The Governance of Privatized Firms: Problems of Power and Control

Abstract

The corporation is the focal point for the accumulation and exercise of private power. This paper discusses issues relating to who controls the corporation and how it is governed, issues of significant economic, social, and political consequence in transitional economies. The paper focuses on two closely related principles of corporate governance - accountability to shareholders and adequate disclosure - as these principles have taken hold in the West. These aspects of corporate governance currently are lacking in the debate concerning Central and Eastern Europe and the former Soviet republics. In a broader sense, this paper too is a search for a stronger legal conscience embodied in underlying principles of corporate law essential for newly privatized countries as they continue their journey toward a viable market economy.Part One focuses on general problems of power and control and accountability to shareholders. Part Two examines mechanisms of control inside the corporation, beginning with financial controls, basic to full and fair disclosure. After a brief comparison of German and United States governance systems, Part Two then discusses an effective model of corporate governance as instituted by leveraged-buyout associations and venture capital funds in the United States. Guidelines for evaluating self-interested transactions by management follow. Part Three examines shareholder participation in governance and control through the annual meeting and proxy contests. A final section reviews difficult issues relating to the protection of rights of minority shareholders.