《法律与金融》课程教学资源（阅读文献）Rise of Dispersed Ownership - The Roles of Law and the State in the Separation of Ownership and Control

Articles The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control John C.Coffee,Jr.' CONTENTS I.THE EVIDENCE ON CONVERGENCE.......... 12 A.Formal Legal Change.. …12 b.The structure of share ownershin .15 C.The Growth of European Stock Markets .16 0 The Emergence of an International Market for Corporate Control .20 E.A Preliminary Evaluation... .21 F.The Sratus of the mnsider-Dominated II.WHEN DOES SEPARATION OF OWNERSHIP AND CONTROL ARISE? A HISTORICAL PERSPECTIVE............ …24 A.The United States Experience.... 25 1.The Role of Investment Bankers .26 2.The New York Stock Exchange as Guardian of the Public Investor 34 B.The British Experience.......... .39 citer:tro of the and Yale Law School Raben Lecture. Imaged with the Permission of Yale Law Journal

Articles The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control John C. Coffee, Jr.' CONTENTS I. THE EVIDENCE ON CONVERGENCE .................................................. 12 A. Formal Legal Change ................................................................ 12 B. The Structure of Share Ownership ............................................. 15 C. The Growth of European Stock Markets .................................... 16 D. The Emergence of an International Market for Corporate Control ..................................................................... 20 E. A Preliminary Evaluation ........................................................... 21 F. The Status of the Insider-Dominated Firm ................................ 23 II. WHEN DOES SEPARATION OF OWNERSHIP AND CONTROL ARISE? A HISTORICAL PERSPECTIVE ............................................................ 24 A. The United States Experience ................................................... 25 1. The Role of Investment Bankers ........................................ 26 2. The New York Stock Exchange as Guardian of the Public Investor .................................................................... 34 B. The British Experience ............................................................... 39 T Adolf A. Berle Professor of Law, Columbia University Law School. The author is grateful for helpful comments from Brian Cheffins, John Langbein, Roberta Romano, and Andrei Schleifer; from my colleagues, Ronald Gilson, Victor Goldberg, Jeffrey Gordon, and Curis Milhaupt; from William B. Williams, Esq., of the New York Bar; and from participants at the Yale Law School Raben Lecture. 1 Imaged with the Permission of Yale Law Journal

2 The Yale Law Journal [Vol.111:1 C.A Civil-Law Contrast:The French Experience.. …45 .r 51 E.A Preliminary Summary 45 Ⅲ.“DOES LAW MATTER?'RECONSIDERED 59 A.Law and the Decentralized Common-Law World .59 B.The Sequence of Legal Change:Reinterpreting LLS&V................64 1.The United States Experience........ 66 2.The Global Experience... 69 C.The Political Theory of Dispersed Ownership. 71 D.Implications for Transitional Economies.... .76 IV.CONCLUSION. .78 Imaged with the Permission of Yale Law Journal

The Yale Law Journal C. A Civil-Law Contrast: The French Experience .......................... 45 D. The German Experience: Statist Intervention That Stunted the M arket ................................................................................ 51 E. A Preliminary Summary ............................................................. 58 III." DOES LAW MATTER?" RECONSIDERED ........................................ 59 A. Law and the Decentralized Common-Law World ..................... 59 B. The Sequence of Legal Change: Reinterpreting LLS&V ........... 64 1. The United States Experience ............................................. 66 2. The Global Experience ........................................................ 69 C. The Political Theory of Dispersed Ownership .......................... 71 D. Implications for Transitional Economies .................................. 76 IV . C ONCLUSION .................................................................................... 78 Imaged with the Permission of Yale Law Journal [Vol. I111: 1

20011 The Rise of Dispersed Ownership 3 Recent scholarship on comparative corporate governance has produced a puzzle.While Berle and Means had assum d that all large public corporations would mature to an end-stage capital structure characterized by the separation of ownership and control,'the contemporary empirical evidence is decidedly to the contrary.Instead of convergence toward a single capital structure,the twentieth century saw the polarization of corporate structure between two rival systems of corporate govemance: (1)A Dispe rsed Ownership System,characterized by strong securities markets rigorous disclosure standards,and high market transparency,in which the market for corporate control constitutes the ultimate disciplinary mechanism;and (2)A Concentrated Ownership System,characterized by controlling blockholders,weak securities markets,high private benefits of control,and low disclosure and market transparency standards,with only a modest role played by the market for corporate control,but with a possible substitutionary monitoring role played by large banks. An initial puzzle is whether such a dichotomy can persist in an increasingly competitive global capital market.Arguably, as markets s having very differen governance systems an compelled to compete head to head(in product,labor,and capital markets), a Darwinian struggle becomes likely,out of which,in theory,the most efficient form should emerge dominant.Indeed,some have predicted that such a competition implies an"end to hist fo corporate law.3Ar and newer position- -hereinafter called the "Path Dependency Thesis" postulates instead that institutions evolve along path-dependent trajectories, which are heavily shaped by initial starting points and pre-existing PRI ADOLF A.BERLE JR.&GARDINER C.MEANS.THE MODERN CORPORATION AND eminal work of La Porta.Lopez-de-Silan es.Shleifer.and Vishny (LLS&V)has and that syst that o have na119 hold Rafael La Porta he p CROSS- LUE OF CORP )hutp://papers.ssm.co /paper.taf?ab FISCHEL.THE ECO Reinier Kraakman The e End of History for Corporate Law,89 GEO.L.439() Imaged with the permission of Yale law lournal

