Ownership Patterns Of Big Business Among Advanced Capitalist Economies.
Outline the Major Differences In Ownership Patterns Of Big Business Among Advanced Capitalist Economies.
Business ownership is mainly classified as concentrated, diffused, or block holdings. Powerful family groups control corporations via large blocks special classes of shares, and pyramids of holding companies. The paper is based on the Wallenberg Family Case study. The Wallenberg Family controls a large part of the Swedish economy, with major investments in the financial sector and telecommunication. The purpose of this paper is to outline the major differences in ownership patterns of big business among advanced capitalist economies. Also, it emphasizes the question: “Is family control of business being a good or bad thing?
There has been a paradigm shift in the United States (U.S.) from a concentrated structure of ownership to a more diffuse ownership pattern. There is a major polarization between diffused ownership and concentrated ownership models. For instance, under diffused ownership, there is a limited possibility for individual shareholders to influence the management of a company. In both Britain and the U.S. diffuse ownership patterns are common, although take-over bids are common. Becht and DeLong (2004) pointed out that in the UK, shareholders rarely litigate, while in the U.S. the active boards have the power to bargain with bidders. It is such powers that could influence decision-making, hence affecting corporate governance. In the UK, ownership has shifted from family ownership and the Chandlerian type of personal capitalism to diluted ownership. Subsequently, in the UK compared to other large and advanced capitalist economies, family-owned businesses have become more vulnerable to takeovers. As such, ownership in the UK is by far more diffuse compared to other advanced capitalist economies in the world. Nonetheless, the diffusion has not had a major impact on corporate governance among British banks, which are comparatively bigger than America’s (Roe, 1998).In comparison to other advanced economies, particularly those in Europe, the United States has relatively low blockholding. According to Becht and DeLong (2004), "most other countries have powerful family groups that control substantial numbers of corporations through large blocks, some held through pyramids of holding companies and special classes of shares with extraordinary voting rights" (p. 613); nonetheless, Contrary, the U.S. does not. In addition, the U.S. does not have holdings that maintain considerable control over the operations of publicly traded and listed corporations. Thus, the ownership is diffused in the UK and U.S., while in Sweden, concentrated and family-controlled businesses are common. Becht and DeLong (2004) further pointed out that in the UK, institutional shareholders have powers, while in the U.S. they do not. Also, corporate control in most advanced economies follows the UK, model whereby voting by shareholders is encouraged while in the U.S., boards bargain with bidders and are motivated by stock options and fiduciary duties.
Chandler (1990) provided a contrast between share ownership distributed in Germany and the U.S., by investment banks and salaried managers, and established that founding families tended to preserve considerable equity stakes as it was the same in Great Britain. However, investment banks, in the U.S. played a major role in ensuring that founding families could transform transform their corporations into what De Long (1991) refers to as professionally managed organizations that have diversified stock ownership. The P. Morgan played a major role in ensuring that played significant roles managerial hierarchies’ development. Subsequently, J. P. Morgan in the U.S. added shareholder value to family-concentrated businesses, thus improving the efficiency of the companies. Roe (1998) suggested that in Germany the ownership structure did not allow owners to cash out, but this was allowed in Britain and the U.S
Is family control of business being a good or bad thing?
Family control of business has been good for the economy. For example, "In Sweden, the 1930s Great Depression led to many corporate bankruptcies, leaving large banks, such as the Wallenberg's, holding controlling blocks of stock in large Swedish companies." which they proceeded to reorganize into pyramidal groups” (Ghemawat & Hout, 2011 p. 10). After the Great Depression, the Wallenberg business which is owned and controlled by a family was in a position to reorganize itself to ensure that the economic effects did not have major effects on its financial wellbeing. Also, Roe (1998) contended that under family-controlled businesses, stakeholders such as employees, banks, and families act as block-holders, and they subsequently play a major role in the monitoring of management.
Family-controlled businesses have been the primary engines of the industrial revolution. In addition, they are efficient because they are operated to transmit the original aim of the founder. For instance, in the case of the Wallenberg Family, the business is now at its fifth generation and business continues to thrive because of the well-established business structure and strategies. For example, by acting as blocks, they have an influence on policy, corporate decisions, and financial strategy (Tricker, 2012). Based on the case study of the Wallenberg Family, family ownership and control of firms is helpful to firm performance. For instance, concentrated ownership acts as a corporate governance mechanism because the family members are in a position to monitor agents more effectively (Lindgren, 2002). Roe (1998) also supported the observation that family businesses with large blocks perform better because they employ board composition to ensure their objectives are achieved. According to Herrigel (2009), when a business area is owned and controlled by a family, the owners tend to bring in outside investors, such as bankers, to govern board positions to cover the cost of expansion. Under such arrangement, the owners and their bankers mutually participate in strategic decision-making and monitoring operational management, to promote corporate governance. Levine (2004) contents that although family-owned and controlled businesses are more likely to experience conflicts of interest, large owners can acquire information and at the same time monitor managers. Nonetheless, controlling families could in some instances translate their corporate power into political influence, and subsequently influence the development of policies that protect their interests. For instance, the Wallenberg Family business has the power to distort national policies and corporate decisions in ways that limit innovation, which could affect economic growth.
References
Becht, J., and DeLong, B. (2005) "Why Has There Been So Little Block Holding in America?" In R.K.Morcked. A Global History of Corporate Governance, From Family Business Groups to Professional Managers. University of Chicago Press.
Chandler, Andrew D. (1990). Scale and scope: The dynamics of industrial capitalism. Cambridge: Harvard University Press.
De Long, B (1991). Did J.P. Morgan's Men Add Value? "An Economist's Perspective on Financial Capitalism," in P. Temin (ed.), Inside the Business Enterprise: Historical Perspectives on Information Use. University of Chicago Press in Chicago.
Ghemawat, P. and Hout, T. M. (2011) Global differences in business ownership and governance.Globalisation Note Series, pages 1-18.
Herrigel, G (2009), "Corporate Governance: History Without Historians." In J. Geoffrey and J. Zeitlin (Eds.). Handbook of Business History, Oxford: Oxford University Press.
R. Levine (2004). 'Finance and Growth: Theory and Evidence'. Working Paper 10766.
Lindgren, H.(2002). Succession Strategies in a Large Family Business Group: The Case of the Swedish Wallenbergs. Stockholm School of Economics.
Roe, M J. (1998) Comparative corporate governance. The New Palgrave Dictionary of Economics and Law (1997). Corporate governance encompasses principles, rules, and procedures. Oxford: Oxford University Press
