Document Type

Article

Publication Date

1999

Abstract

Should privatization be "fast" or "slow"? Should policymakers adopt a "Damn the torpedoes, full speed ahead" approach that accepts the inevitability of some overreaching by controlling shareholders, but justifies this cost as necessary to realize and expedite the efficiency gains incident to privatization? Or should privatization proceed more cautiously because of the risks of market failure and political corruption that may result when control seekers are tempted to bribe and seduce the judicial and regulatory systems to achieve the private benefit of control? These tempting private benefits arise, of course, precisely to the extent that privatization preceded the creation of an adequate legal foundation. The cases examined in this Article illustrate this tension and lead it to favor a prudential course of phased privatization, which does not make a hasty and potentially corrupting scramble to control the likely consequence of creating a dispersed ownership structure.

This Article will proceed through four stages. Part II examines some of the difficulties in attempting to distinguish common law from civil law systems in terms of any critical factors that lead one to outperform the other. Part III then focuses on the Czech and Polish experiences, along with earlier, more tentative efforts at privatization, in order to understand what has chiefly gone wrong. Part IV focuses on the techniques recently used for expropriating value from privatized firms and suggests that these techniques reveal some deficiencies in the corporate governance norms of civil law systems. Finally, Part V suggests functional reforms and priorities, but these proposals will not give primary emphasis to specific doctrinal rules. Indeed, their premise will be that wholesale adoption of U.S. or U.K. legal rules is not feasible and might not be effective in any event.

Disciplines

Business Organizations Law | Law | Securities Law

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