The Rise of Dispersed Ownership Recent scholarship on comparative corporate governance has produced a puzzle. While Berle and Means had assumed that all large public corporations would mature to an end-stage capital structure characterized by the separation of ownership and control,' the contemporary empirical evidence is decidedly to the contrary. Instead of convergence toward a single capital structure, the twentieth century saw the polarization of corporate structure between two rival systems of corporate governance: (1) A Dispersed Ownership System, characterized by strong securities markets, rigorous disclosure standards, and high market transparency, in which the market for corporate control constitutes the ultimate disciplinary mechanism; and (2) A Concentrated Ownership System, characterized by controlling blockholders, weak securities markets, high private benefits of control, and low disclosure and market transparency standards, with only a modest role played by the market for corporate control, but with a possible substitutionary monitoring role played by large banks.2 An initial puzzle is whether such a dichotomy can persist in an increasingly competitive global capital market. Arguably, as markets globalize and corporations having very different governance systems are compelled to compete head to head (in product, labor, and capital markets), a Darwinian struggle becomes likely, out of which, in theory, the most efficient form should emerge dominant. Indeed, some have predicted that such a competition implies an "end to history" for corporate law.3 A rival and newer position-hereinafter called the "Path Dependency Thesis"- postulates instead that institutions evolve along path-dependent trajectories, which are heavily shaped by initial starting points and pre-existing 1. ADOLF A. BERLE, JR. & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 5-19 (1932). 2. The seminal work of La Porta, Lopez-de-Silanes, Shleifer, and Vishny (LLS&V) has established the existence of these rival systems, that they seem to have evolved along distinctive legal trajectories, and that they correlate with significant differences in the legal protections provided to minority shareholders. Rafael La Porta et al., Corporate Ownership Around the World, 54 J. FIN. 471 (1999). More recent work in the same vein has shown that the private benefits of control appear to be much higher in French civil-law countries than in common-law or Scandinavian countries. TATIANA NENOVA, THE VALUE OF CORPORATE VOTES AND CONTROL BENEFITS: A CROSS-COUNTRY ANALYSIS (SSRN Elec. Library, Working Paper No. 237,809, 2000), available at http://papers.ssrn.com/paper.taf?abstract-id=237809. 3. For representative statements of this position, see FRANK H. EASTERBROOK & DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE OF CORPORATE LAW 4-15 (1991); and Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 GEO. L.J. 439 (2001). Imaged with the Permission of Yale Law Journal 2001]

The Yale Law Journal [Vol.111:1 conditions.In short,histor These two rival positions do not,however,state the deeper puzzle.That puzzle involves the origins of dispersed ownership.The recent provocative scholarship of La Porta,Lopez-de-Silanes,Shleifer,and Vishny (LLS&V) has not only shown the existence of two fundamentally different systems of corporate governance,but has placed legal variables at center stage in explaining the persistence of these two systems.3 LLS&V have boldly. argued that civil-law legal systems provide inadequate protectionsto minority shareholder s,and hence dispersed ownersh p can e only in a common-law legal environment.To support this conclusion, they assembled a worldwide database that shows that the depth and liquidity of equity markets around the world correlate closely with particular families of legal systems with common-law systems consistently outperforming civil- law systems 4.Lucian Arye Bebchuk&Mark J.Roc.A Theory of Path Dependence in Corpora 2001 Rafael La Port nts of Ert 113l（99 )For the st and fullest00)( on,see F file with author).See also NENOVA.supra note 2 (finding significar t disparities in the priva inc s and the on the dernghis(iorcxmpe the pr nce or bsence one of proxy voting by mail as op I to otin in erson)and me asures of credit ese me were then of he in ea enforcement.around the world.Although they found larg differences in the prevailing rules a o the s of th that he the hareh vote th :(3)cun (5)the abil of ten ent c ng:and《 th an ke little to do h the pr of control an only if the dis out paying a control appearance of the modem tender offer.Seenr text accompanying notes9-91 Imaged with the Permission of Yale Law Journal

