Corporate Governance and State Ownership

free essayThe state ownership of publicly marketed corporations is rather diffusive around the globe; it has been highly elevating in the recent years. Despite the fact that the majority of literature focuses on the corporative management and its influence on a firm, it is highly important to understand how the state, being a stockholder, can affect a business entity and private investors defence. The paper provides a comparative analysis of the four countries, namely the US, China, the EU, and the UK. It clearly demonstrates how the state’s binary function impacts the country’s development, private depositors’ protection, and corporative management. The paper demonstrates that primarily, the state ownership has started to develop in the United Kingdom. In turn, the US did not use the state ownership framework until the recent years. This state proceeded in sharing the profit of enterprise corporations after the 2008 financial crisis. It was done not via the proprietorship ownership but through taxation. The current situation in the UK reveals that some leading business families progressively acknowledge the significance of initiating the decision-making procedure created in both the corporate governance and family. The analysis of the EU demonstrates that the interest in the corporate governance in terms of capital markets has elevated in the European Union together with its Member States. China demonstrates that an open impact of the state interest as a regulating stockholder on China’s corporate governance settings appears to be relatively ostentatious in attracting the consideration of regulative and economic scholars of the capital markets in the country. The state’s diffusive attendance in the Chinese economy has merely resulted in a more significant problem, which is evenly generic in the Western economies, in which blended enterprises perform an essential function.

The state ownership of publicly marketed corporations is rather diffusive around the globe; it has been elevating in the recent years. The ongoing researches on the topic concentrate on the consequences of the governmental ownership in the light of the corporate governance and its efficiency and implementation in the company. However, the current paper studies and analyses the opposite highly distinctive and, at the same time, the significant issue of the state presence in a form of a stockholder and its possible negative impact on the corporate juridical framework model applicable in the private industry. The paper reviews the historical experience of the governmental ownership in the US, the European Union, the UK, and China. It clearly demonstrates that the conflict of interest between the stockholder and controller, which results from the binary function of the state, might in practice negatively impact the corporate legislation and lead to the elimination of the depositor safety and efficiency.

The facts demonstrate that the pendulum has changed to the opposite course after two decades of privatizations. It was followed by the emergence of an increasing but not entirely incontrovertible concurrence in the relativistic efficiency of the private versus state ownership of a commercial enterprise. Regardless the fact that the governmental ownership of the listed firms seems unusual for the United States, it appears to be diffusive, prevalent, and increasing elsewhere in the world. Therefore, the state-owned enterprises (SOEs) are currently accountable for about one-fifth of the global stock market value, standing for the doubling of the level observed one decade ago. Facts show that the governmentally-controlled firms account for about 80% of the Chinese investment attractiveness, 60% of the European Union, and 35% of the U.K. market capitalisation. Thus, the recognition of the governmental role as a stockholder in the corporate legislation reforming emphasises another aspect of the well-known connection between the state and family regulation of a joint-stock company. Facts show that the relative insufficiencies of the enlisted state-possessed firms in the English-American world lead to the reality, in which the potential role of a state as a stockholder in terms of the corporate governance appeared to be entirely excluded from the problem analysis. The conventional explanation of why the state and family control appear in a tandem regards the fact that, in a regime of insufficient investor, securing and elevated private advantages of control, the ruling shareholders do not bestow any control because of being afraid of the forthcoming seizure. As the robust fund markets are incapable of developing in the mentioned contexture, it appears that only the rich families together with the state have a passable quantity of funds to invest in the large-scope and cost-efficient actions and processes. Facts show that the genuine presence of the state-possessed firms can be excused to some degree by the incapacities of the fund markets to arrange and provide financing for greater enterprises so that to allow them to implement profit-making and advisable designs officiously. Nonetheless, the inverse causality is evenly credible. For example, in the case when the governmental ownership occurs in a form of the fund market replacing, increased levels of the governmental firm possession might efficiently substitute the private industry. It seems obvious that the state regulatory agencies frequently express different concerns and powers, which in practice, might diminish the state’s capacity to manage its concerns as a stockholder in a fixed and cohesive manner.

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The main objective of the current paper is to analyse and reveal how the state’s function of a stockholder might account for the connections between the juridical depositor securing and corporate ownership frameworks. This paper also studies the ways, in which the institutionary outlining might deter the effect of the state’s concerns as a stockholder on the corporate governance setting. Moreover, the paper researches and reveal how seriously the conflict of interest might affect the corporate legislature substance and whether it can damage the outer depositor safety and effectiveness. Therefore, the principal aim of this paper is to highlight an essential and solidly neglected origin of the inverse causal connection, accounting for the negative impact of the state’s function as a directing stockholder on the country’s juridical depositor defence and, consequently, on the fund market development and progress of a country, in general.

