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5 Primary and secondary privatisation—countries of slow and rapid concentration of the ownership structure The overview in the previous section concerning secondary privatisation in five countries shows, as expected, the growth of ownership concentration and—as an “engine” of this process—the shrinking of the stakes of both the most-preferred groups: non-managerial insider shareholders and small outsider shareholders “born” in voucher mass privatisations. These ownership forms were doomed to shrink in these countries from the outset , for two reasons, as discussed in the introduction to Section 4. First, employee ownership had little support in the legal systems, weak stimuli and not much legal support. Second, the trend observed elsewhere (by other research workers) showed up in the countries studied here, too: if the protection of the interests and rights of small shareholders is weak, the ownership structure tends to be highly concentrated. Being a small shareholder is not rewarding in such countries. Whoever becomes one will eventually get out of this position. The analysis above confirms the latter statement, but it partly also seems to deny it in an important respect. Namely, the process of secondary privatisation was (partly) slower in countries with worse corporate government systems, i.e., weaker protection of the interests and rights of small shareholders. This is surprising. One would expect that the less that small shareholders’ rights are protected, the faster they would try to get rid of their company shares. Instead, the opposite occurred. This contradiction is discussed below. 5.1 Differences in corporate governance systems The literature on corporate governance systems (even that dealing only with systems of former communist countries) is huge; this discussion of it will be limited to recapitulating some of its main conclusions. 106 Politics and Policies in Post-Communist Transition Corporate governance is typically defined as the system of guarantees of return on the investments of lenders, small owners and non-small minority owners.1 According to Shleifer and Vishny (1996b, p. 55), “Corporate governance deals with the agency problem: the separation of management and finance. The fundamental problem of corporate governance is how to assure financiers that they get a return on their financial investment.” Other definitions treat the issue in a wider context, referring to disclosure of information to investors, the ways in which investors can exercise their rights, and so on (e.g., Sundaram et al. 2000, and Berglöf and Claessens 2004) concerning corporate governance in transition countries. Owners and lenders are two rather different groups of investors. Some elements of the system of guarantees are important for both; in other respects their interests are different or opposed to each other. For this study, only owners’ rights and guarantees are important; the safety of lenders is not relevant here. But both sides of corporate governance systems are important here: rules set by laws and/or codes of behaviour on the one hand and enforcement patterns on the other, serving to assure the effectiveness of the rules. Enforcement tends to be the more difficult issue; it does not always follow the formal rules quickly. Formal legal rules in the field of corporate governance have been considerably improved during the 1990s in almost all former communist countries in Europe and Central Asia. In 1992 they were still much weaker than the world average, but according to a survey carried out in 1998, their average was already better than the world average. Beyond that, the indicators of quite a few successor states of the Soviet Union reached or exceeded those of Central European countries (Pistor et al. 2000). All this is not surprising. Western advisers helped formulate the relevant laws; in the former Soviet Union they were more often Americans, while in Central Europe, they were primarily experts from the European Union. Americans promoted the introduction of American rules, Europeans that of European rules; the latter are mostly (with the exception of the United Kingdom) weaker than the former. However, neither Pistor et al. (2000) nor other authors (e.g., EBRD 2004) omit the crucial importance of enforcement, its weaknesses in Central Europe and even graver weaknesses in most countries of the former Soviet Union. 1 Usually investors with less than five percent ownership stakes are considered small owners . Thus, e.g., an investor with a 15 percent (i.e., clearly only a minority) ownership stake in a company is not “small”, and yet, he or she needs guarantees against possible abuses by another owner or groups of owners with 51 percent or more...

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