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This chapter illustrates that the current governance structure, involving no independent element between management and the dispersed and largely passive body of shareholders, creates considerable difficulties for the effective regulation of self-dealing. It concentrates on the legal controls on self-dealing. It begins by looking at transactions with the company in which a director has an interest, and at directors' service contracts, which are a sub-category of self-interested transactions, but these raise special problems of their own. It then addresses the exploitation by managers of corporate opportunities. It has been suggested that for the proper management of directors' conflicts of interest there needs to be a body that is able to give consent in appropriate cases to self-interested transactions and to determine directors' terms of service, and also to enforce the fiduciary principle.

Chapter 2 lays out the book’s main argument on the importance of power asymmetry. It draws from three strands in the literature. From the literature on democratization, this chapter borrows the notion of constitutions as pact-making. From bargaining theory is borrowed the notion of self-dealing: Incumbents will seek to advance the powers of the office that they hold. And from the literature on elite theories of regime formation, the chapter develops the argument that power asymmetries among elite actors are the fundamental drivers of balanced constitutions. This book also seeks to explain the origins of an important institution: constitutions. It takes seriously the insight from institutionalists that institutions emerge from actors’ de facto power and bargaining outcomes. Yet, this book does not assume that actors’ preferences are exogenous, or exclusively ideological, and partisan; rather, those who negotiate a constitution have preferences that depend on whether they are Incumbents or Opposition forces, often regardless of their ideologies and partisan orientation.

The case-study chapters looked at all presidential powers within a given constitution. This looks at one presidential power—term limits—across all constitutions to provide one final test for the book’s power asymmetry argument. I conduct a statistical test to show how power asymmetry, this time measured by approval rates, lead to presidential success in relaxing term limits. Across Latin America since the 1980s, term limits became one of the most active and contentious areas of constitutional change. The chapter reveals, first, that not all popular presidents pursue efforts to change term limits, but those who do have a higher chance of prevailing the more popular they are. Second, the only political actors capable of preventing the expansion of term limits, other than the courts, is the ruling party. Popular presidents interested in expanding presidential power thus face incentives to weaken the same political machine that brought them to office.

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.