Corporate Governance Lessons from Russian Enterprise Fiascoes
Merrit B. Fox, Michael A. Heller
Louis & Myrtle Research Professor of Business and Law and Alene & Allen F. Smith Professor of Law, University of Michigan and Professor of Law, University of Michigan, respectively.
This Article draws on a rich array of deviant behavior in Russian enterprises to craft lessons for corporate governance theory. First, Professors Fox and Heller define corporate governance by looking to the economic functions of the firm. Based on this definition, they develop a typology that comprehensively shows all the channels through which bad corporate governance can inflict damage on a country’s real economy. Second, they explain the causes of Russian enterprise fiascoes by looking to the particular initial conditions prevailing at privatization-untenable firm boundaries and insider allocation of firm shares-and the bargaining dynamics that have followed. This focus offers a new perspective for a comparative corporate governance literature derived from United States, Western European, and Japanese models. The analytic tools created in this Article can inform pressing debates across contemporary corporate law, ranging from the theory of the close corporation to the viability of “stakeholder” proposals.