The State as a Shareholder: A Comparative Perspective

Facts demonstrate that the interests and concerns of the state and its government being a regulating stockholder are highly discrepant from the interests and concerns of the private regulating and managing stockholders. Generally speaking, the state ownership can lead to the distortion of administrative and executive inducements and transform into a time-prolonged issue in numerous corporations, due to the fact that the state attempts to pursue non-financial goals, which surpass the wealth enrichment of a stockholder. Therefore, it is highly important to analyse the experience of different countries, including those that have already embraced the trend of the state ownership and those that initiated the process merely after the 2008 financial collapse. The current chapter reviews the historical practice and experience of the United States, the European Union, China, and the United Kingdom with the aim to understand the possible effects of the state’s binary function.

The United States

The analysis of numerous jurisdictions around the globe reveals that they are different from the U.S. ones, as the fixed and conventional state-possessed companies appeared to be less popular in the United States in the 20th century. With the exclusion of provisional takeovers of the enemy properties during the war period, the American government mainly abstained from nationalizing the key industries. This fact proves that the US utilised a framework of the state capitalisation in the post-Second-World-War time. Regardless of the fact that mixed companies demonstrated a tendency to dominate and surpass the fund markets in many developing and developed countries, they seem to be virtually defunct in the recent American practice and experiences up to the fiscal collapse of 2008. Facts show that the original conception of the federal governmental obtainment of shares in necessitous and destitute fiscal establishments is a specific politics yearling adopted from the UK. This country has had a much bigger historical practice and closeness with the state-owned enterprise. The fractional nationalization of distressed and needful companies superseded the U.S. governmental initial initiative under the Troubled Assets Relief Program (TARP). This design and project encompassed less intrusive public obtainments of pretended toxic stocks from the banks’ financial statements. The last century demonstrates that the U.S. government appeared to be majorly secured from any “conflicts of interest in corporate governance control arising from its interests as a corporate shareholder”. Despite the fact that both the state and federal governments in the United States have commonly (and methodically) utilised a corporate framework only at the beginning of the 20th century, it became evident that the country had habitually implemented this trend either through sole ownership or controlling agent, and “not as co-shareholder or remnant proprietor in fellowship with private capital.” For example, the Supreme Court’s remarks and reports concerning the opposition between Lebron and National Railroad Passenger Corporation reveal that the passenger railway corporation Amtrak, a government-possessed firm, was “not a unique, or indeed even a particularly unusual, phenomenon.” Therefore, the American federal and state governments have made a significantly generous application to the corporate framework in an attempt to execute national duties and responsibilities. The history shows that in the 1990s, the official American report encompassed “as many as 6,397 government corporations in the U.S., encompassing 45 with federal charters.” The practice demonstrates that the latest have been specifically developing during the recent years. Nevertheless, an immense number of these firms appears to have followed one of the two existing frameworks. The first one stands for the national joint-stock means and overtures, in which the corporate framework acts in a form of a disjunctive institutional model and demonstrates a more habitual way of the national management and governance. The second presupposes the privately owned but governmentally-sponsored enterprises. In fact, both state and federal governments initiated and utilised the first kind of firms, in order to acquire a higher level of the operational pliability over traditional national organisations or the departmentalism. For example, President Franklin Delano Roosevelt exposed “the generation of the Tennessee Valley Authority in 1933, in a form of a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise.” Generally speaking, the government commonly and typically appears to be a sole possessor of such corporations, which are frequently mere governmental organisations shaped in a discrepant, with a higher level of flexibility, juridical framework. Furthermore, the U.S. government took advantage of numerous governmentally-sponsored enterprises (GSEs). The Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac) can be considered the best examples. In fact, the U.S. Postal Service is a classical model of a federal governmental organisation, which has implemented a trading function for many years. Moreover, the federal government executed other regulative functions, encompassing the Federal Deposit Insurance Corporation and the Resolution Trust Corporation. Moreover, the governmentally-sponsored enterprises (GSEs) appeared to be privileged by the national governments for adhering to the national objectives or retrieving the acquired fund non-completions and collapses. Therefore, they are designed as profit-searching corporations possessed by private stockholders and enlisted in the major exchanges. Furthermore, the governmental support of governmentally-sponsored companies developed from the unconditional and implied warranty and security of debt of the corporation, and not through the shares. The first ultimately assists in advancing a firm’s national goals by diminishing its capital cost. It is important to mention that such a blended framework facilitates intra-stockholder conflicts associated with the state possessions and ownership. It is generating even a higher level of the disarrangement of concerns between the management and corporate shareholders, who profit from the fund cost evaluation resulting from risky operations, and ratepayers, who are supposed to seize the list of charges in the case of defection.

