Parties or Nations?
Callaghan, H. and M. Höpner, APSA 2004
8
questioned its efficacy in promoting shareholder value. Instead, disagreement revolved
around the distributional implications.
Gains made by shareholders of target companies in takeover bids tend to accrue
from income transfers made at the expense of employees, suppliers, and customers of the
target firm (Cook & Deakin, 1999: 28; Deakin & Slinger, 1997: 124; Shleifer & Vishny,
1988). This follows from the fact that non-value maximizing behavior of the management
of hostile targets largely consists of “transferring corporate wealth from shareholders to
other non-management constituencies, such as employees, suppliers and customers”
(Jensen, 1986). Examples of redistributive consequences of increased shareholder value
orientation are wage decreases, job cuts or the removal of assets from employee pension
funds (Shleifer & Summers, 1988). Empirically, a comparison of how net surplus value
was distributed among labour, capital suppliers and governments for the 100 largest
European companies between 1991 and 1994 shows that companies in countries with
active markets for corporate control tend to pay higher dividends, while companies in
countries without hostile takeovers pay a higher part of net value added in wages (de
Jong, 1997: 17f).
Besides shifting material resources towards shareholders, active markets for
corporate control also shift decision-making powers within the firm. Mergers and friendly
takeovers are preceded by negotiations that leave scope for employee participation in the
decision- making process. By contrast, hostile takeover offers by definition are addressed
directly to shareholders, bypassing the stakeholders of the target company. Managers and
workers of the target company may be informed or even consulted, but they have no say
in the final decision.
Whether the distributional consequences of active markets for corporate control
are justifiable depends on the conception of property rights in the firm. Some argue that
shareholder primacy is fine because “public companies are not in the business to reward
creditors, inspire devotion of their employees, win the favour of the communities in
which they operate, or have the best products. These are all means to an end - making
shareholders richer” (Seely, 1991, cited in Schneper & Guillén, 2003). This perspective
derives its justification form a view of the firm as a “nexus of contracts”. Employees are
treated as outsiders whose relationship with the firm is fully regulated by an employment
contract. Shareholders are seen as the sole risk bearers and therefore as legitimate
Convention