During the past decade, political scientists have rediscovered the importance of corporate governance in modern capitalism. The “varieties of capitalism” literature, stressing the role of business interests in perpetuating divergent national economic models, helped to ‘bring the firm back in’ to the study of political economics. Since the 1980s, in the realms of politics and policy, a sustained tide of corporate governance reforms has swept across the industrialized countries under the banner of shareholder rights. Concerns over the political influence and economic impact of corporations are often really about how national (and trans-national) corporate governance regimes allocate, legitimate, and often concentrate authority and power within the corporation as an institutional form. Pathologies of corporate governance are ultimately political problems.
Pepper Culpepper's Quiet Politics and Business Power is an important addition to a steadily growing body of literature on corporate governance by political scientists. The book advances a bold and tenaciously argued thesis: The interests and policy preferences of senior managers prevail in conflicts over corporate control and corporate governance reform. Culpepper theorizes that public opinion rarely fixates on—let alone reflects clear comprehension of—corporate governance issues and, therefore, debates and conflicts over reform are mostly conducted out of public view through “quiet politics” in boardrooms and opaque processes of policymaking dominated by corporate managers. The book is organized around a set of superbly rendered case studies of corporate governance reform, with sharply written and often brilliant theoretical chapters introducing and concluding the volume. The detailed and extraordinarily well-researched case studies alone distinguish the book as an important contribution to the literature on comparative political economy and corporate governance. The first four case study chapters analyze the nationally distinctive forms of corporate control and conflicts over the reform of corporate takeover rules in France, Germany, Italy, the Netherlands, and Japan. A chapter on the “noisy politics” of executive compensation regulation in the United States and France provides an incisive, though less detailed and comprehensive, account of an additional policy area often viewed as engaging public attention far more than other corporate governance issues.
Culpepper's analysis combines his case studies' richly detailed analytic narratives with a quantitative analysis of press coverage of corporate governance issues (as a proxy for their salience in public opinion) to substantiate his core empirical claims: Corporate governance reform is seldom politically salient, and never for long; most important changes in governance are quietly and extensively shaped by intensive managerial lobbying or firm-level private ordering; and that CEOs and senior managers always win. The managerial dominance thesis has intuitive appeal. Managers have the motive and means to mobilize and fight intensively over corporate governance reforms. The formal legal rules and informal norms that define corporate governance impinge on their job security and tenure, autonomy in (and accountability for) decision-making, and—not least of all—the amount of their compensation. Managers wield advantages in technical expertise, information, financial resources, and political organization to consistently marginalize or overwhelm non-managerial groups and regulators pursuing reform.
In Culpepper's analysis, the interests and policy agendas of other stakeholders and interest groups, such as shareholders, institutional investors, financial institutions, employees, and organized labor, count for little in explaining policy and regulatory outcomes. Nor do the internal dynamics, coalitional strategies, ideological orientations, or policy agendas of political parties engaged in electoral competition appear to have a significant influence on corporate governance politics and policy. In the rare event that managers lose a fight over governance policy, these defeats typically come during periods marked by financial scandals or other highly visible failures of corporate governance that elevate the public salience of these issues and briefly neutralize managers' political advantages. Even then, public incomprehension of the complex legal and financial aspects of corporate governance means that issue salience is short-lived and rarely bears on the substantive details of reforms. As the salience of these issues ebbs, managers relentlessly seek to weaken and circumvent governance reforms. Given that the public attention span is as short as managers' memories are long, politicians and senior policymakers will propose reforms knowing that they cross managers at their peril, and for little electoral benefit. Accordingly, political self-interest tends to bias corporate governance reform agendas towards narrow or ineffectual symbolic measures.
I greatly admire much in Culpepper's research, writing, and analysis. The exceptional clarity and force of his writing derives (rather than detracts) from his intellectual sophistication and mastery of detail. His choice of subject and broad engagement with scholarly debates and practical political and economic affairs raise exceptionally timely questions about the relationships among the modern corporation, managerialism, and democratic governance. Culpepper persuasively argues that managers largely prevailed in the reform of takeover and executive compensation rules—at least in the country cases covered. The book covers an impressive number of country cases, and its primary focus on takeover law isolates a vital policy area where conflicts over power and economic adjustment are most intense.
