Business groups are an organizational model in which collections of legally independent firms bounded together with formal and informal ties use collaborative arrangements to enhance their collective welfare. Among the different varieties of business groups, diversified business groups that exhibit unrelated product diversification under central control, and often containing chains of publicly listed firms, are the most-studied type in the management literature. The reason is that they challenge two traditionally held assumptions. First, broad and especially unrelated diversification have a negative impact on performance, and thus business groups should focus on a narrow scope of related businesses. Second, such diversification is only sustainable in emerging economies in which market and institutional underdevelopment are more common and where business groups can provide a solution to such imperfections. However, a historical perspective indicates that diversified business groups are a long-lived organizational model and are present in emerging and advanced economies, illustrating how business groups adapt to different market and institutional settings. This evolutionary approach also highlights the importance of going beyond diversification when studying business groups and redirecting studies toward the evolution of the group structure, their internal administrative mechanisms, and other strategic actions beyond diversification such as internationalization.
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Business Groups as an Organizational Model
Asli M. Colpan and Alvaro Cuervo-Cazurra
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Privatization of State-Owned Enterprises
David Parker
Theoretical developments in economics, alongside evidence that state-owned enterprises were often inefficient and unresponsive to consumers, led to a substantial program of privatizations from the 1980s. Privatization can take a number of forms, from the outright sale of state-owned assets to private investors to forms of public-private partnership, such as contracting out and franchising of public services. Privatization was promoted in both developed and developing countries, and large-scale privatizations occurred in Europe, Latin America, China, and the former communist economies of Central and Eastern Europe, in particular. Privatization revenues rose substantially from the late 1980s internationally. Taking the years 1988 to 2016, revenues from sales are estimated to have been around $3,634bn. In terms of main sectors of the economy affected, privatizations have particularly occurred in telecommunications, transport and logistics (mainly railways, airlines, and airports), other utility businesses (especially energy companies), and finance. Numerous empirical studies suggest that the performance of the privatized businesses and services has been mixed. While privatization has led to some impressive economic gains, in a number of countries, wider governance issues relating to political and legal systems have led to disappointing outcomes. Privatization has not always led to the removal of state interference in the management of businesses and services. Corruption and cronyism have blighted a number of privatizations. State sell-offs have led to income and wealth redistribution with gainers and losers from the process. Some privatizations have led to spectacular capital gains for investors. The impact of privatization on employment and working conditions remains unclear.
There are a number of issues that deserve further investigation, namely the consequences of privatization for technological change and innovation, competition policy, and income and wealth distribution. A further subject for investigation is how the effective and efficient management of state-owned enterprises can be best achieved. The boundary between the private and public sectors remains fluid, with a number of enterprises returning to state ownership as political and economic conditions change.
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The Rise and Fall of “Shareholder Supremacy”: A Business History Perspective
Steven Toms
With shareholder supremacy, the board is accountable to all shareholders, including minorities, enforced by restrictions on managerial opportunism. The market for corporate control and scrutiny of diversified institutional investors provide the mechanisms for disciplining managers to act in shareholders’ interests. Along with legal protections for minorities, these mechanisms ensure the supremacy of shareholders as a stakeholder group. Shareholder value maximization, as a theory and a set of financial techniques, provides quantitative outputs that drive managerial behavior. From a historical perspective, shareholder supremacy is a late twentieth-century phenomenon according to these definitional characteristics. History also reveals that shareholders have exercised dominance in other ways and that their power as a stakeholder group has waxed and waned over time as the governance role of investors has changed. Shareholder supremacy can be asserted in a number of ways. Shareholder activism and transparent structures of accountability are sufficient conditions in some circumstances. The suitability of this model is dependent on market structure and favored where there are local monopolies or businesses that have a narrow scope of activities. Alternatively, shareholders as active institutional investors can play a dominant role utilizing the market for corporate control. Collaboration with board insiders committed to expansion by takeover and merger is crucial to the success of this model. Finally, and most recently, the complementary presence of the market for corporate control, diversified institutional investors, and minority protection underpins present-day shareholder supremacy. In this model, the use of a common valuation technique is crucial. History reveals differing routes to shareholder supremacy, which have followed from developments in the institutional structure of regulation and changes in shareholding patterns.
