Governance, Multinationals and Growth
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Governance, Multinationals and Growth

Edited by Lorraine Eden and Wendy Dobson

In Governance, Multinationals and Growth, leading scholars celebrate and build upon the pioneering work of Edward Safarian on multinational enterprises and foreign direct investment. The book explores the linkages among multinationals and foreign direct investment, corporate and public governance, and economic growth. The contributors pay particular attention to emerging policy issues that include the behavior of individual governments, intergovernmental organizations and civil society. In addition, they address linkages among MNEs, their governance and economic growth, and generic policy realities (and innovations) in a small-to-medium-sized economy.
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Chapter 4: Who Owns Whom? Economic Nationalism and Family Controlled Pyramidal Groups in Canada

Randall Morck, Gloria Tian and Bernard Yeung


* 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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