Facts reveal that the completely government-possessed entities or government-sponsored enterprises did not face any agency issues, which were usual for multi-possessed companies. The contemporaneous public and private possession of business corporations in the US had been highly rare and almost insignificant before the 2008 fiscal crisis. Since then, numerous firms have been officially leased in a form of blended enterprises while the majority of them were transformed into completely private or public owned ones. It is important to mention the Communications Satellite Corporation (also known as Comsat), due to the fact that it was considered the most broadly publicised and hotly competed combat incorporating a blended corporate organisation in the 20th century. The company actually failed to adopt a blended-ownership framework. Facts demonstrate that the corporation’s 1962 federal estate permitted the U.S. President to validate three public concern authorities selected from available fifteen members of the board. Nevertheless, the corporation had to be entirely possessed by the private sector stockholders. Facts reveal that blended-ownership companies have a substantial historical heritage in the U.S., which started with the initiation and foundation of the Bank of North America (known as a blended-ownership firm and the U.S. first bank). Thus, Comsat’s administration framework assured the executive and government influence and management without involving the country’s fiscal concern in the enterprise. In fact, the first American bank similarly turned to be a blended-ownership firm, in which the state possessed a huge share accounting for 20 percent of its fund. Therefore, the pressure arising from the country’s concerns as a stockholder and its function as a company-wide adjuster became obvious. The analysis of the late 18th and early 19th centuries demonstrates that the most notable corporate problems included an access to the corporate estates, which demanded a personalised legislature act at that time and not the current administrative firm spending issues, and the developed requirement for the stockholder defence. The early banking in Philadelphia is the best example. This case reveals that the fiscal concern of the state as a stockholder of underlying companies affected their readiness to lease possible emulators. Due to the fact that the Commonwealth of Pennsylvania faced a budget surplus, it considered the greatly profitable Bank of North America (completely possessed by the private traders) in the light of a long-perspective deposition possibility. The government offered to obtain a solid quantity of the bank’s funds, but deliberations with the existent stockholders eventually collapsed. Due to the fact that the local traders were unsatisfied with the loans from the first American bank, they considered it a possibility to acquire a corporate estate for the emulating establishment. While speculating on the licensing subsidiary concerning the Bank of Pennsylvania, the U.S. government was allowed to subsidise one-third of the bank’s estate funds, for it to be acquitted via a blend of species, arrears, and bank loan profits. Later in 1803, another category of credit-ravenous marketers requested the administration to include the Philadelphia Bank. This appeal met strong opposition from the Bank of Pennsylvania that, being an undeviating commodity of the country’s yield-making goals, asked the state for being a stockholder in order to prevent the inclusion of another novel bank. The Bank debated that the establishment of another banking institute might lower its revenues while jeopardizing the state’s depositions. Facts show that the citizens debated that, due to the large-scale concern, which the state had regarding the Bank of Pennsylvania, there was no possibility to analyse the possible adverse impacts of an additional established banking institution solidly, both on the financial state’s interests and on the banking system, as such.

Thus, the Commonwealth of Pennsylvania actually encountered a dilemma. Due to the fact that the state was a shareholder in the Bank of Pennsylvania, its concerns and interests apparently concurred with the interests of bank’s private depositors. However, due to the fact that the state was a regulator of the public prosperity, it was supposed to take into account opinions of the Philadelphia Bank’s advocates. The last opposed the bank stockholder’s objectives and ambitions. The juridical commission, which was supposed to evaluate the charter appeal, was originally meant to charter any concerns of the country as a sharer. Therefore, it provided a critical report regarding the charter utilization, showing it as an issue contradicting the public concern and apparently harming the country’s budgetary and financial position in the Bank of Pennsylvania.

Nevertheless, this state’s interest conflict was obvious. One juridical offer debated that the liquidation of this conflict asked the state to reject its fund deposits in banks. However, the offer was declined, allowing the Philadelphia Bank to engage in the Coasean auction successfully and acquit a charter. In such a manner, the “Bank of Philadelphia proposed the state a $135,000 cash defrayal, allowed the state to make solid fund subsidiaries, and accommodated $100,000 to the Commonwealth in a form of interchange for above-mentioned incorporation.” Thus, after winning an “auction war with the Bank of Pennsylvania, which provided the state with solid advantages for rejecting its emulator’s request for a charter, the Bank appeared as ultimately incorporated.”

Generally speaking, the country’s fresh depositions in the Philadelphia Bank could initiate analogous competing interests in the upcoming charter appeals. Thus, Pennsylvania, being a stockholder, revealed a concern regarding the situation causing an opposition to the Farmers’ and Mechanics’ Bank Incorporation Appeal. Facts prove that the lateral defrayments to the country’s cabinet had been frequently and systematically utilised so as to content the public concern before the elimination of the state’s depositions in banks in 1837, which actually resulted in the prerequisite for a genuinely liberal leasing politics. It is important to mention that Pennsylvania was not exceptional in encountering an opposition between the state’s binary function as a stockholder and controller. Fiscal concerns of individual states had a considerable effect on their politics in bank leasing. Those states, in which the major source of the banking-connected income originated from taxes, appeared to be essentially more probable to adopt a liberal leasing procedure as opposed to those countries, in which the state acted as the main banking stockholder. Moreover, the stockholder–controller clash was not restricted to the inclusion of fiscal institutions. Thus, the U.S. state government seriously deposited in the transportation enhancement firms in the 19th century and always remembered about those concerns when revising charter appeals from possible emulators. The state interest in the economic prosperity of New York Erie Canal can be utilised as a valuable historical sample of the public business, which the United States had created and funded on its own. This case vividly demonstrates the dual role and problem of the state. Regardless of its innovative function in the ratification of the general inclusion acts, it is known that New York restrained from passing a general inclusion legislation preventing the emulation from aggravating the ranking of the Erie Canal’s state obligations. In fact, the citizens appeared to be benevolent to the state’s financial concern, resulting in the “vocalic popular lament” against any possible emulation from railways. Therefore, the New York Assembly ratified the statutes that prevented the railways from transporting lading, which guaranteed the monopoly of Erie Canal. In New Jersey, the above-mentioned scheme appeared to be even more popular and diffused. The state’s shameful Monopoly Bill passed in 1832 provided the Camden and Amboy Railway with an exceptional privilege. It was a negotiated-for statute ratified as the interchange for a solid present of firm’s fund to the state. The state’s ownership position concerning the railway appeared to be so gainful that it seriously lowered the taxes gathered from the citizens and, thus, lead to the political popularity of monopoly. Therefore, when a turnpike firm appealed for an emulating lease several years later, the responsive Commission reacted in a negative way in order to retain inviolable and untapped both the credence and the income of the state. It strictly adhered to the policy system, which became te basis for the current Internal Improvements. Legislators also considered the state’s concern a stockholder in determining corresponding regulations for the corporate governance.

