From the end of the Second World War through to the 1970s, corporate governance, though assuming a different form on each side of the Atlantic, nevertheless concurred on one point: the weakness of market mechanisms in general, and of capital market mechanisms in particular. In the United States, the dominant form was ‘managerial capitalism’, characterized, in the words of Berle and Means (1932), by the ‘separation of ownership and control ’.
The wide dispersion of share ownership left executives with a very high level of autonomy in their strategic choices. The absence of controlling interests, linked to a fragmentation of financial institutions that had been initiated before the war (Roe, 1994), meant that direct sensibility to the desires of the shareholders on the part of managers remained illusory. Hostile takeovers were hardly more effective in controlling executives, who formed a ‘technostructure’ at the top of the biggest firms (Galbraith, 1967). The increase in the number of conglomerates, to satiate the power-hungry executives, was without a doubt the most obvious symptom of this particular configuration.
The level of dividends remained relatively low during the 30 years following the war. In continental Europe (notably inFrance and Germany), on the contrary, it was the tightness of capital markets which protected firms from stock market control. The concentration of ownership and the stability of shareholders made managers insensible to capital market logic: profits were massively reinvested – to the detriment of the distribution of dividends – and hostile takeoverswere almost inexistent. The highly institutionalized nature of industrial relations (collective agreements in France, co-determination in Germany) also contributed to the independence of firms in relation to the capital markets. In short, internal control, very often family control, prevailed, while few companies were listed on the markets. A process of liberalization and integration of capital markets was initiated in the mid-1980s, and was to have decisive consequences.
This process was accompanied by substantial rises in interest rates, with the hardening of monetary policy and priority given to the fight against inflation on both sides of the Atlantic. Institutional reforms undertaken with the aim of favouring the tradability of securities and the transfer of risks were thus built up within a context globally favourable to creditors (shareholders and lenders). These transfers were facilitated by the creation of new, ever more sophisticated financial products, traded on the new markets.