatives are possible. We then consider a now familiar question raised about contemporary China: does economic development inexorably lead to political liberalization? The conventional wisdom says yes, drawing support from the experience of Chile and South Korea. We show that the conventional wisdom overlooks important features of the Chilean and Korean historical experiences that bear directly on China. The same incentive structures that have propelled Chinese economic growth are likely to slow political liberalization.

The post-war experience of developing countries leads to two depressing conclusions: only a small number of countries have successfully developed; and development theory has not produced development. In this article we examine one critical fact that might provide insights into the development conundrum: Some autocratic regimes have fundamentally transformed their economies, despite serious deficiencies along a range of other dimensions. Our aim is to understand how growth came about in these regimes, and whether emerging democracies might learn something important from these experiences. Our thesis is that in these economically successful countries, the authoritarian regime managed a critical juncture in the country's development – entry into global commerce by the transition from small-scale, relational exchange, to exchange where performance is supported by government action, whether based on the potential for formal third party enforcement or by the threat of informal government sanctions. Compared to a weak democracy, a growth-favoring dictator may have an advantage in overcoming political economy obstacles to credibly committing that rent seeking will not dissipate private investment. We explore this hypothesis by examining the successful development experiences of three countries in the late twentieth century: Chile under Augusto Pinochet; South Korea under Park Chung-Hee; and China under Deng Xiaoping and his successors. Although the macroeconomic policies and institutional strategies of the three countries differed significantly, each ruler found ways to credibly commit his regime to growth. Decades of law reform activity by the World Bank, IMF, and other international organizations, along with a vast academic literature, assume that an impartial judiciary is the key to the transition from relational to market exchange. Our study reveals that a variety of alternatives are possible. We then consider a now familiar question raised about contemporary China: Does economic development inexorably lead to political liberalization? The conventional wisdom says yes, drawing support from the experience of Chile and South Korea. We show that the conventional wisdom overlooks important features of the Chilean and Korean historical experiences that bear directly on China. The same incentive structures that have propelled Chinese economic growth are likely slow political liberalization.

Keynes taught years ago that international cash flows are always political. Western response to the enormous increase in the number and the assets of sovereign wealth funds (SWFs), and other government-directed investment vehicles that often get lumped together under the SWF label, proves Keynes right. To their most severe critics, SWFs are a threat to the sovereignty of the nations in whose corporations they invest. The heat of the metaphors matches the volume of the complaints. The nations whose corporations are targets of investments are said to be threatened with becoming "sharecropper" states if ownership of industry moves to foreign-government absentee holders. More tempered critics fear that SWFs will make decisions for political, not economic reasons. Calls for both domestic and international regulation of sovereign wealth funds' investments are now a daily occurrence. In this Article we frame a minimalist response to concerns over SWFs. The high profile controversy over the rise of SWFs is one – but only one – of the frictions that result from the interaction of two very different conceptions of the role of government in a capitalist economy – "state capitalism as opposed to market capitalism." In the form of market capitalism that has developed in the advanced economies, to be sure with fits and starts, the individual company is the unit whose value is maximized. Prohibitions against government subsidies and preferences reflected in WTO and European Union rules are designed to prevent governments from shifting the level of profit maximization from the company to the state. In contrast, some major developing countries (China foremost among them) increasingly reflect a form of state capitalism – what we call the new mercantilism. In this form, the country is the unit whose value is to be maximized, with a corresponding increase in the role of the national government as a direct participant in and coordinator of the effort. For the developed economies, the belief that free trade and competition amongst companies increases GDP at the national level is an article of faith: the market polices the tautology. For developing economies, particularly those whose enterprises must compete with companies from more advanced economies, the state, acting through SWFs, through direct ownership of operating companies, and through regulation, seeks to level the playing field. For the new mercantile capitalism, the government attempts to ensure that company-level behavior results in country-level maximization of economic, social, and political benefits.

