Corporate Governance and its Political Economy Updated

In this chapter, we analyze three political economy configurations that illustrate the “classical” political economy of corporate governance. First, we examine how the political economy of organizing financial institutions affects, and often determines, the flow of capital into the large firm, thereby affecting, and often determining, the power and authority of shareholder-owners. Second, we show how continental European nations were slow to develop diffusely owned public firms in the years after World War II. The third focuses on management in diffusely owned firms and management's power to influence the rules that govern the firm. We also look at other political economy channels for corporate governance, including the historical organization of capital ownership in the US, the political explanations for the continuing power of the American corporate executive and the board and the power of labor in postwar Europe. Lastly, we integrate the “new” political economy of corporate governance, arising from political pressures to support prosocial corporate purposes. We conclude with the limits of a political economy analysis.