Explicit and Implicit System of Corporate Control - a Convergence Theory of Shareholder Rights

157 Pages Posted: 7 Oct 2004

See all articles by Dirk A. Zetzsche

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; European Banking Institute

Date Written: September 23, 2004


Part B. of the paper compares the basic concepts of shareholder control in Anglo-America and some states of Continental Europe. It introduces a new categorization between Implicit and Explicit Systems of Corporate Control. The first category refers to statutes that are enacted and construed with the belief that market forces influence managers. Shareholder rights to be exercised in direct contact with the corporation are thought to be relatively weak. This system is established in the Anglo-American world. In contrast, direct shareholder influence through voting and (even minority) shareholder monitoring constitute the fundaments of the Explicit System that traditionally prevailed, for example, in France and Germany. This paper provides historical, statutory and new empirical evidence from some Continental jurisdictions, and in particular Germany. It concludes that in Germany, shareholder meetings are part of Corporate Governance, while the Anglo-American corporate world traditionally understood this term to include only inter-board relationships.

Part C. analyses the questions of whether, how and why Corporate Governance systems converge. This study suggests that Corporate Governance systems are likely to develop in Convergence Cycles: If a legal regime provides a particularly efficient solution to a specific problem, this solution will eventually be adopted by other Corporate Governance systems with an inferior system in respect of such problem. These Convergence Cycles will finally overcome the forces against formal convergence. The proposition of Convergence Cycles draws on historical, as well as new statutory and empirical evidence, collected by the author.

Part D., finally, analyses the likely impact of convergence on ownership structures. It is likely that the answer to the question of which ownership structure is efficient depends on the stage of the business cycle that the firm is at. Firms within the same stage are likely to become more and more similar with respect to their ownership structures, until they reach an equilibrium that is set at a specific point for a particular group of firms. Thus, this paper adds a dynamic perspective to the static views that presently prevail in the debate upon the convergence of ownership structures.

Keywords: corporate governance, shareholder rights, implicit and explicit system, ethical roots, convergence, divergence, convergence cycles, voice, exit, vote, directorial deference, information rights, shareholder meetings, attendance, monitoring, Germany, France, United States, Canada, United Kingdom

JEL Classification: D70,G18,G32,G34,G38,K22,L22,M14,N21,N24,P52

Suggested Citation

Zetzsche, Dirk Andreas, Explicit and Implicit System of Corporate Control - a Convergence Theory of Shareholder Rights (September 23, 2004). CBC-RPS No. 0001, Available at SSRN: https://ssrn.com/abstract=600722 or http://dx.doi.org/10.2139/ssrn.600722

Dirk Andreas Zetzsche (Contact Author)

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

European Banking Institute ( email )


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