Edited by Lorraine Eden and Wendy Dobson
Chapter 4: Who Owns Whom? Economic Nationalism and Family Controlled Pyramidal Groups in Canada
* Randall Morck, Gloria Tian and Bernard Yeung By force of happy knack of clannish fancy, the common man is enabled to feel that he has some sort of metaphysical share in the gains which accrue to businessmen who are citizens of the same ‘commonwealth’. (Thorstein Veblen, The Theory of the Leisure Class, 1899) INTRODUCTION In the US and UK corporate governance problems often stem from the agency conﬂicts between managers who own few shares and diﬀused shareholders. Outside of these two countries, many ﬁrms have a controlling owner (LaPorta et al., 1999). The phenomenon is more intriguing than just a rich person owning a controlling percentage of a stand-alone corporation’s shares. Rather, the phenomenon is that a few rich families manage to control a web of corporations by a pyramidal ownership structure, crossholding, and placing family members in key executive positions. (In a later section, we shall explain the family pyramidal ownership arrangement.) Evidence that the phenomenon is globally prevalent is piling up in the literature. For example, beside the paper by LaPorta et al. (1999), Faccio and Lang (2002) report such evidence for Western European countries, Morck et al. (2000) for Canada, Claessens et al. (2000) for Eastern Asian countries, Ramos (2000) for Mexico, and many others. Financial economic research exposes that pyramidal ownership structures raise a diﬀerent kind of corporate governance problem: conﬂicts between an insider who attained ﬁrm control of a corporation but owning only a small percentage of it, and shareholders at...
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