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Due to the fact that the product and capital markets had successfully evolved during the 19th century, blended enterprises appeared to be progressively occasional. This trend sustained in the 20th century. Nevertheless, during the 20th century, particularly in the post-war time, the state proceeded with sharing the profit of enterprise corporations. It performed this trend not via the proprietorship ownership but through taxation. After the Second World War, when the general number of the non-U.S. governments appeared to elevate the ownership property promptly in some significant economic spheres, the American revenue tax ratio applicative to enterprise corporations actually made the state an equivalent associate in the corporate business in terms of profits. In fact, the amenities of the U.S. corporate legislation still were influenced by the states’ fiscal concerns. The state did not act as a corporate stockholder anymore but as a controller and gatherer of corporate license taxes. In fact, the government’s fiscal concern in tax incomes resulted in discrepant and, probably, even a more favoured regulative incentive as opposed to the direct ownership. Generally speaking, the fiscal concern of the federal government regarding revenue taxes facilitated the ratification of effective securities and corporate laws, which maximized the company’s income. Despite the fact that the states’ concerns in license taxes might result in corporate regulations, which are more managerial in nature, the incentive to facilitate regulative over minority stockholders strongly opposes the situation when the state acts as a regulating stockholder.

The European Union

The EU has a profoundly different situation than the one in the United Stated. State-possessed corporations, including the blended ones, appeared conspicuously in 20th-century Europe. Before 1977, 19 (standing for 38%) of the best 50 greatest manufacturing firms in the EU were state-possessed while other nine (standing for 18%) were blended enterprises. Despite the fact that the best 50 companies comprised several British firms (including the completely state-possessed corporations), eight out of nine greatest blended enterprises belonged to Italia, Germany, and France.

Blended enterprises were quite popular in 20th-century Italy. Before 1992, they made about 18% of the listed companies and produced more than 25% of the overall market capitalization. Due to the fact that the Italian corporate governance system turned into a framework of the family and state capitalism, all attempts to elevate the investor security and evolve capital markets ceased. In fact, the evolvement of the Italian fund market appeared to be positively connected with the investor advocacy and receptiveness while being negatively dependent on the government interference. Generally speaking, the biggest enhancements regarding investor defence in Italy developed in almost the same period when the state was deviating from the corporate ownership through the privatization procedure. The Italian government had combined the realization of assets and substantial enhancement of the legal defence of minority stockholders. This issue can be considered evidence showing that the state ownership functions as a form of a replacement for capital markets, due to the fact that any direct state interference as an enterprise can partly replace and crowd out the function of the private category in terms of the capital agglomeration.

The potential of the state as a monitoring and regulating stockholder to affect corporate legislation creates another potential causative connection between the state appearance and juridical defence of investors, which ultimately alleviates the capital market evolvement. Nevertheless, the Italian situation helps in analysing why concerns of the government as a marketing stockholder in the privatization process had led to a higher level of the investor defence and capital market evolvement in the country. The explanation, which supposes that the country’s government was more willing to respect the rights of a minority stockholder, cannot be utilised in this case. Facts prove that in the period between the 1980s and 1990s, the country’s legislation allowed controlling stockholders. The state was able to limit any additional individual advantages of minority depositors. Thus, similarly to private controlling stockholders, the Italian government seriously benefited from taking part in illegal side transactions, which were detrimental for minority depositors. Thus, the IRI (Istituto per la Ricostruzione Industriale), which was 100 percent possessed by the country’s government, super-induced a 83 percent ownership position in Finsiel software firm to the telecommunications enterprise STET (Societ? Finanziaria Telefonica), a blended business, 47-percent-possessed by minor depositors, being at the same time regulated by IRI. Regardless of the fact that, in accordance with the new EEC (European Economic Community) rules, Finsiel was supposed to forfeit its monopolistic state and encounter elevated emulation, the firm was valued at fifty times of its income. On the other hand, STET’s fund value decreased by 20 percent after the transaction advert. It appears that the mentioned single transaction led to the wealth transmission from minority stockholders to the cabinet in the quantity of “at least $110 million standing for 7% of the ownership cost possessed by outer depositors”.

