Corporate Governance Reform and the German Party Paradox

This chapter addresses the current discussion on links between party politics and production regimes. Why do German Social Democrats opt for more corporate gov-ernance liberalization than the CDU although, in terms of the distributional out-comes of such reforms, one would expect the situation to be reversed? By analyzing the party positions in the main German corporate governance reforms in the 1990s, I show that the SPD and the CDU behaved “paradoxically”. The SPD favored more corporate governance liberalization than the CDU, which protected the institutions of “Rhenish”, “organized ” capitalism. This constellation occurred in the discussions on company disclosure, management accountability, the power of banks, network dissolution, and takeover regulation. I show that Social Democrats and trade unions adopted their liberal attitude to company regulation issues after World War II, which caused a conversion of leftist thinking on economic organization. Political considerations in the two phases when Social Democrats were in government helped to stabilize liberal positions in company regulation issues: in the 1970s, competition policy was introduced to make Keynesian macroeconomic policy work; in the 1990s, it turned out that both works councils and trade unions favored shareholder-oriented measures because they helped employee representatives in their interaction with managers. The chapter concludes with a brief discussion of the implications for varieties of capitalism theory