Taking Shareholder Protection Seriously? Corporate Governance in the United States and Germany

The paper undertakes a comparative study of the set of laws affecting corporate governance in the United States and Germany, and an evaluation of their design - if one assumes that their objective were the protection of the interests of minority outside shareholders. The rationale for such an objective is reviewed, in terms of agency cost theory, and then the institutions that serve to bound agency costs are examined and critiqued. In particular, there is discussion of the applicable legal rules in each country, the role of the board of directors, the functioning of the market for corporate control, and (briefly) the use of incentive compensation. The paper concludes with the authors' views on what taking shareholder protection seriously, in each country's legal system, would require.