A blueprint for corporate governance

[...]... deteriorated Rising unemployment rates, double-digit inflation, and a general uneasiness about the performance of the American economy resulted in increasing criticism of U.S corporations and, as the 1980s appeared, calls for imitating the Japanese and German governance systems The American version of managerial capitalism was transformed into a call for an American version of Japanese industrial policy and... each of the largest companies in the country TIAA-CREF is quite explicit about what it expects from managers: It expects that they will maximize investment returns for TIAA-CREF’s participants Furthermore, TIAA-CREF has developed a corporate assessment program to monitor and evaluate governance practices and policies Among the policies TIAA-CREF requires are shareholder approval for any actions that... and German universal banking and for a move away from markets to a relationship-based governance system.8 But these calls ran headlong into a revitalized version of shareholder supremacy and a market-based contractual theory of corporate governance 14 A B       C     G      The Contractual Shareholder Model Recall that the trustee approach evolved out of a concern about the... the Board of Directors Cumulative Voting Staggered Boards Poison Pills, Supermajority Rules, and Greenmail A Shareholder Rights Plan at First Virginia Banks (FVA) Evidence About Antitakeover Devices Board Governance and Firm Performance Chapter 11: Alternative Governance Systems: Germany and Japan Introduction The German System German Governing Boards Absence of Corporate Control Market Universal Banking:... Glass-Steagall Act, and a system of bank deposit insurance (the Federal Deposit Insurance Corporation, or FDIC) was established, along with limitations on the interest rates banks could pay depositors The Securities and Exchange Commission (SEC) was established to regulate financial markets The Wagner Act and the National Labor Relations Act were passed, as was the Investment Company Act of 1940 Generally... means to the end of efficient resource allocation and economic growth—at least within the context of a financial agency theory of effective corporate governance CHAPTER 2 THE GOVERNANCE STRUCTURE OF AMERICAN CORPORATIONS A SCHEMATIC CONTRACTUAL GOVERNANCE STRUCTURE F igure 2-1 contains a schematic model of the American corporation The owners of the corporation, who are placed at the top of the diagram,... that alter the fundamental relationship between shareholders and the board, such as anti-takeover measures and the composition of the board of directors itself Furthermore, TIAA-CREF requires companies to use a ‘‘pay for performance’’ system for executive compensation so as to align the interests of managers with those of TIAA-CREF beneficiaries When necessary, TIAA-CREF also presses for improved management... contractual nature of equity capital is that it confers property rights to the owners These rights give the owners control over the acquisition and disposal of the company’s assets and claims on whatever assets remain after all other contractual claims on the firm, such as wages, salaries, debt service charges, and taxes, have been paid With respect to the company’s day-to-day operations, THE GOVERNANCE. .. themselves as the caretakers of democracy who held greed at bay and transformed it into ‘‘social utility.’’ So, where were the cracks, fault lines, and fissures? Challenges to managerial capitalism came from a variety of directions The ‘‘left’’ wanted to know why financial markets and stockholders were kept at all if they no longer performed any social functions Why not simply abolish them? After all, many... trustee approach evolved into managerial capitalism, which peaked in the 1970s Under managerial capitalism, there was virtually no role for shareholders Therefore, there was no reason for managers to be beholden to shareholder interests, and certainly no reason to give those interests priority over the interests of any other stakeholder of the firm The essence of (trustee) managerial capitalism was that .