Ronghui Zhang, OWNERSHIP AND CORPORATE GOVERNANCE: AN INTERNATIONAL REVIEW AND OUTLOOK, Logos Verlag Berlin, 2006
6 Pages Posted: 25 May 2006
The book suggests that there was a ownership change associated with enterprise system shift from small closely held enterprises to large publicly traded firms in the late 19th century. After the shift, large-scale and complex corporate production and operation led to great specialization. The original package of functions performed mainly by individual owner alone became divided. While shareholders undertook the function of providing financial investments, managing and labor duties that had been fulfilled by entrepreneur-owner came to a professional management class and a specific employee team respectively.
Each of the three major components of corporation obtained each of the three major functions associated with ownership, input their own specific factors, accumulated their own values in different investment forms of tangibles or intangibles, and took parts of responsibilities and risks as well as the resultant interests respectively. Owning separately specific property investments and interests, the three groups had their own irreplaceable characteristics and importance, and formed altogether a basically complete ownership of firm. Owner was no longer sole. All the three groups might become ownership components of modern enterprise. None of them could play the role of the previously universal owner any more. Cooperation became a must.
Although the concept of ownership change is not recognized yet, ownership has, in many cases, been unable to exert unquestionably its traditional mechanism; a great number of practices and important issues in both transition countries and Western economies actually signal a trend, which is complying with ownership change, but however, cannot be justified on the grounds of conventional ownership ideas.
Changed ownership may provide sufficient interpretation on competing interests, self-dealing behaviors, and free-ride problem. These issues also become evident: shareholders in corporation are not equivalent to the previous owner of small closely held firm; the currently dominant ownership ideas in which shareholders are viewed as sole owner or physical capital as most important have deviated from the classical model, because the former has, in fact, ruled out improperly a substantial part of intangibles, which on the contrary, were included in the classical model. And shareholder primacy would inevitably bring about corporate governance problems such as the present CEO-centric system and the less effectiveness of stock ownership in spurring incentives.
The book concludes that the power source of modern enterprise lies in its using of collective force composed of huge hierarchically firm organization, a great number of personnel participants, enormous inputs in a variety of forms, and large wealth creativity. Property rights balance among major participants in both tangible and intangible property senses rather than financing pattern plays a more significant role in firm performance. Only after serving well collective interests, it will be workable to realize the public good and the goal of the old rule of reaching the optimum of society by spurring the individual owner(s) or firms.
Keywords: Ownership, Transition Economies, Developed Countries, Enterprise Performance, Inconsistency, Ownership Change, Human Capital, Corporate Governance, Property Rights Balance
JEL Classification: G32,P31,G39,G34,D23,K22,N20,O15,M50,E25,D63,P50
Suggested Citation: Suggested Citation
Zhang, Ronghui, Ownership and Corporate Governance: An International Review and Outlook. Ronghui Zhang, OWNERSHIP AND CORPORATE GOVERNANCE: AN INTERNATIONAL REVIEW AND OUTLOOK, Logos Verlag Berlin, 2006. Available at SSRN: https://ssrn.com/abstract=904314