Facts demonstrate that theoretically the higher private fund partaking in SOEs elevates inducements in terms of the minority seizure while the marketing of the entirely possessed subsidiaries prevents the state’s possibility to maximize income by adjusting the intra-stockholder allocation of sales and encouraging the acceptance of methods, which maximize the firm price. Thus, numerous crucial SOEs, which were supposed to be privatised in Italy, are still completely state-possessed subsidiaries that were founded and formed under public regulation. This issue actually allowed the country’s government to assimilate the advantages of the enhanced corporate governance setting through the greater sales profits. In fact, Italy’s privatization program encompassed a higher corporate effectiveness, elevations in terms of the market emulation, and evolvement of fiscal markets, which became the country’s primary objective. Elevated financial incomes together with the lowering of the public charge and loan, in particular, were classified as residual goals. Finally, the country faced a comparatively high level of public portion privatizations. This phenomenon appeared due to the fact that Italy’s policymakers posed a greater antecedence on the capital market evolvement that was one of its major objectives in the privatization procedure. Despite the fact that there were numerous block sales to strategic depositors in the early 1990s, the public share proposals were a predominant sales model in the country after 1994. Therefore, the possibility of seizing minority stockholders allows for the privatization of blended enterprises to become more congenial in terms of the legislature ratification. At the same time, it will enhance the depositor defence and corporate governance norms, especially when income maximization is not the major goal. In addition, the maximization of sales offers via public proposals demands an elevated depositor credence, which ultimately encourages the government to facilitate legal reforms, which enhance the defence of minority depositors. Regardless of the recent corporate governance enhancements and application of a large-range and commonly prosperous privatization projects, a prolonged governmental presence in the form of a stockholder in Italy is hazardous. Thus, when at €121.3 billion, the agglomerate income of the country’s privatization appears to be solid in accordance with the international norms, the share of profits brought by the control transmissions (approximately €50.4 billion) points to a discrepant situation. Despite the fact that the state’s general ownership concern in publicly marketed firms has fallen by approximately 50% since the 1990s, the country’s governmental control of the listed companies is still considerable.

On the other hand, the analysis of Germany demonstrates that the competing interests appearing from the country’s binary function (stockholder and controller) will probably remain. The analysis of the EU during the 20th century demonstrates that the blended enterprises were initially popularised in Germany and later, promptly spread all over Europe and beyond it. It is important to mention that Germany is broadly acknowledged as a country of origin of the current organisational frameworks and concepts regarding trading corporations, which suggest that the main objective of any company should regard the satisfaction of national interests and concerns and not mere maximization of the stockholder denomination. The concerns of the government as a stockholder have performed an apparent function in the German corporate juridical procedure. Facts reveal that the 1965 corporate regulation reform failed in terms of outlawing the lending of the multi-polling fund as a result of the strong counteraction appearing from the local governmental administrations, which use specific shares in order to utilise disproportional control on the contrary to capital depositions. This self-concern of the local governments actually impeded reforming towards the one-share and one-poll framework. Even in 1998, it was overpowered merely by producing a specific collection of exclusions for the governmental enterprises. Therefore, the reform caused some political compromises. Regardless of the fact that the “Law on Transparency and Control in Corporations” forbade pulling the caps together with multi-polling charters, opposing positions were incorporated in specific enactments regarding blended enterprises, especially the Volkswagen Law (applying polling caps and granting veto possibilities to the State of Lower Saxony) was not affected by the innovative regulations.

The concerns of the German government as a stockholder also performed a crucial role in promoting the shareholder culture in regard to its privatization procedure. In fact, the record-breaking of “IPO (initial public offering) of Deutsche Telekom” appeared to be the greatest public offering in the EU history. The major governmental intention behind the marketing of its position in the offering was to enrich and multiply the income in order to assist Germany in meeting the budget necessities of the Monetary and Economic Union. In fact, similarly to Italy, the revenue-maximizing intentions of the German government resulted in backing up instead of suppressing the outer depositor charters. The greatest auspicious function of the country’s administration in terms of the joint stock management reforming procedure had not been a result of the obliging intents, as it was mitigated by the ownership framework of the companies, which were supposed to pass to the private sector. Thus, the case of Deutsche Telekom demonstrates that initially, it was a completely country-possessed government subsidiary, and the floatation of the firm in an ideal corporate governance setting could maximise the government’s income. It is the main reason for why a public stockholder defence appeared to be both politically favoured and financially reasonable. The analysis of Germany demonstrates that the privatization can pave the way to the general corporate law reforming, which actually surpasses any enhancement in the management of privatised firms.

