Controlling Shareholders and Corporate Governance: Complicating the Comparative Taxonomy

Corporate governance scholarship has shifted focus in recent years from hostile takeovers, which occur primarily in the widely held shareholder systems of the United States and the United Kingdom, to the comparative merits of the controlling shareholder systems that are the norm most everywhere else in the world. In this emerging debate, the simple dichotomy between controlling shareholder systems and widely held shareholder systems that has largely dominated the discourse is too coarse to allow a deeper understanding of the diversity of ownership structures in different national capital markets and their policy implications. In this Article, Professor Ronald Gilson seeks to complicate the prevailing analysis of controlling shareholders and corporate governance by developing a more nuanced taxonomy of controlling shareholder structures and examining the implications of this view on our understanding of widely held and controlling shareholder systems. Development of a new taxonomy begins with recognition of the controlling shareholder tradeoff: focused monitoring in return for some private benefits of control and at a cost in speed of adaptation. Building from this tradeoff, this Article looks closely at two central features of a more complex taxonomy: the concepts of controlling shareholders and of private benefits of control. In particular, the framework highlights the value of distinguishing between efficient and inefficient controlling shareholder systems, and between pecuniary and nonpecuniary private benefits of control. Together, the two distinctions reframe the taxonomy of shareholder distribution to distinguish between regimes that support companies with a diversity of shareholder distributions and regimes that support only companies with a controlling shareholder. This Article concludes by examining potential macroeconomic effects and policy implications and calling for research under this new framework to further the debate on controlling shareholder systems