Corporate governance patterns in oecd economies: is convergence

3

II. The different systems of corporate governance

In this section we survey the observed patterns of corporate control that are found in the major OECD

countries in order to arrive at a general characterisation of the different categories of governance

regimes and trace their evolution through time. While it will be argued below that the systems may be

converging today, it is clear that if one goes back a few decades, patterns of corporate governance

differed drastically among OECD countries. The ways in which large, widely-held limited liability

companies are governed reflect a wide variety of ownership structures in equity markets, of patterns

of corporate finance, and of company laws and securities regulations. One traditional way of

describing governance regimes has been to distinguish between “insider” and “outsider” systems.

4

4

See OECD (1996).

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4

Table 1. Distribution of outstanding listed corporate equity among different categories of shareholders

in selected OECD countries

per cent at year-end-1996

United

States

Japan

Germany

France

United

Kingdom 2

Sweden

Australia

3

Financial sector

46

42

30

30

68

30

37

Banks

6

15

10

7

1

1

3

Insurance companies

and pension funds

28

12

12

9

50

14

25

Investment funds

12

..

8

11

8

15

..

Other financial

institutions

1

15

1

-

3

9

-

9

Non-financial enterprises

-

27

42

19

1

11

11

Public authorities

-

1

4

2

1

8

-

Households

49

20

15

23

21

19

20

Rest of the world

5

11

9

25

9

32

32

TOTAL

100

100

100

100

100

100

100

1.

For Japan, pension and investment funds are included in Other financial institutions.

2.

United Kingdom figures are for end-1994.

3.

Australian figures are for end-September 1996. Investment funds are included in Other financial

institutions.

Source: OECD Financial Accounts, The Conference Board

International Patterns of Institutional Investment

(New York 1997), Banque de France, G.P. Stapleton

Ownership of the Australian Share Market and

Implications for Securities Regulation (forthcoming), and OECD Secretariat estimates.

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5

The outsider model

The classic “outsider" systems are found in the United States and the United Kingdom. The

distinguishing features of the outsider model are 1) dispersed equity ownership with large institutional

holdings; 2) the recognised primacy of shareholder interests in the company law; 3) a strong emphasis

on the protection of minority investors in securities law and regulation; and 4) relatively strong

requirements for disclosure. In these countries, equity is typically owned by widely dispersed groups

of individual and institutional investors. Although these countries have long traditions of equity

ownership by individuals, a phenomenon of institutionalisation of wealth is occurring in which an

increasing share of national income is managed by institutional investors (i.e. mutual funds, pension

funds and insurance companies) (See Table 2). Institutional investors are emerging as the largest

owners of equity in the United States and already are the dominant owners of industry in the United

Kingdom (see Table 1). Institutional investors tend to operate on the principle of portfolio

diversification. They have one basic objective, which is to maximise the return to their investors in

keeping with their mandates and in doing so employ the most modern techniques in pursuing their

investment strategies. Typically, they have no interest in running the company and have no other

relation to the company except for their financial investment.

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26

Table 2. FINANCIAL ASSETS OF INSTITUTIONAL

INVESTORS

AS A PERCENTAGE OF GDP

1990

1991

1992

1993

1994

1995

1996

1997

p

Australia

49.3

58.3

60.2

74.5

73.2

75.3

83.8

83.9

Austria (1)

24.3

25.9

24.3

27.8

31.8

35.5

39.4

..

Belgium

44.4

48.9

47.0

56.3

59.4

59.1

63.0

..

Canada

58.1

63.8

66.3

76.0

79.8

85.8

94.6

102.0

Czech Republic (2)

..

..

..

23.0

18.2

..

..

..

Denmark

55.6

59.4

53.7

61.2

65.1

64.1

67.1

..

Finland

33.2

37.1

35.8

44.2

55.5

49.6

57.0

..

France

54.8

62.4

60.5

72.5

75.6

75.9

83.1

90.6

Germany

36.5

38.2

33.7

38.1

44.1

46.3

49.9

57.5

Greece (3)

6.5

8.8

8.5

14.3

18.8

23.4

28.5

..

Hungary

..

2.5

2.5

3.1

3.7

4.0

5.7

..

Iceland

45.7

49.9

49.9

57.8

68.8

71.1

78.7

85.3

Italy

13.4

22.4

18.5

26.3

32.1

33.2

39.9

53.2

Japan

81.7

79.4

78.1

81.3

84.8

76.9

77.6

75.3

Korea

48.0

47.8

52.3

56.7

57.5

57.9

57.3

37.2

Luxembourg (4)

926.8

1237.5

1630.5

2166.5

2170.2

2139.1

2310.4

..

Mexico (5)

8.8

9.4

5.6

7.4

3.5

3.8

4.5

4.7

Netherlands

133.4

143.6

132.8

148.5

157.7

161.0

169.1

183.8

New Zealand

..

..

..

..

..

36.6

38.1

34.3

Norway

36.0

38.0

32.6

39.6

43.2

42.5

43.4

..

Poland (6)

..

..

..

0.5

1.9

1.6

2.0

0.4

Portugal

9.0

14.9

17.3

25.7

31.9

31.9

34.4

31.7

Spain

16.0

22.9

22.8

29.9

36.4

38.1

45.4

56.1

Sweden

85.7

93.8

75.6

102.6

105.4

114.5

120.3

..

Switzerland (7)

119.0

61.1

119.4

69.9

148.6

77.3

152.4

92.7

Turkey

0.6

0.5

0.5

0.9

1.0

0.8

1.3

0.6

United Kingdom

114.5

126.3

115.3

164.1

149.3

164.1

193.1

..

United States

123.8

137.2

141.3

151.6

149.7

167.0

181.1

202.8

Note: There are no data reported for Ireland.

(1) 1990: Excluding pension funds.

(2) 1995-97: Data not available.

(3) 1990: Excluding insurance companies and investment companies.

1991-92: Excluding investment companies.

(4) 1990-94 and 1996: Excluding insurance companies.

(5) Excluding pension funds.

(6) Excluding pension funds. 1990-93 and 1997: Excluding insurance

companies.

(7) 1991,93,95,97: Exluding pension

funds.

Source : OECD (1998b)

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