The Politics of Corporate Governance
Politics of Corporate Governance in Finland
Corporate governance arrangements must be understood in their relevant economic and political context. A recent dissertation in Finland has emphasised the political context of how corporate governance has developed in Finland (Anders Blom, Economic Interest Groups as Political Insiders, 2018). Another dissertation has looked more closely on how the business community has coordinated political efforts to impact economic and political developments in Finland overall (Maiju Wuokko, The Vanguard of the Market Economy: The Political Activity of the Finnish Business in the 1970s and 1980s, 2016). Both provide interesting and timely analysis of recent Finnish political and corporate history.
The political dynamics of corporate governance regulation relate to the interests of relevant corporate constituencies, including shareholders, management and employees. These interest groups can use political avenues and coalitions to pursue their interests in the corporate setting through interest group influence or by making matters politically salient (see Mancur Olson, The Logic of Collective Action, 1971 and Pepper J. Culpepper, Quiet Politics and Business Power: Corporate Control in Europe and Japan, 2011). Finnish corporate ownership and corporate governance have been characterized by concentrated ownership, including significant government holdings in industry, so that policies and principles regarding corporate ownership have had a direct political significance.
The first study referred to above looks at the impact of economic interest groups on political outcomes in Finland. In particular, the study focuses on the dynamics of Finnish politics during the period of income policy tripartite agreements and beyond (i.e. from the late 1960’s until recent changes in the system in 2011). In this era, industry and employer organizations and trade unions agreed on the premises of salaries generally, while the government supported the outcomes through income policies. The author argues that business lobbying has been as essential element of the core political system in Finland during this period. I.e. instead of having the characteristic of external influence by interest groups on formal political processes, business lobbies have been a de facto part of the political process. The Finnish business community has indeed had a strong and direct position in political decision making through the tripartite agreement system related to income policy. This position as political insiders has then allowed the business community to steer key Finnish policies resulting in a strong corporatist system. The Blom-study also looks at the development of corporate ownership and corporate governance in light of the politics of regulatory reforms – particularly during the era of increasing international investments in Finland starting in the late 80’s and early 90’s. Changes in ownership resulted from the deregulation of the financial markets in the late 80’s and the decrease of bank dominance in corporate affairs after the recession in the early 90’s. International investments increased and new corporate governance standards were introduced. The political significance of corporate ownership and corporate governance increased and were used as avenues to pursue broader policies. Wuokko’s study looks at how the business community coordinated its political work during critical years in the 1970’s and looks at the complex dynamic between the short term interests of industry and the long terms goals of the wider business community on the direction of Finnish society in general. Wuokko’s study adds a level of complexity to the dynamics of the corporatist model and explains how political outcomes can deviate from even strong lobby-interests.
The fact that corporate governance matters have direct political implications can also result in government initiatives being driven by high-salience policies (see Culpepper) that trump the normal regulatory dynamic. The actions of the government in its capacity as a shareholder have at times been driven by political agendas rather than by a desire to increase shareholder value, for example. Regulatory initiatives can also be subject to political agendas not related to the bargaining dynamics among the key constituencies. For example, the initial Commission proposals for amending the EU shareholders’ rights directive (i.e. SHRD II) were influenced by the high political salience of corporate matters in general. The final directive, and the Finnish government proposal for implementing the amendments, already adequately reflect key concerns of the business community with regard to management compensation and related party transactions, for example, demonstrating the regulatory work done by the business community at the EU and national levels (See comments to the government proposal).
The studies demonstrate that it clearly remains important to understand the dynamics of political systems and the effects of politics on business and on corporate governance.