Explicit and implicit system of corporate control: A convergence theory of shareholder rights

This paper categorizes Anglo-American, French and German systems of shareholder rights as either Implicit or Explicit Systems of corporate control. It challenges the orthodox view that inadequate protection of minority stockholders historically accounted for under-developed capital markets by positing that explicit shareholder influence may substitute for market control. Different ethical roots prompted legislature to adopt either a friendly or a hostile attitude towards market forces. This paper further suggests that corporate laws will formally converge through Convergence Cycles towards a middle ground between the Implicit, and the Explicit System. Finally, it posits the need for a close interrelation of comparative and corporate finance research. The author's example of the fertility of such a cooperation results in a dynamic, rather than static theory of ownership convergence. Historic, statutory, and new empirical evidence demonstrates German and American shareholders' different propensity towards shareholder activism, and supports the three propositions.