The Yale Law Journal conditions.4 In short, history matters, because it constrains the way in which institutions can change, and efficiency does not necessarily triumph. These two rival positions do not, however, state the deeper puzzle. That puzzle involves the origins of dispersed ownership. The recent provocative scholarship of La Porta, Lopez-de-Silanes, Shleifer, and Vishny (LLS&V) has not only shown the existence of two fundamentally different systems of corporate governance, but has placed legal variables at center stage in explaining the persistence of these two systems. 5 LLS&V have boldly argued that civil-law legal systems provide inadequate protections to minority shareholders, and hence dispersed ownership can arise only in a common-law legal environment. To support this conclusion, they assembled a worldwide database that shows that the depth and liquidity of equity markets around the world correlate closely with particular families of legal systems, with common-law systems consistently outperforming civil￾law systems. 6 4. Lucian Arye Bebchuk & Mark J. Roe, A Theory of Path Dependence in Corporate Ownership and Governance, 52 STAN. L. REV. 127 (1999); Amir N. Licht, The Mother of All Path Dependencies: Toward a Cross-Cultural Theory of Corporate Governance Systems, 26 DEL. J. CORP. L. 147 (2001). 5. Rafael La Porta et al., Law and Finance, 106 J. POL. ECON. 1113 (1998) [hereinafter Rafael La Porta et al., Law and Finance]; Rafael La Porta et al., Legal Determinants of External Finance, 52 J. FIN. 1131 (1997). For the latest and fullest statement of their position, see Rafael La Porta et al., Investor Protection and Corporate Governance (2000) (unpublished manuscript, on file with author). See also NENOVA, supra note 2 (finding significant disparities in the private benefits of control enjoyed by controlling shareholders depending upon the country of incorporation and the legal family to which that jurisdiction of incorporation belongs). 6. LLS&V initially conducted an inventory of the laws governing investor protection in forty￾nine countries. Focusing on the corporate law and bankruptcy law of these countries, they next constructed measures of shareholder rights (for example, the presence or absence of "one share, one vote" rules, the existence of remedies available to minority shareholders, and the possibility of proxy voting by mail as opposed to voting in person) and measures of creditor rights (for example, whether creditors are paid first in liquidation, whether managers can unilaterally seek judicial protection from creditors, etc.). Rafael La Porta et al., Law and Finance, supra note 5. These measures were then combined with measures of the quality of law enforcement in each jurisdiction to create an unprecedented data set quantifying differences in legal rules, and in rule enforcement, around the world. Although they found large differences in the prevailing rules and established that these differences could be grouped into four major legal families-common law, French, German, and Scandinavian civil law-doubt has persisted among legal scholars as to the meaningfulness of the differences observed. Basically, the LLS&V index focuses on six legal variables: (1) proxy voting by mail; (2) the absence of any requirement that shareholders deposit their shares prior to the general shareholders' meeting in order to vote them; (3) cumulative voting; (4) the ability of shareholders to sue their directors or otherwise challenge in court the decisions reached at shareholder meetings; (5) the ability of ten percent or less of the shareholders to call an extraordinary shdreholders' meeting; and (6) shareholder pre-emptive rights. By no means is it here implied that these rights are unimportant, but they seem to supply only partial and sometimes easily outflanked safeguards, which have little to do with the protection of control and the entitlement to a control premium. As this Article suggests, dispersed ownership can persist only if the dispersed shareholders have the capacity to block an incoming control seeker from acquiring control without paying a control premium. Indeed, this fear of a premium-less acquisition of control was a major concern in the late nineteenth century well before the appearance of the modem tender offer. See infra text accompanying notes 90-91. Imaged with the Permission of Yale Law Journal [Vol. I111: 1

