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Foreign Policy
Summer 1999
Are European Corporations
Unique?
By Franco Amatori*
This abstract is adapted from an article appearing in the Summer 1999 issue of Foreign Policy.
Even as debates over the future of Europe focus on the pros and cons of monetary union, full employment versus fiscal austerity, and the challenges of sustaining social safety nets, they seem virtually to ignore the nature of the European private sector. What makes European firms unique? Are the forces of globalization making them more and more American?
The European corporate model has traditionally included an acceptance of the state as a major player in the economy, as well as close relations between the banking and industrial sectors, often formalized by means of cross-shareholdings. European corporations have traditionally tended to emphasize the interests of “stakeholders” (e.g., workers, communities). And they have been more likely to remain in family hands.
In the United States, by contrast, state intervention in the economy has historically been much more limited. American companies have tended to rely on their country’s well-developed capital markets for financing. The absence of European-style cross-shareholdings, a factor that in turn facilitates hostile takeovers, has fostered the perception that American firms are more aggressive and individualistic. In addition, there is a clear emphasis among American corporations on “shareholder value.” And although family-owned businesses played an important role in the industrialization of the United States, their influence waned much earlier than that of their European counterparts.
Before World War II, these two divergent corporate models flourished on opposite sides of the Atlantic. In the postwar years, U.S. intervention to rebuild the continental economies, together with wider economic integration, brought about a convergence between American and European corporations and among national European corporations as well.
In England and Germany, personal capitalism gradually gave way to managerial capitalism. One symptom of this evolution was the shift to a multidivisional organizational form. Here, decision-making power was extended to company divisions that—even though they were controlled and coordinated by a headquarters—were defined on product or regional lines, making familial corporate governance virtually impossible.
Convergence took place even in conservative France as well as in Italy. Particularly striking were the changes in the automobile sector in France, once a stronghold of family capitalism. Renault was nationalized in the wake of its wartime collaboration with the Nazis, and at Peugeot, salaried managers gradually took over control. From 1950 to 1970, when Italy’s gross national product grew at an annual rate of 6 percent, a “Fordist” automobile sector that made use of integrated production and assembly (led by Fiat) was central in bringing along the dramatic growth of industries such as steel, oil, cement, and rubber.
Foreign direct investment and the impact of mergers and acquisitions played an important role in the intra-European corporate convergence. In France, for example, American and British investors owned 30 percent of French industrial companies after World War II. In the 1980s, the French electronics company Thomson took over Germany’s Telefunken, Britain’s EMI, and America’s RCA-GE, quickly becoming the world’s fourth largest manufacturer of mass-consumption electronics.
Despite the convergence that began in the postwar period, elements of more traditional values and behavior persisted. In Germany, a collusive mentality still prevailed among companies, softening competition’s harshness: Three German chemical giants, for example—Hoechst, BASF, and Bayer—became dominant international players but avoided direct competition among themselves. Instead, each contented itself with dominance in a particular field. State intervention also lingered: Many European governments continued to encourage “national champions,” especially in steel, aluminum, and computers.
Although key elements of traditional European corporate structure and governance persist, recent developments may be engendering changes with profound implications for the future of Europe’s private sector: global competition, the growing European trend toward deregulation and privatization, and most recently, the coming of the euro. The result has been a wave of consolidations throughout Europe, mostly within, rather than across, borders. True, the old tendency to favor “national champions” continues. In France, for example, the finance minister made clear his preference for a consolidation in the banking sector that would see French banks remain in French hands. Still, something is afoot. The French banking consolidation led to an attempted hostile takeover—something unprecedented in conservative French business circles.
Privatization across Europe has meant that companies are now turning to the stock and bond markets instead of their governments or national banks to raise money. (Mergers in France rose 31 percent from 1997 to 1998 and are expected to rise even further in 1999.) European companies are also beginning to adopt American practices, such as share buy-backs designed to increase shareholder value. Other changes include greater disclosure and transparency and an increasingly independent role for nonexecutive directors.
Does all of this mean that American and European corporations are converging to one model? European firms are emerging among the top new global players, but despite the hype about today’s “truly global company,” most still have deep national roots that reflect considerable social and cultural differences. The complete homogenization of global business is still a long way off.
References
Michel Albert’s Capitalisme contre capitalisme (New York: Four Walls Eight Windows Press, 1993)
Youssef Cassis’ Big Business: The European Experience in the Twentieth Century (Oxford: Oxford University Press, 1997)
Alfred Chandler Jr.’s classic work, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge: Belknap Press, 1990)
Chandler, Franco Amatori, and Takashi Hikino, eds., Big Business and the Wealth of Nations, (Cambridge: Cambridge University Press, 1997)
Jack Hayward, ed., Industrial Enterprise and European Integration: From National to International Champions in Western Europe (New York: Oxford University Press, 1995)
Klaus Hopt, et. al., eds., Comparative Corporate Governance: The State of the Art and Emerging Research (New York: Oxford University Press, 1999)
Thomas McCraw, ed., Creating Modern Capitalism: How Entrepreneurs, Companies, and Countries Triumphed in Three Industrial Revolutions (Cambridge: Harvard University Press, 1997)
Michael Porter in The Competitive Advantage of Nations (New York: Free Press, 1990)
Endnotes
*: Franco Amatori is associate professor of economic history at the Bocconi University in Milan as well as president of ASSI (the Italian Association of Business Historians). Back.