Enterprise Governance in Transition – A Stakeholder Perspective

Abstract

Mature market economies have thrived on very diverse systems of corporate governance. Transition economies in Central and Eastern Europe have entered the market economy with a special historical inheritance, and critical political decisions of key institutions that have a bearing on the new systems of governance evolving in the region. In this paper, I use an analytical stakeholder approach (different from a normative approach) to identify how the specific conditions in countries in transition have influenced the evolution of specific governance structures, and how this influences the workability of the system. I employ a broad definition of enterprise governance that incorporates fixed, residual and appropriated rights among a broad range of different stakeholders. The governance system is a function of the markets that the firm operates in, by state regulation, and by other specific firm and stakeholder conditions. Based on this definition, I analyse some general determinants behind the governance structure in a market economy, focussing on the distribution of rights among stake- holders. Governance systems in Western countries are used as a benchmark to explore the specific conditions for governance structures in economies in transition. Governance structures changed over different stages in the transition process, with privatisation being the single most important determining factor. Consequently, the role of different stakeholders varies across countries, and has evolved considerably over time. The specific conditions of the transition process have favoured insider ownership mostly in the form of management ownership, but in some cases, also broader employee ownership. However, the relative strength of insiders, especially employees, has declined considerably in later stages of the transition.