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This chapter analyzes what is the optimal governance model for market infrastructure institutions using the broad goal of efficiency as the main yardstick to compare different models. Three fundamental elements of governance are examined: an organization's ownership structure, its profit mandate, and its board composition. The chapter is composed of four sections. The first section outlines the archetypal ownership and mandate models that may be adopted by a market infrastructure institution. The second section identifies and discusses the pivotal factors that affect the relative efficiency of the different ownership and mandate models. The third section discusses two issues of fundamental importance to market infrastructure institutions' boards: the roles such boards should undertake, and the merits and difficulties of having independent directors or user directors on these boards. The last section encapsulates these discussions and presents key lessons about how to choose the optimal ownership structure and mandate for a market infrastructure institution.

This chapter shows how multinational firms can use marketing-finance fusion to choose international strategies. It discusses the pros and cons of international diversification to privately and publicly held firms, whether or not the firm should choose country-specific product designs, how the firm should measure and reward the performances of its country managers, what type of organizational structure the firm should use, how the firm should choose an outsourcing strategy, and what performance metrics the firm should use to measure and reward managerial performance in its outsourcing centers.

This chapter shows how firms should price new products, especially under cost and demand uncertainty. It distinguishes between privately and publicly owned firms and show how the risk attitudes of the firm's owners affect new product prices; in addition, it evaluates the conditions under which the firm should announce or preannounce its new products in the marketplace.

This chapter highlights the regulatory power of a ‘soft’ mechanism, namely communities of expertise. It draws on an in-depth case study of the evolution of governance at Rolls-Royce. The study demonstrates how a strong and stable community of engineers, with extensive rights in resource allocation decision-making, has been central in sustaining growth, accumulation of experience and technical excellence, throughout the long history of the firm, a history marked by frequent changes in ownership structures and board composition. In other words, an informally governed horizontal organization, oriented to technical objectives and somehow decoupled from the financial objectives and structure of the firm, turned out to be compatible, if not complementary, with a variety of proprietary arrangements.

The neoclassical, principal‐agent and transaction costs theories cannot by themselves explain firm boundaries. This chapter describes a theory—the incomplete contracting or property rights approach—based on the idea that power and control matter when contracts are incomplete. If the terms of a transaction can always be renegotiated, the incentives of a party to undertake relationship‐specific investments will depend crucially on the ability to control the use of productive assets when renegotiation takes place (the hold‐up problem). In this context, asset ownership becomes an essential source of power and different ownership structures will affect the severity of the hold‐up problem. The author presents a model that illustrates the benefits and costs of integration. In the absence of wealth constraints, firm boundaries are chosen to allocate power optimally among the parties to a transaction. An implication of the theory is that, ceteris paribus, a party is more likely to own an asset if he or she has an important investment decision. The theory also predicts that complementarities make integration more likely and, conversely, that independent assets should be owned separately. Finally, the author considers whether the theory's predictions actually match up with observed organizational arrangements.

This chapter introduces key financial tools necessary for understanding Fusion for Profit. This chapter shows how different ownership structures (i.e., whether the firm is publicly or privately held) affect the firm's tradeoff between risk and return. It also distinguishes the cases where the firm sells multiple products or has multiple divisions; in particular, it shows how privately and publicly held firms should coordinate their marketing and financial decisions under uncertainty.

This chapter shows how the firm should determine compensation for its managers. It distinguishes between ownership structures (i.e., whether the firm is privately or publicly held), the length of the planning horizons for the owners and managers of the firm, whether the firm is multidivisional or not, whether the firm sells one or multiple products, and how Wall Street's expectations affect decision making by managers. In particular, it shows how marketing-finance fusion allows senior management and the finance department to determine managerial compensation plans in the multiproduct or multidivisional firm.

Leslie Hannah has provocatively claimed ownership was divorced from control in large UK companies by the early 20th century, inviting re-examination of entrenched assumptions in so doing. This chapter shows his bold assertions need careful qualification. A listing rule of the London Stock Exchange that required companies seeking a quotation to offer two-thirds of their shares to the public prompted at least some unwinding of control. By 1914, major banks were joining railways as companies characterized by a separation of ownership and control, and there was some evidence of ownership dispersion among insurers. On the other hand, blockholding apparently remained prevalent in shipping and electricity companies. A case study of Britain's 15 largest industrial enterprises as of 1912 indicates the situation was the same in the industrial sector. Hence, Britain lacked an outsider/arm's-length system of ownership and control on the eve of the First World War.

This chapter introduces key financial tools necessary for measuring the long-run effects of marketing policy under uncertainty. It distinguishes the cases where the firm sells multiple products or has multiple divisions. Specifically, it analyzes how the firm can evaluate the effects of strategic flexibility in decision making; in particular, it shows how the firm can use the real options methodology to measure and reward managers so that they focus on long-run performance.

This chapter considers a variety of issues in industrial policy by modelling the trade‐off between informational rents and efficiency distortions. It is shown that political imperfections affect regulatory rules and that the ownership structure of firms matters. Price distortions and the rationale behind prohibiting price discrimination are analysed and the models are extended to include the possibility of lump sum transfers by the government.

