Chapter 4 Corporate Governance around the World Governance of the Public Corporation: Key Issues The Agency Problem Remedies for the Agency Problem Board of Directors Incentive Contracts Concentrated Ownership Accounting Transparency Debt Overseas Stock Listings Market for Corporate Control Law and Corporate Governance Consequences of Law Ownership and Control Pattern Private Benefits of Control Capital Markets and Valuation Corporate Governance Reform Objectives of Reform Political Dynamics The Sarbanes-Oxley Act The Cadbury Code of Best Practice The Dodd-Frank Act Summary In the wake of recurrent financial crises and high-profile corporate scandals and failures in the United States and abroad, corporate governance has attracted a lot of attention worldwide. This chapter provides an overview of corporate governance issues, with the emphasis on intercountry differences in the governance mechanisms. 1. The public corporation, which is jointly owned by many shareholders with limited liability, is a major organizational innovation with significant economic consequences. The efficient risk-sharing mechanism allows the public corporation to raise large amounts of capital at low cost and profitably undertake many investment projects, boosting economic growth. 2. The public corporation has a major weakness: the agency problem associated with the conflicts of interest between shareholders and managers. Self-interested man-agers can take actions to promote their own interests at the expense of shareholders. The agency problem tends to be more serious for firms with excessive free cash flows but without growth opportunities. 3. To protect shareholder rights, curb managerial excesses, and restore confidence in capital markets, it is important to strengthen corporate governance, defined as the economic, legal, and institutional framework in which corporate control and cash flow rights are distributed among shareholders, managers, and other stakeholders of the company. 4. The central issue in corporate governance is: how to best protect outside investors from expropriation by managers and controlling insiders so that investors can receive fair returns on their funds. 5. The agency problem can be alleviated by various methods, including (a) strengthening the independence of boards of directors; (b) providing managers with incentive contracts, such as stocks and stock options, to better align the interests of managers with those of shareholders; (c) concentrated ownership so that large shareholders can control managers; (d) using debt to induce managers to disgorge free cash flows to investors; (e) listing stocks on the London or New York stock exchange where shareholders are better protected; and (f ) inviting hostile takeover bids if the managers waste funds and expropriate shareholders. 6. Legal protection of investor rights systematically varies across countries, depending on the historical origin of the national legal system. English common law countries tend to provide the strongest protection, French civil law countries the weakest. The civil law tradition is based on the comprehensive codification of legal rules, whereas the common law tradition is based on discrete rulings by independent judges on specific disputes and on judicial precedent. The English common law tradition, based on independent judges and local juries, evolved to be more protective of property rights, which were extended to the rights of investors. 7. Protecting the rights of investors has major economic consequences in terms of corporate ownership patterns, the development of capital markets, economic growth, and more. Poor investor protection results in concentrated ownership, excessive private benefits of control, underdeveloped capital markets, and slower economic growth. 8. Outside the United States and the United Kingdom, large shareholders, often founding families, tend to control managers and expropriate small outside shareholders. In other words, large, dominant shareholders tend to extract substantial private benefits of control. 9. Corporate governance reform efforts should be focused on how to better protect outside investors from expropriation by controlling insiders. Often, controlling insiders resist reform efforts, as they do not like to lose their private benefits of control. Reformers should understand political dynamics and mobilize public opinion to their cause. 本文来源：https://www.wddqw.com/doc/455997d02079168884868762caaedd3382c4b51b.html