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Stakeholder protection in corporate governance and in the legal system, the founders’ perspective, and the varieties of capitalism

Chilosi, Alberto (2010): Stakeholder protection in corporate governance and in the legal system, the founders’ perspective, and the varieties of capitalism.

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Abstract

In the literature the issue of the protection of stakeholder interests (of employees in particular) is usually considered in a static context: how should the institutions of corporate governance be shaped having regard to already existing firms, conforming in particular to some subjective criteria of fairness and fair play. It is remarkable that no attention is usually paid to the basic fact that a company in order to exist must be first be established, and that the founders-owners are the original shareholders. If the incentives they have for founding the company are wanting, because the law privileges the interest of stakeholders over those of shareholders, the company will not be founded and therefore will not exist, or will acquire a smaller dimension. Moreover not necessarily the most appropriate protection of stakeholder interests can be provided by the institutions and practice of corporate governance, other specific kinds of legal provisions may be more suitable. In many cases rather than substitution complementarity prevails between different legal provisions protecting the interests of stakeholders (in particular the employees) and the stakeholder protection afforded through the shaping of the institutions of capital governance. As shown by Hall and Soskice (2001) the different legal setups result in different varieties of capitalism, such as broadly speaking the Anglo-Saxon and the continental-European variety, with different characteristics, advantages and disadvantages, which may also be related to the specific adaptation to the national context. An aspect that is emphasized in the paper, and that is usually overlooked, are the much higher rates of long-term unemployment associated with the continental European model as compared with the Liberal Market model of the Anglo-Saxon tradition.

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