On the other hand, France is notorious for its dirigiste approach to economic politics, which allowed the country to boast a huge number of blended enterprises. Blended enterprises initially appeared in the country under the adoption of the foreign (majorly German) practice. A number of such enterprises appeared as early as in the 1920s. Meanwhile, some other, in particular, “Renault and Francolor,” were overpowered by the country’s government after the World War II. The French government originally acted as a minority depositor in the first blended enterprises. At the same time, the main part of the state regulation has increasingly gained popularity a bit later. The concerns of the French state as a stockholder have evidently affected the juridical system applicative to the business enterprises. The institutional declination of the French corporate law towards the corporation concerns opposes the concerns of stockholders, which used to predominate in the U.S. legislation, meaning that they ideally suit SOEs. In addition, France’s specific system of “tenured” binary polling privilege appears to be specifically reactive to the concerns of the state as a stockholder. Despite the fact that its objective concerns the provision of the fidelity inducement to the long-range stockholders, whose concerns presumably follow the firm’s interests, a pragmatic influence of this regulation presupposes magnifying the state’s voting authority, as it is constantly a long-range owner. In fact, the privatization wave has seriously lowered, but not liquidated, the state’s ownership possessions. Charter positions appropriating the binary polling rights continued their normal operation in the French corporations, regardless of the argument that they alleviated the seizure of minority stockholders. In fact, this regulation benefited regulating stockholders of private corporations, who have ferociously opposed any offerings to become a part of an incompetent system of one-share/one-vote. Facts demonstrate that the French government has forcibly and felicitously protected the seizure of binary polling rights from the EU amalgamation guideline, which impedes the utilization of multi-poling fund or capped polling as being a merger protection.

Thus, the analysis of the EU demonstrates that over the last decade, the concern in the function, which the corporate governance performs in economies and in capital markets, has elevated in both the European Union as a whole and its Member States, in particular. In fact, the acceptance of the single European currency, the more unoccupied movement of the capital, goods, attendances, and people across the EU borders, the emulative globalization pressures, realization of new technologies, privatisation of state-possessed enterprises, increase and spread of shareholding, and elevated amalgamation of operations in the huge European corporations, as well as Europe’s biggest stock exchanges have resulted in a considerable evolvement of a homogeneous EU capital market.


China is known to be a home to the majority of the recent large-range trials with listed SOEs. At the end of the 20th century, a huge number of the Chinese state-possessed companies, which previously had been controlled by governmental authorities, were changed into business corporations. It was the time when most of the Western world countries utilised common privatization projects; the Chinese government accepted corporatisation as an inner constituent of its economic modernization tactics. Despite the fact that such corporatization tactics was believed to be an initial pace in the passage to the private regulation of enterprises, the main objective of the Chinese Communist Party possibly was the inverse, in the meaning of elevating the state monitoring and control of economic operations via leveraging. In such a manner, the Shanghai Stock Exchange was founded in 1990 through IPOs of numerous SOEs. In 1998, approximately 600 companies, which had been formerly completely possessed by the government, changed into the public ones in China. Facts show that the minority concerns in numerous freshly corporatized SOEs appeared to be publicly marketed, as they were enlisted on the state’s fund exchanges. In fact, an ordinary listed Chinese SOE had merely more than 50% of its ownership possessed by the government as non-marketable stocks, with the remnant of the firm’s assets being enlisted on the interchange and possessed by private depositors. A legal reform of 2005 allowed for the conversion of the non-marketed stocks into marketed ones. In fact, this alteration can systematically liquidate China’s two-level action system. Despite the fact that state-possessed companies still predominate in the Chinese fund markets, the comparative partaking of completely private distributors has been increasing for the last years. The share of the Chinese firms with the state as the main or regulating stockholders has lowered from approximately 97% in 1997 to 60% in 2007; nevertheless, it is still considerable even today. In 2010, “the best ten state-possessed companies incorporated nearly 40% of the Shanghai Stock Exchange market capitalization”.

The attendance of the country in a form of the predominant stockholder in the economics proved to have a serious effect on the environment and framework of the Chinese securities and corporate regulations. In terms of the issue at hand, the major problem signalizes that the requirement to adopt specific conditions of the state sphere enterprises impacts the whole Chinese Company Law. It presupposed that instead of making the state enterprises more effective and enforcing the adherence to the regulations for private sector enterprises, possible private enterprises are incapacitated by the importance to adhere to regulations that have sense only in the severely state-deposited economy. Therefore, the state concerns have actually shaped the Chinese primary corporate regulations, changing them into the one being poorly adapted to the private sphere corporations. Being created specifically to the requirements of the newly corporatized state corporations, the Chinese corporate regulations, which incorporated special legitimate credentials regarding the re-deposition of incomes and the maximum and minimum number of the board members offered an excessively harsh system. Thus, this system was poorly operating when being utilised by the privately possessed corporations. Facts demonstrate that the imperfections of the Chinese corporate regulations appeared to be even more demure in terms of the stockholder defence. This collapse resulted in the “worse than a casino” reputation. In accordance with the OECD (Organization for Economic Co-operation and Development) analysis of the corporate governance operations in China, the Chinese fund markets are abundant with some instances of exploitations by the state, as regulating stockholder, through the connected side transmissions. Regardless of the fact that theoretically the Chinese regulation provided a solid authority to stockholders, including the possibility to control the company management and decide on the separated distribution, these provisions strived to save the government as a regulating stockholder while rejecting distinct juridical rights of minority depositors. Nevertheless, regardless of the existing shortage in the juridical defence for minority depositors, extralegal exchanges subsisted in China in order to stimulate the acceptance of the well-grounded corporate governance operations. Consequent evolvements regarding the acceptability and necessities of securities operations in China equip a paradigmatic sample of how the concerns of the state as a stockholder might impede the strengthening of depositor charters. Therefore, extralegal substitutions, despite being beneficial, are frequently deficient, especially if taking into account the importance of the state’s concerns as a regulating stockholder in a huge number of listed companies. Thus, some essential legislative enhancements are improbable to appear as subsequent. Facts show that the primary cause for the seizure of specialities litigations in the country concerned the anxiety of the court that these proceedings if being felicitous, might cause serious fiscal lesions to the country being the regulating stockholder of the majority of corporate respondents.

