"Whose interests does a firm serve, and how are corporate decisions made?"
Corporate governance answers a question with deep political consequences: when a firm makes a decision, whose interests should it prioritize? Shareholders alone? Shareholders and creditors? All "stakeholders" including employees, customers, and communities? The legal answer shapes everything from boardroom composition to executive pay to merger defenses to how seriously firms take environmental concerns.
The American answer — shareholder primacy, with directors accountable primarily to shareholders — became the dominant global model in the late 20th century. But it was never universal, and it is under pressure today from multiple directions: German codetermination, French family-controlled firms, Japanese keiretsu networks, ESG and stakeholder capitalism debates. Each system reflects a different political compromise between capital and labor, between owners and managers, between short-term and long-term horizons.
Most countries use a unitary board — a single board of directors combining executives and independent (non-executive) directors. Germany and the Netherlands use a two-tier board: a management board (Vorstand) of executives runs the firm, supervised by a separate supervisory board (Aufsichtsrat) that includes both shareholder representatives and (for large firms) worker representatives. Each model reflects different theories of what oversight requires.
The default in many systems is one share, one vote. But several legal regimes permit dual-class shares (common in US tech IPOs — Meta, Google, Snap), double-voting rights for shares held continuously over two years (France's loi Florange, 2014), or preference shares with no voting rights at all. These mechanisms allow founders and families to retain control with smaller economic stakes — a structural feature that shapes much of French luxury (LVMH, Hermès) and many US tech companies.
In Germany, public companies with over 2,000 employees must give workers half the seats on the supervisory board. Smaller companies (500-2,000 employees) require one-third worker representation. This is true codetermination: workers have legal authority over major corporate decisions including M&A, restructuring, and CEO selection. The Netherlands, Austria, Denmark, and Sweden have related but less extensive worker-representation regimes. Anglo-American law has nothing comparable.
The US has the most shareholder-centric governance regime among major economies. Directors owe fiduciary duties primarily to shareholders, enforced through a developed body of case law from Delaware, where most large US firms are incorporated. The dual-class structure popular in tech IPOs allows founders to maintain control with minority economic stakes (Google, Meta, Snap). Recent debates around ESG, stakeholder capitalism, and "long-term value" have not yet displaced the shareholder-primacy framework as a legal matter, though they have influenced corporate practice.
Germany combines a two-tier board structure (management board + supervisory board) with mandatory worker codetermination. Large companies' supervisory boards are 50% worker representatives, 50% shareholder representatives, with the chair (shareholder side) breaking ties. Directors must consider the interests of "the company" broadly, not just shareholders — a duty enforced through the Stock Corporation Act (Aktiengesetz). Major M&A, plant closures, and executive appointments require supervisory board approval, giving workers real influence. The system reflects post-WWII compromises between capital and labor.
French corporate governance is shaped by widespread family control of large public firms, enabled by double-voting rights for shares held continuously over two years. The 2014 loi Florange made double voting the legal default for French listed companies (firms must opt out by special resolution). This mechanism allows the Arnault family to control LVMH with roughly 48% economic ownership but ~64% voting rights; similar structures exist at L'Oréal (Bettencourt-Meyers), Hermès, and Pernod Ricard. French companies must also be either SA (société anonyme) or SAS (société par actions simplifiée), with distinct governance rules.
Japanese corporate governance has been reformed substantially since 2014, when the Abe government introduced the Japan Stewardship Code (institutional investor responsibilities) and, in 2015, the Japan Corporate Governance Code (issuer responsibilities). The reforms aimed to dismantle entrenched keiretsu cross-shareholdings (banks owning industrial firms owning banks), increase independent-director presence, and improve return on equity. Companies now choose among three board structures (with audit committee, with three committees, or with statutory auditors). The reform agenda continues to evolve under successive prime ministers.
The same firm in different jurisdictions would have a different identity. Imagine LVMH listed in the United States: the Arnault family would face hostile takeover attempts, activist investors, and far stronger pressure for short-term shareholder returns. Or imagine Google headquartered in Germany: half its board would be worker representatives with veto power over major restructurings. The same business operating under different governance law isn't the same business.
For students this matters because corporate finance theory often assumes a generic "firm" — but real firms operate inside legal systems that determine who has the right to make decisions, on what time horizon, and answerable to whom. The "agency problem" looks very different in a system where workers have board seats, or where founders have double-voting rights, or where banks hold large equity stakes. Don't transplant analysis across systems without checking the governance frame.
Lessons: The Firm & Fiduciary Duty introduces these governance concepts; M&A shows how governance design affects deal economics.
Directory: Berkshire Hathaway (unusual US case of permanent owner-control); the Paris luxury triumvirate of LVMH, Hermès, and L'Oréal as the canonical French family-controlled examples.