Abstract

This paper presents a model with "fuzzy ownership rights" for explaining corporate governance. The purpose of this model is to capture the theoretical underpinnings of corporate governance in real-world situations, which emphasize social, economic and cultural networks. The existence of strong fuzzy ownership rights affects corporate governance in many important ways, beginning with the firm being forced to go beyond solving the shareholder interest maximization problem: instead, the firm attempts to solve more complex problem, which is to maximize the interests of other fuzzy ownership right-holders as well.

 In the wake of the Asian financial crisis in 1997, many countries in Asia were encouraged to adopt western-style corporate governance reforms. Although systemic changes are being adopted, with particular emphasis placed on strengthening minority shareholders' legal rights, these reforms fail to remove fuzzy ownership rights. This paper predicts that the reform effort will be ineffectual since it leaves the behavior of the firm and its corporate governance structure fundamentally unchanged.

 This paper challenges the proposition that globally disparate corporate governance systems in the long run will converge to the Anglo-Saxon shareholder primacy model. Fuzzy ownership rights holders can be expected to protect and refuse to surrender their rights when targeted by corporate reform efforts. The vested interests, which are personal to the olders because they arise from the holder's position in the economy or in relation to the firm, present a high barrier to convergence toward a global standard based on the shareholder primacy model.