In the 21st century, the Chinese securities statutes and corporations experienced the main change that altered the existent regulations even beyond acknowledgement. These changes liquidated the formerly existent stockholder defences, including an obligatory application regulation at the honourable value after the attainment of a 30% position in a company. However, the basic regards reveal that the promised changes have seriously enhanced the defences of the charters of public stockholders. The innovative regulations loaded confidentiality obligations on managers and regulating stockholders, asked the listed companies to possess detached authorities, allowed for derived consents, and advocated collective polling. Discrepant agents can assist in explaining the recent enhancements in the minority stockholder duties and obligations in China in terms of the massive governmental ownership and concurrent conflicts of interest. Firstly, the Chinese lawmakers and governmental barriers controlling business corporations are comparatively separated, either accidentally or deliberately, from the lawmakers, who create and obtrude the capital and corporate markets regulations. When the local administration has a clear concern on utilizing the minority stockholders of the companies that they regulate, the main government together with its authorities employs the progressively efficient Chinese Securities Regulatory Commission (CSRC) and frequently interferes in order to restrain any insulting conduct by vigorous local agents and stimulate the capital market evolvement. Secondly, regardless of the fact that both private and governmental regulate corporations in China are greatly subjected to the similar unitary regulative system, there is increasing evidence of a discrepant method in consolidation. Generally speaking, China’s protruding amalgamation control allows the CSRC to release particular transmissions from the existent regulations. Thus, it selectively encourages the state’s concern in the state-possessed companies to establish national champions.

Regardless of the fact that an open influence of the country’s interest as a regulating stockholder on the Chinese corporative management setting is relatively ostentatious in terms of attracting the consideration of regulative and economic academics of China’s fund markets, the occurrence is scarcely extraordinary for China. On the contrary, the phenomenon is extensive among legislations, where the state operates jointly as a stockholder and corporate governance controller. The country’s diffusive attendance in the China’s economics merely resulted in a more significant problem that is evenly generic in the West-world financial systems, in which blended enterprises perform an essential function.

The United Kingdom

The analysis of the UK reveals that in the 20th century, the country possessed a number of the best state-possessed industrial companies, which incorporated the entirely state-owned corporations. Therefore, the UK is known to be generally employing a system of the total ownership by the state. Facts demonstrate that the family companies are the major constituent of the basis of the UK economy providing 30 percent of the national GDP. In fact, it is why the employment level and development are greatly reliant in the prosperity of the family business sphere. It is important to mention that there is one million of the UK family companies, which are rightfully encompassed while merely a few of them are listed in stock markets. Thus, they should have relevant governance frameworks in order to assure the appropriate decision-making in their companies. The IFB (Interruptible Fold Back) approves the ratification of the Corporate Governance Guidance and Principles for Unlisted Firms. The directives require specific family governance frameworks, which can supplement a vigorous corporate governance structure. The current situation reveals that the advanced business families progressively acknowledge the significance of initiating a decision-making procedure created on both, the corporate governance and a family. In addition, the unlisted firms are considered the fundamental ground for the British economy. The U.K. experience reveals that the state ownership has a specific U-shape history and company implementation. The state ownership has been very popular in the 19th-20th centuries and slightly lowered before 2006, but even now it is rather high in the strategically significant industrial spheres. It is a case when the state ownership is used for obtaining the governmental support together with political relationships and interconnections.

