Endnotes

1  Paper presented at the First Conference of the Saint-Gobain Foundation for Economic Research, "What Do We Know About Institutions in the New Europe?", Paris, November 9 and 10, 2000. For empirical detail the paper draws to a large part on research by Bastiaan van Apeldoorn, Jürgen Beyer, Anke Hassel, Martin Höpner, Gregory Jackson, Britta Rehder and Rainer Zugehör at the Max Planck Institute for the Study of Societies in Cologne. I am particularly indebted to Martin Höpner for invaluable help with reading the literature and organizing the quantitative information on the German case.

2  Attempts by the Commission to enact a Directive on minimal standards for workforce participation in national firms have yet to get off the ground. If they will ever issue in legislation, the standard it will set will almost certainly be lower than in all Member countries, except perhaps the United Kingdom.

3  How international competition for employment between plants of the same company may affect the functioning of European Works Councils is an interesting question on which we know little. Initial evidence suggests that discussions of specific investment projects are rare, due to unbridgeable conflicts of interest, and solidarity is limited to exchange of information on ongoing decisions and "bidding procedures". This seems to be different only if managements try to play off plants against one another by using biased or false information, or if pressures for higher productivity are selectively applied to only a subset of plants.

4  In 1986, the correlation between foreign turnover and foreign employment, in per cent of a firm's total turnover and employment, was .668 for the 100 largest German firms. Ten years later, it had risen to .725 (Hassel et al. 2000).

5  As reported by The Economist (29 April 2000, p. 10), the value of European mergers and acquisitions increased from roughly $200 billion in 1994 to 1.5 trillion in 1999, with "almost as many cross-border deals as domestic deals".

6  Privatization thus both coincided with and gave rise to a public interest in liquid stock markets and the changes in financial regulation necessary to create these.

7  Deutsche Bundesbank (1999, 139). It is, however, conceivable that shareholder value orientation was sometimes promoted by a desire to raise capital for overseas investment from local capital markets, especially the U.S.

8  The Economist estimates that cross-shareholding in Europe outside Britain declined between 1994 and 1999 from 19 to 10 percent of total stock market value (29 April 2000, p. 14). On Germany see Höpner (2000c).

9  Van Apeldoorn (2000) also observes a slow decline in the share held by traditional owners and a transformation of industrial into "money capitalists".

10Which, in turn, are likely to fetch a higher price if the firm is credibly committed to high shareholder value.

11Among the 100 largest German firms, shareholder value orientation is strongly related to internationalization of product markets, indicating that it may be a response in part to strong competitive pressures (Höpner 2000).

12Also, conglomerates tend to be more shareholder value-oriented than other firms, especially if they have significant foreign ownership - very likely because they are more in need to make themselves attractive to "the markets" (Zugehör 2000).

13In 1999, according to The Economist (29 April 2000, p. 10), the value of hostile takeovers in Europe, at $400 billion, was four times the combined total for the years 1990 to 1998. Over half of the hostile takeover bids were successful.

14The story of the progress of shareholder value policies among large firms is a complex one. According to a survey among German firms, managements shifted to shareholder value not just because of pressure from shareholders - which however seems to have been the most important factor - but also to improve performance and managerial control (Achleitner and Bassen 2000). This might explain why there is a correlation between internationalization of product markets and shareholder value orientiation. Moreover, shareholder value may have become "fashionable", as indicated by a very high correlation (at r=.69) between a company's shareholder value orientation and its reputation among German managers (Höpner 2000d, 29).

15For example, the German law on Control and transparency in Enterprises (KonTraG), which was passed in mid-2000, made it illegal for firms to restrict the voting rights of particular categories of shares. In other countries, too, voting restrictions and voting caps seem to be on their way out. Overall, German legal rules on corporate governance, especially with respect to the situation of minority shareholders, have changed in a UK direction between 1996 and 1999, but still have a long way to go (Donnelly at al. 2000).

16Apart, perhaps, from the fact that Mannesmann used to have voting caps which by the time of the takeover had become illegal.

17The commission included, among others, the founder of Bertelsmann, Reinhard Mohn, the CEO of BASF, Jürgen Strube, the Presidents of the German Trade Union Confederation, Dieter Schulte, and of the Federal Labor Court, Thomas Dieterich, and the Secretary of State in the Federal Ministry of Labor, Werner Tegtmeier. 

18In 1986 turnover of large German firms in foreign markets, in percent of total turnover, was on average more than twice as high than foreign employment as a percentage of total employment. In 1996 this relationship had declined to 1.3, indicating a rapid and significant shift of production abroad, and a change in strategy away from export of home-county products (Beyer 2000).

19In about 40 of the 100 largest German firms there was at least one formal agreement of this sort during the 1990s.

20There also were several cases of employee buy-outs in the 1990s, under which plants or divisions of large firms that the company was planning to sell off were taken over by employees. The new firms remained at least for a while within the production network of their former mother company, which provided them with the bulk of their work or even with financial support.

21De Jong (1997) explains the relatively low share of their value added that Continental firms have traditionally paid out to their shareholders - and the correspondingly high share that went to labor - by the presence of strong protections in national regimes of corporate governance against hostile takeovers. Among the largest German firms, the share of capital in value added increased slightly in the 1990s, and most strongly in firms with dispersed share ownership.

22Union demands with respect to the new German takeover code focus on improved access of workforce representatives to information, especially on the intentions and business plans of the bidder, and on an obligation for management to include the views of the workforce in the official statements of the company.

23Workforce influence may also have caused management stock option plans in European firms to be somewhat less exorbitant and inviting of opportunism that in the U.S.

24At least one firm expanded employee stock ownership after an unfriendly takeover bid had failed in the last minute. In a number of companies employee stock owners are beginning to think about getting collectively organized to make their voice heard in the shareholder assembly. In some cases employee stock owners are represented by works councils whereas in others they are independently organized. The potential problems that may result for management if workers take an active role as stock owners - in addition to the benefits for firms in terms of better protection from hostile takeovers - are yet to be discussed; they are likely to be an important subject of future debates on the transformation of industrial citizenship.

25On Mannesmann, and especially the reactions of the union, see Höpner and Jackson (2000), Jürgens et al. (2000).

26The same seems to be true for regime of corporate finance. See Mayer (2000) who shows that different capital market regulations are associated with different types of economic performance and competitiveness. Indeed industrial citizenship and financial market regimes may complement each other in supporting certain types of performance, for example in diversified quality production (Jackson forthcoming; Soskice 1999).

27To what extent social peace, worker good will and a company's social integration are positively valued by the stock market is not known and would be an interesting subject for future research (Jackson 2001a).

28More specifically, the percentage of CEOs without an academic degree declined from the early to the late 1980s from 14 to zero; the average length of tenure fell between the early 1980s and the late 1990s from about 13 to 6.5 years; and the percentage of CEOs who had been recruited into their current position from outside the firm more than doubled from 17 to 36 (Höpner 2000d).

29The strongest expression of this sort of interest was, of course, when governments nationalized firms or entire sectors, to ensure that their operation was in harmony with the interest of the community. In the twentieth century this was a frequent practice in Europe, even in the United Kingdom. Today the movement is in the opposite direction as formerly public sectors have been and continue to be privatized on a large scale. Very appropriately, a major issue in the privatization debate is how to ensure that privatized utilities continue to provide a minimum of "public service" even where this is not necessarily profitable.

30In one out of ten large industrial firms in Germany that have in the 1990s signed agreements with their works councils on employment and investment, the government was involved in the negotiations offering subsidies or contributing land or infrastructural investment to help the two sides come to an agreement.