2001) The Rise of Dispersed Ownership 5 If LLS&v are correct,the implications of their research seem profoundly pessimistic for parts of the world seeking to develop deeper. more liquid securities markets.Absent sweeping legal changes.civil-law countries would seem condemned to concentrated ownership and thin securities markets.Not ony might this legal barrier frustrate European efforts to develop a pan-European securities market,but its implications are even more significant and dverse for transitional economies.A growing body of research suggests that an active securities market is an engine for economic growth.'Must transitional economies therefore adopt the rules of common-law legal systems (and possibly common-law enforcement techniques)in order to de ugh a number of countries have in fact begun to adopt U.S.corporate and securities laws,other researchers have warned that attempts to"transplant" law in this fashion have usually failed because the legal rules so adopted are incongruent with local customs and traditions. Nor are LLS&V alone in predicting the persistence of the current bipolar division of the world into rival systems of dispersed and concentrated ownership.While LLS&V argue that dispersed ownership cannot spread unless fundamental legal reforms protecting minority right are adopted as a ndition othe recent tors ave advanced entirely independent reasons why dispersed ownership will remain the exception,with concentrated ownership being the rule.Lucian Bebchuk has advanced a "rent-protection"model of share ownership that posits that. when the private benefits of control are high,conc ed ownership wil ninate dispersed ownership.The core idea here is that the entrepreneurs taking a firm public will not sell a majority of the firm's voting rights to dispersed shareholders in the public market,because they can obtain a higher price for such a control block from an incoming controll shareholder or group,who alone can enjoy the priv ate enefit of cont o Asli Dem 53 ms in co tai EGmnCon arke Dive 84 AM.ECO an&Luigi Zingales.Financ nd Growth,88 AM finance are more developed in countries with better aper-ta CONTROL (Nat']Bureau of con.Resea chuk Roe,supra note 4 (predicting the rs to Professor Beb uk's thesis.First.to the extent that he are enjoyed at the of the sha holders.the Imaged with the permission of Yale law lournal

The Rise of Dispersed Ownership If LLS&V are correct, the implications of their research seem profoundly pessimistic for parts of the world seeking to develop deeper, more liquid securities markets. Absent sweeping legal changes, civil-law countries would seem condemned to concentrated ownership and thin securities markets. Not only might this legal barrier frustrate European efforts to develop a pan-European securities market, but its implications are even more significant and adverse for transitional economies. A growing body of research suggests that an active securities market is an engine for economic growth.7 Must transitional economies therefore adopt the rules of common-law legal systems (and possibly common-law enforcement techniques) in order to develop their economies? Although a number of transitional countries have in fact begun to adopt U.S. corporate and securities laws, other researchers have warned that attempts to "transplant" law in this fashion have usually failed because the legal rules so adopted are incongruent with local customs and traditions.8 Nor are LLS&V alone in predicting the persistence of the current bipolar division of the world into rival systems of dispersed and concentrated ownership. While LLS&V argue that dispersed ownership cannot spread unless fundamental legal reforms protecting minority rights are adopted as a precondition, other recent commentators have advanced entirely independent reasons why dispersed ownership will remain the exception, with concentrated ownership being the rule. Lucian Bebchuk has advanced a "rent-protection" model of share ownership that posits that, when the private benefits of control are high, concentrated ownership will dominate dispersed ownership.' The core idea here is that the entrepreneurs taking a firm public will not sell a majority of the firm's voting rights to dispersed shareholders in the public market, because they can obtain a higher price for such a control block from an incoming controlling shareholder or group, who alone can enjoy the private benefits of control." 7. E.g., Ash Demirgtii-Kunt & Vojislav Maksimovic, Law, Finance and Finn Growth, 53 J. FIN. 2107 (1998) (finding that firms in countries with active stock markets were able to obtain greater funds to finance growth); Ross Levine & Sara Zervos, Stock Markets, Banks, and Economic Growth, 88 AM. ECON. REV. 537 (1998) (relating economic growth to financial development); Maurice Obstfeld, Risk-Taking, Global Diversification and Growth, 84 AM. ECON. REv. 1310 (1994) (finding that the ability of investors to diversify through markets encourages growth); Raghuram G. Rajan & Luigi Zingales, Financial Dependence and Growth, 88 AM. ECON. REV. 559 (1998) (finding that industries dependent on external finance are more developed in countries with better protection of external investors). 8. E.g., DANIEL BERKOWITZ ET AL., ECONOMIC DEVELOPMENT, LEGALITY, AND THE TRANSPLANT EFFECT (SSRN Elec. Library, Working Paper No. 183,269, 2000), available at http://papers.ssm.com/paper.tafabstractid= 183269. 9. LUCIAN BEBCHUK, A RENT-PROTECTION THEORY OF CORPORATE OWNERSHIP AND CONTROL (Nat'l Bureau of Econ. Research, Working Paper No. 7203, 1999), available at http:l/www.nber.org/papers7203; see also Bebchuk & Roe, supra note 4 (predicting the persistence of concentrated ownership under certain conditions). 10. There are several possible answers to Professor Bebchuk's thesis. First, to the extent that the private benefits of control are enjoyed at the expense of the noncontrolling shareholders, the Imaged with the Permission of Yale Law Journal 2001]