If I had to say why we don't trust families to run financial institutions, speaking more from a sociological point of view than an economic one, I'd say it was the Puritan influence. Simply put: People are sinners. We don't trust individuals by their bloodline, we brand bureaucracies by how we feel about their corporate logos.

We don't trust the Rockefellers or the DuPonts; we trust a mouse.

Interesting stuff, Brad, but does it really matter?
The fact of the matter is that what counts in modern corporations (clearly in the US, but probably also in Europe) is not owners but managers. Managers get to do essentially as they please, limited by nothing and answering to no-one. To the extent that shareholders dislike managment, they sell their shares in disgust. The occasional story we here about shareholder uprisings or hostile takeovers are, let's face it, miniscule anomalies that are heavily hyped to con people into assuming the system works a certain way.

A question I think is far more interesting to most people than these obvious points of control is the extent to which the loot (ie revenues post taxes, debt, purchases and so on) are split between labor, management and shareholders. it's obvious to anyone that "low" labor is basically screwed, getting nothing as the pie grows larger, and that "high" labor (middle management, engineers etc) get something as the pie grows larger, that something largely determined by how in demand their skills currently are. The more interesting question (more so than issues of majority vs minority shareholders) is the split between execs and shareholders.

My gut feeling is that
- this is tilting ever more strongly to execs, to the point where exec compensation is a substantial fraction (10s of percent if not more) of money that would have been, in earlier times, released to shareholders as dividends,
- that this is a relatively new phenomenon (last twenty years or so) that execs have realized that they can get away with,
- that there remains no mechanism in place to limit this diversion of wealth from shareholders to execs, and
- that given this situation, buying shares (at least in the US) makes very little sense. Historical patterns of profitability are really irrelevant given the current structure of exec compensation.

I'd argue that each of these propositions above would make for a truly gripping article or presentation, and hope you (or one of your students) takes some interest in looking at them for a project.

Nice questions, Brad. When do we get the answers? ;)

Slide 10 gets my vote, if only because the others seem to treat the composition (and political influence) of investors in the United States as analogous to those in Germany, Italy or Japan? This seems a weak peg on which to hang the null hypothesis that the form corporate governance takes cross-nationally is a primarily economic, rather than political, puzzle.

Re:

>>The fact of the matter is that what counts in modern corporations (clearly in the US, but probably also in Europe) is not owners but managers.<<

Well, yes. But that is the biggest part of the question. Why have the attempts by shareholders and representatives to solve the Berle-Means problem (as identified by Adolf Berle and Gardiner Means in their classic book, _The Modern Corporation and Private Property_) been so pathetic and ineffective? Why have the attempts been particularly pathetic and ineffective in the United States? (In Europe, things are different; in Japan, things are very different.)

One of my friends (Stirling Newberry) calls stocks today "junk-bonds in drag", by which I gather he means that they don't actually, in most circumstances, give one the advantages of ownership, so they might as well just be considered on the basis of their return. A lot of companies have huge chunks of stock owned by pension and mutual funds that tend to simply vote with the management - in effect they have given up the duties and perogatives of ownership.

"Ownership" is all very nice, but the question is always "control". And a good indication of who controls something is who benefits from it. And it's clear that corporations over the last couple decades (and especially the last) have been run for the benefit of executives. If and when stockholders, employees, consumers or the public have benefitted it has been a side effect. (For example high stock prices were intended to benefit executives with stock options - the fact that some stockholders also made money is a pleasant side effect. I say this because the way that stock prices were driven up were such that the prices could not be sustained - the executives cashed out their options but many stockholders were left holding the bag during the inevitable crash.)