This chapter discusses social democracies and agency costs. Social democracies raised agency costs for shareholders in the public firm and the shareholders' natural reaction would have been to use an alternative organizational form that kept those costs down. The discussion looks first the effects of social democracy through codetermination, by looking at the dilemma that a family-owned firm faces when considering whether to take their firm public. Then, it looks at the effects of social democracy on agency costs and ownership structure without codetermination. The formal social-democratic institution of codetermination is not needed for social democracy to affect the public firm's internal workings, but the formal institution clearly illustrates the political effects.

Through a detailed and new database (based on a vast array of primary and secondary sources) with information about the prevalent ownership structure of European large enterprises during the twentieth century, this chapter examines the cross-country variance in the nature of ownership and the ownership dynamics in the long run. From the analysis there clearly emerges a different degree of separation between ownership and control across European large firms already in the first half of the twentieth century, as well as the key role played by states in the process of industrial maturation of the peripheries. Different types of capitalism are touched upon: family capitalism, managerial capitalism, and state capitalism.The final section of the chapter is dedicated to assessment of the relationship between ownership and performances, although without providing significant and conclusive findings. Performances in fact seem to be randomly correlated with a country-effect more than with ownership.

This chapter discusses enterprise groups of Japanese industrial organization. It outlines the general patterns of relationships common to business networks in market economies and investigates how these are reflected in specific alliance patterns. The analyses reveal show that ownership structures of Japanese corporations are far more likely than in the U.S.A. to be organized as table relationships which endure over decades, to be reciprocated among mutually positioned companies.

This chapter first analyses whether the corporation is merely a profit-maximizing entity or performs a more inclusive, social function. It then discusses some basic economic concepts that are important to understand the underlying conflicts that corporate governance regulation seeks to address, such as efficiency, incomplete contracts, and agency costs. Next, it examines the goals that corporate governance regulation in the United States, the UK, Germany, and France pursues, and gives an overview of the evolution of the corporate governance movement, which started in the United States in the 1970s. The chapter then introduces the most important corporate actors—officers, directors, and shareholders—and explores whether the ownership structure of public stock corporations has changed over time and continues to differ between countries. The final section analyses how corporate boards are designed, and how best practice standards contained in corporate governance codes shape the composition of boards.

This chapter describes how the sugar economies of Cuba, the Dominican Republic, and Puerto Rico in the period 1898–1934 were dominated by large foreign corporations. The corporations were absentee-owned. The structure of ownership of these corporations, however, has not been studied. The chapter looks at the history and interlocking directorate structure of the large concerns that controlled sugar production in the Spanish Caribbean before the Great Depression of the 1930s. The exact extent and precise form of organization of absentee capital in the islands of the Spanish Caribbean had a direct bearing on the process of development. Direct foreign investment in plantations contributed to the overspecialization of the islands in the production of sugar and blocked an alternative path of development based on national ownership and a diversified economy.

This chapter argues that the key to unlocking long-term value in American corporations and to ensuring a governance and ownership structure which will provide for sustainable corporate productivity and profitability is to break the bonds that tie managers to stockholders. It is also necessary to create incentives to keep stockholders invested in the long-term rather than as short-term speculators. The basic operating premise of American corporate law is that stockholders invest their money and in so doing cede control over the future of their investments to corporate management. The chapter reveals that in addition to the federal antifraud and insider trading laws, state corporation laws are full of rules coming under the general rubric of fiduciary duty that are designed to ensure that managers serve the corporation's interests and not their own.

This concluding chapter, rather than providing a summary, focuses on the boundaries of what the book explains. It reflects first upon explanations for the differences in the corporate laws of the selected jurisdictions: while some differences are functional, that is, can be traced back to the underlying divergence in economic conditions across jurisdictions, others are political and/or cultural: it is conceded that the book provides no theory to predict whether a given non-economic factor will trump economic ones in any given context. Next, the limits of the book’s coverage are considered, in terms of the jurisdictions, organizational forms, and time period surveyed. Finally, the chapter speculates upon the evolution of corporate law in light of observable changes in the governance of corporations (chief among them, the reconcentration of ownership in institutional investors), in the political landscape (with the increasing use of corporate law as a tool to address externalities or social issues), and technological developments.

This chapter centers on a technique that managers and controlling shareholders may use to divert value from the corporation: related-party transactions. These transactions range from traditional self-dealing to more subtle forms of potential misappropriation of company value, such as compensation agreements, intercompany guarantees, insider trading, and the usurpation of corporate opportunities. Despite the potential for abuse, related party-transactions provide countervailing economic benefits and are rarely outlawed. Instead, the representative “core jurisdictions” employ a variety of legal strategies to police them, including: applying affiliation strategies through disclosure requirements and dissolution rights; intervening on agent incentives by requiring disinterested board approval; granting decision rights to shareholders; and imposing legal constraints such as prohibitions, the duty of loyalty, and the special regime of group law. The chapter concludes by analyzing the effectiveness of the different approaches to related-party transactions in core jurisdictions in view of their enforcement, and their relationship to the underlying ownership structures.