Sovereign wealth funds (SWFs) have increased dramatically in size as a result of increased commodity prices and the increase in the foreign currency reserves of Asian trading countries. SWF assets now roughly equal those in hedge and private equity funds combined. This growth, and the shift of SWF investment strategy toward equities and increasingly high profile investments like capital infusions into U.S. financial institutions following the subprime mortgage problem, have generated calls for domestic and international regulation. The U.S. and other western economies already regulate the foreign acquisition of control of domestic corporations. However, acquisitions of significant but non-controlling positions are not regulated. The danger is that new regulation will compromise the beneficial recycling of trade surpluses accomplished by SWF investments. In this paper, we situate the controversy over SWF investments in the increasing global trend toward direct governmental involvement in corporate activity, a phenomenon we label the New Merchantilism. We explain why increased transparency of SWF investment portfolios and strategy, the most commonly advanced policy recommendation, does not respond to the chief concern that SWF investments have engendered. We offer a regulatory minimalist response to fears that SWFs will make portfolio investments for strategic rather than economic reasons. Under our proposal, voting rights of SWF equity investments in U.S. corporations would be suspended but reinstated on sale. Thus, SWFs would buy and sell fully voting rights, thereby assuring that the incentives to make non-strategic investments would be unaffected, while the capacity to exercise influence for strategic motives would be constrained. The paper concludes by assessing the extent to which even a regulatory minimalist response remains both over and under inclusive; however, the limited imprecision does not undermine the effectiveness of the response.

Der Beitrag verarbeitet umfassendes Datenmaterial zum Karriereverhalten der juristischen Eliten in Japan. Die Autoren verstehen hierunter Universitätsabsolventen, die eine rechtliche Ausbildung erfolgreich abgeschlossen haben und sich entweder für eine erfolgreiche Karriere als Elite-Bürokraten oder als Rechtsanwälte entschieden haben, die komplexe Transaktionen handhaben. Die aufbereiteten Daten zeigen einen signifikanten Wandel im beruflichen Karriereverhalten diese Elite während der vergangenen zehn Jahre. Zunehmend verzichten die besten Absolventen der juristischen Fakultäten der Eliteuniversitäten Japans auf die traditionelle Karriere als Ministerialbürokrat zugunsten einer Tätigkeit als Rechtsanwalt.Die Autoren zeigen auf, daß dieser Wechsel durch einen strukturellen Wandel der wirtschaftlichen, politischen und rechtlichen Institutionen in Japan verursacht wird. Sie stellen die mit weitreichenden Konsequenzen verbundene These auf, daß es sich hierbei nicht um ein vorübergehendes Phänomen handelt, sondern daß der Trend Ausdruck einer grundsätzlichen Verschiebung gesellschaftlicher Macht in Japan von der Exekutive hin zum Rechtssystem und seinen nicht-bürokratischen Institutionen ist.Die vorgelegte Analyse wirft ein neues Licht auf zwei seit langem geführte Diskussionen: zum einen die über die Rolle des Staates (der Bürokratie) in der Lenkung und Kontrolle der japanischen Wirtschaft und zum zweiten die Frage nach den Auswirkungen von Recht und Rechtsanwälten auf den wirtschaftlichen Erfolg eines Staates.(Die Redaktion) ; Der Beitrag verarbeitet umfassendes Datenmaterial zum Karriereverhalten der juristischen Eliten in Japan. Die Autoren verstehen hierunter Universitätsabsolventen, die eine rechtliche Ausbildung erfolgreich abgeschlossen haben und sich entweder für eine erfolgreiche Karriere als Elite-Bürokraten oder als Rechtsanwälte entschieden haben, die komplexe Transaktionen handhaben. Die aufbereiteten Daten zeigen einen signifikanten Wandel im beruflichen Karriereverhalten diese Elite während der vergangenen zehn Jahre. Zunehmend verzichten die besten Absolventen der juristischen Fakultäten der Eliteuniversitäten Japans auf die traditionelle Karriere als Ministerialbürokrat zugunsten einer Tätigkeit als Rechtsanwalt.Die Autoren zeigen auf, daß dieser Wechsel durch einen strukturellen Wandel der wirtschaftlichen, politischen und rechtlichen Institutionen in Japan verursacht wird. Sie stellen die mit weitreichenden Konsequenzen verbundene These auf, daß es sich hierbei nicht um ein vorübergehendes Phänomen handelt, sondern daß der Trend Ausdruck einer grundsätzlichen Verschiebung gesellschaftlicher Macht in Japan von der Exekutive hin zum Rechtssystem und seinen nicht-bürokratischen Institutionen ist.Die vorgelegte Analyse wirft ein neues Licht auf zwei seit langem geführte Diskussionen: zum einen die über die Rolle des Staates (der Bürokratie) in der Lenkung und Kontrolle der japanischen Wirtschaft und zum zweiten die Frage nach den Auswirkungen von Recht und Rechtsanwälten auf den wirtschaftlichen Erfolg eines Staates.(Die Redaktion)