Kenneth E. Scott (1929-2016)

In the last few years, as some economies have stagnated and others gone into crisis, corporate governance has left the world of specialists and become a fashionable topic. It deals with some very fundamental issues: Why are outside investors willing to give money to those in control of a business firm, in the hope of obtaining an ill-defined return, and what is it that minority shareholders can actually do about managers whose performance is mediocre or who take excessively generous compensation? Shareholder protection policies and institutions vary widely from country to country, depending on the laws in place. J. P. Morgan Fellow Kenneth Scott, who has taught and written on comparative corporate governance, is especially interested in gauging the efficiency of particular systems at a time of unprecedented market enlargement and global competition.

During his stay in Berlin, he focused on Germany, a country in which share ownership is concentrated and banks have cast from sixty to ninety percent of the vote at annual meetings of major public companies. In the US, where share ownership is more widespread and the securities markets highly developed, banks play a considerably smaller role. Scott suggests that both Germany and the US may be looking more closely at one another’s systems in the years ahead. The US banking business has recently been allowed—for the first time since 1933—to combine with insurance and securities firms. Meanwhile, in Germany, there is a likelihood that the tax law changes will lead to a dissolution of many cross-shareholdings and that the present reliance on bank-centered monitoring of public companies will be reduced.