Theoretical Foundations

Corporate Governance

Establishments and companies are the major interest institutions. The institutional contribution in the sufficient management has influenced economics and different facets of the societal settings. It appears that stockholders lose their credence, resulting in an extreme effect on the fund value. Nevertheless, the globalization has brought even a higher level of de-territorialisation and lowered the level of state controls, which require a higher accountability. Therefore, the corporative management governance appears to be a vital theme in managing establishments in the present global and complicated settings. The corporative management regards both public and private establishments by incorporating regulations, legal issues, and available business operations, which commonly and conjointly direct the intercourse in the market economics. This intercourse emerges between corporative managers and enterprisers (also known as corporate insiders) and those that deposit assets and funds in companies and firms. Regulations and standards of the corporate governance are the crucial constituents of the model for felicitous market economies. Despite the fact that corporate governance might be outlined in a number of different manners, as a rule, it incorporates the implements, in accordance with which, a business organization, formed in a restricted liability corporate mode, is being guided and regulated. It typically regards the implements, in which corporate managers are responsible for the corporate behaviour, implementation, and effectiveness. Corporate governance should be reviewed as a distinct form and should not be confused with the themes of the business management and corporate accountability, even despite the fact that they are interconnected. The greatest number of the corporate governance definitions connects corporate governance to the control, including the control of the firm, the control of the corporative management, or those of a firm or managerial behaviours. Probably, the most common and most widely utilised designation of such a kind is equipped by the Cadbury Report (the UK), which states that “corporate governance is the system by which businesses are directed and controlled”. However, on the other side, there is another connected theme, which is essential in the designation of corporate governance, standing for the supervision of the firm or its management. Moreover, a lot of definitions associate corporate governance with the legislative structure, regulations, and processing, as well as the private sector behaviours. Finally, there are some codes, which define the governance and, at the same time, build connections between stockholders, (supervisory) boards, its members, and managers. Efficient corporate governance is highly significant in the cases of a firm’s desires to arrange and meet its strategic objectives. Therefore, a corporate governance structure consolidates different policies, various controls, and discrepant guidelines, which guide a company towards its goals and, at the same time, satisfying the stockholder’s requirements. Therefore, a corporate governance framework frequently acts as a conjugation of various mechanisms. The traditional English-American corporative management framework has developed with the aim to cope with the agent–principal problems, which arise from the division of the control and ownership in the current companies with a greatly diffused possession model. Therefore, in order to facilitate the conflicting interests associated with the agent–principal issue, relevant management models, incorporating official directives, markets for corporative management and superintendence, administrative inducement correlation agreements, and board of directors, are supposed to operate efficiently in order to assure the cost enrichment of companies. Nevertheless, today, it is currently broadly acknowledged that the traditional agent–principal expectation is of less importance for the developing economies, in which the condensed ownership is prevailing. It is a specific setting, in which the conflicting interests between the regulating stockholders and minority stockholders have provided an increase in the principal–principal issue. It is the main reason for why a discrepant collection of controlling mechanisms is particularly necessary for such developing economies, especially in China, due to their poor juridical securing for stockholders and inefficient outer controlling mechanisms.

Governance Mechanisms

Facts demonstrate that the principal range of controls for a corporation results from its inner mechanisms. This type of controls monitors the assortment and operations of a firm and allows taking required remedial acts, especially when the business entity loses its way. These mechanisms benefit the inner goals of the corporation and its inner stockholders, including owners, managers, and employees. In fact, the objectives encompass fluent and well-rounded operations, distinctly outlined reporting branches, and implementation measuring frameworks and systems. Therefore, inner mechanisms incorporate a management supervision, independent inner revisions and reviews, structuring the directors board into specific levels of accountability, a detachment of control, and policy evolvement. The second type is considered on of the external control mechanisms, which are managed by the outer firm facets and factors. They serve the goals of controllers, governments, states, trade unions, and fiscal establishments. In fact, these objectives incorporate appropriate debt management together with the juridical subservience. It appears that external mechanisms are frequently inflicted on firms by outer stockholders in a form of different union agreements or regulative directives. In addition, outer establishments, incorporating industry associations, might provide a framework for the best operations. Meanwhile, a firm can select whether to follow these suggestions or ignore them. Generally speaking, firms usually declare and inform their status together with the pliancy of the outer corporate governance mechanisms to external stockholders. The third mechanism concerns the independent audit. This mechanism of a firm’s fiscal statements is an element of the general corporate governance framework. Facts prove that an audit of a firm’s fiscal declarations can be applied to both inner and outer stockholders simultaneously. In addition, an audited fiscal statement together with the subsequent auditor’s declaration assists depositors, employees, stockholders, and controllers in defining fiscal operations and effectiveness of a corporation. Moreover, this mechanism provides a wide, however, restricted view of the firm’s inner operating mechanisms and upcoming perspectives.

Corporate Governance Theories: The Comparative Perspective

The theoretical foundation can seriously help in understanding the practical consequences of the corporate governance and state ownership. The corporate governance theory and practice regards the stockholder connections with firms and the utilization of ownership as being separated from the control. Nevertheless, the application of the Troubled Asset Relief Program (TARP) together with the government’s sequential stockholding, control, and ownership in numerous firms resulted in the fact that the corporate governance theory turned into chaos. It is important to analyse the existing theories starting from the agency one and throughout the stockholder/authoritative precedence debate, due to the fact that the existing theory sizes in situations of a government acting as a stockholder. Therefore, this chapter analyses the kaleidoscope of the corporate governance theories, which can be utilised either to justify the current frameworks in the corporate governance or to decline them and offer a necessary revision and change. This chapter reveals that the majority of theories do not support the presence of the country’s federal government in a form of a controlling stockholder in terms of the publically marketed firms. Moreover, the theories can be utilised in order to demonstrate the corporate governance debates concerning the presence of the state as a controlling and regulating stockholder.