Other trade unions papers
Creating Alternative Routes to the World Bank Highway
Mapping Out the World Bank Approach to Corporate Governance Reform in a Trade Union Perspective
02/04/2006
Downloads
- 0607t_gf_worldbankpdf
(Project by the Trade Union Advisory Committee to the OECD, funded by the Global Union Research Network and the Hans Böckler Foundation)
Introduction
"We can now better see the failure of the privatization model that was pushed in the immediate aftermath of the reforms. There was a naïve belief in the shareholder theory. The ownership rights of the state would be transferred to a new owner, and that owner would then act to maximize the stock market value of the enterprise. In fact, the multiple principal agent model provided a better model of the firm. Transferring so called “ownership” from the central authority to a private owner left the other “owners” intact. Having been left out of the new dispensation, the other stakeholders responded in non-cooperative ways (e.g., predatory behavior from local officials and unproductive sullen workers) when, in fact, their full cooperation was needed to actually restructure the firms in the new environment. Many of the new shareholder-owners then just turned to looting—grabbing what they could while they could*."
*Joseph E. Stiglitz, Senior Vice President & Chief Economist, World Bank, Paris, June 1999 (STIGLITZ 1999)
The OECD and the World Bank are undoubtedly the two authoritative international institutions regarding policy dialogue on corporate governance reform. They set the tone of the debate, define what amounts to a “good” standard or practice, and enjoy the highest credibility in advising governments, policy makers, companies, investors, and supervisory authorities. Such leadership role has gained importance as the governance of corporations has become a policy issue on its own, both within the OECD and in developing, transition and emerging economies. With the financial crises in Asia in the late 1990s, the Enron scandal in 2001, and a series of spectacular collapses in the US and in Europe, the keywords “corporate governance”, once an exclusive concept of the investment community and the academic world, are now a must in any government discourse on globalisation. Corporate governance has also been named a policy priority at the 2002 Monterrey Consensus World Summit on Financing for Development.
The above 1999 citation of Joseph Stiglitz the then World Bank
Chief Economist, may well retrospectively be one of the defining
moments – or was it rather a missed opportunity? – in the
elaboration of the World Bank corporate governance policy
framework. In his address, Stiglitz acknowledged the Bank’s failure
to
integrate a broader understanding of corporate governance in its
policies for transition economies during the 1990s. In particular,
he noted the shortcomingsof the traditional “all shareholder value”
approach to private corporations. His speech in Paris came just one
month after the adoption, by the OECD, of the first ever
international standard on corporate governance, the OECD Principles
of Corporate Governance. This period was also marked by vibrant and
influential academic debates, notably on the question of
“convergence of corporate governance models” toward the sole
shareholder value model. Seen in this context, Stiglitz call for a
stakeholder approach (“multiple principal agent model”) was in
direct opposition to the mainstream views held at the World Bank
itself. Six years later, Stiglitz has left the Bank, and the
latter’s road to reform has not modified its course: it is
unswervingly shareholder value oriented.
[...]