Culpepper's framing and penetrating study of quiet politics highlights a highly consequential characteristic of this policy domain and one that has not received adequate attention until now. This, along with his innovative comparative treatment of issue salience, advances our understanding of how the complexity of policy problems and opacity in policymaking favor the entrenchment of managerialism. His analysis of firm-level corporate governance as a form of quiet politics also illuminates the importance of non-formal change in political economic development and the irreducibly political character of the corporation and its governance. Culpepper delivers a particularly incisive, and persuasive, critique of corporate governance codes adopted by various national blue-ribbon commissions, showing that their shareholder-friendly rhetoric and “best practices” seldom induced meaningful change. In sum, the book is an elegantly structured and tightly argued case for the modest impact of many ostensibly pro-shareholder regulatory reforms, and the substantial persistence of managerialism as a feature of national political economic models—despite the rise of neoliberal finance capitalism.
However, all books, especially highly ambitious ones, have their flaws. Quiet Politics is far more persuasive when its conclusions are limited to the specific policy areas and regulatory issues studied, rather than framed as more sweeping claims of managerial dominance. Even if managers always win, which managers win? Are the interests of managers largely coterminous regardless of differences in firm sector, size, ownership concentration, governance structure, or business model? If managers are so dominant, why were there so many proposed regulatory reforms for them to oppose? The theoretical framework so homogenizes managerial interests as to obscure the multiple cleavages and conflicts among managers. These cleavages vary across different governance issues and specific reform proposals. If we examine different country cases or different reform issues, say changes in fiduciary law pertaining to markets for control in the U.S. or U.K., this image of managerial unity and uniformity fractures.
Variation between the systemic relationships among the multiple regulatory components and constituencies encompassed by corporate governance regimes affects how actors define their interests and shape their strategic capacities to pursue them. For example, the configuration, intensity, and outcome of political conflicts over takeover law reform vary considerably depending on the strength of employees' job protection rights or legally enshrined governance roles (i.e., codetermination), or on managers' capacity to offset higher takeover risks via higher compensation by way of stock options and “golden parachutes.” The methodological isolation of specific areas or mechanisms of governance regulation tends to elide how corporate governance regimes function and develop as complex, politicized systems. The dramatic transformations of finance in recent decades coincided with the accelerating—and proliferating—reform of multiple areas of law that constitute corporate governance regimes (e.g., securities regulation, accounting rules, fiduciary duties and shareholder voting rights under company law, civil litigation procedure, etc.). The focus on takeover and executive compensation rules misses broader trends in corporate governance reform that reflect the evolution and rising power of finance and the financial sector worldwide.
There is also an odd and sometimes jarring mismatch between the book's often blunt argumentation and reductionist managerial dominance thesis and the nuanced, multidimensional, and finely drawn empirical research and analysis used to support it. Tendencies towards reductionism reappear in the characterization of alternative theories and analyses that Culpepper engages as foils for his theory of managerial dominance. He rejects the “coalitional theory,” developed by Peter Gourevitch and James Shinn in Political Power and Corporate Control: The New Global Politics of Corporate Governance (2005), which depicts corporate governance regimes as the product of interest group coalitions and conflicts among shareholders, managers, and employees. Likewise, he rejects what he labels the “partisan political theory,” which emphasizes coalitional development in partisan political competition to explain the paradox of center-left parties pursuing pro-shareholder reforms inconsistent with their historical, ideological, and policy commitments. In the interest of full disclosure, Culpepper identifies this latter theory with my own work with Martin Höpner (e.g., Cioffi and Höpner, “The Political Paradox of Finance Capitalism: Interests, Preferences, and Center-Left Politics in Corporate Governance Reform,” Politics & Society 34 [2006]: 1–40). The treatment of both theories is problematic. Coalitional theory allows for both managerial dominance and a shareholder-labor “transparency coalition” as outcomes. Culpepper's own case studies do not clearly refute coalitional politics as an important determinant of corporate governance reforms. Further, the “partisan political theory” does not encompass all corporate governance reforms in all national contexts. Center-left parties cultivated pro-finance reform coalitions in some countries (a phenomenon more important now than ever amid the political ferment following the global financial crisis). However, these coalitions avoided or broke down over issues of takeover law reform that activate destabilizing intra-coalitional conflicts that limit the scope and staying power of these political alliances. Culpepper's focus on takeover rules directs his gaze to where partisan reform agendas tend to disintegrate and where coalitions are least likely to venture.
Pepper Culpepper has written an excellent and important book, notwithstanding these reservations. It is a testament to the quality of Quiet Politics that one can find throughout it a wealth of details, analytical points, theoretical insights, and arguments that are illuminating and valuable, even if one remains unconvinced by its central argument in its broadest form. Quiet Politics will be required reading for anyone interested in the political economy of corporate governance, theories of institutional change, and the broader subject of business and democratic politics. It should have a place on syllabi for graduate courses on comparative political economy, corporate governance, and institutional theory for many years to come.
