FRANZ WALDENBERGER From Corporatist to Market Capitalism? Japanese and German Systems of Corporate Governance Facing a Changing Environment D oes the victory of Vodafone in the battle for control over the assets of Mannesmann’s mobile phone service signal the beginning of the end of German corporatist capitalism? Do the similar cases of hostile takeovers by foreign com­panies in Japan imply the end of the Japanese postwar industrial system? Both in Germany and Japan, restructuring was so far the task of cor­porate insiders. Stable ownership combined with bank control kept unfriendly outsiders from gain­ing control over company assets. The recent cases clearly indicate that these structural obstacles are no longer insurmountable. However, what does this imply for the German and Japanese systems of corporate governance? The answer is not at all clear. There is room for at least three interpretations. Endogenous change: The appearance of hostile takeovers could be the result of changes within the corporate system whereby traditional obstacles to this mode of corporate restructuring were lowered. Exogenous shock: Rather than being the result of changes occurring within national systems of corporate governance, the appearance of hostile takeovers could be related to the severeness of the environment that German and Japanese com­panies are presently confronting. It is interesting to note that the first hostile takeovers, both in Japan and Germany, occurred in telecommunica­tions services. Due to fast technological progress, markets in these industries are changing rapidly and the uncertainty about the future course of business is high. In such an environment, speed and size become a decisive factor for survival. Stra­tegic alliances and external growth through mergers and acquisitions are a must. Given the high degree of uncertainty, consensus among prospective partners might be impossible or too time-consuming to achieve. Even insider systems might under such conditions be urged to resort to unfriendly means of restructuring. Evolutionary change: The exogenous and the endogenous change interpretations can both be true and they might not be unrelated to each other, but mutually re-enforcing. Changes in the market environment might require adaptations in the pattern of ownership, or they might create the need to redefine traditional stakeholder relation­ships. In what follows I will opt for the evolutionary interpretation, but with a caveat. The evolutionary argument stated above, while being more com­prehensive than the first two interpretations, still represents a very simplistic model of change. It does not allow for obstacles in the process of trans­formation, nor does it allow for variety in the out­come. To make the evolutionary argument a bit more realistic, we will have to consider problems of system complementarity. In the age of com­puters, everyone is familiar with the term»system requirements« when installing new software. You cannot run a Windows application on a Macin­tosh. Similar arguments apply to systems of cor­porate governance. The introduction of market­based instruments of control in the relationship between management and shareholders requires adjustments in the relationship with other stake­holders of the firm. Incompatibilities will result in a malfunctioning of the system as a whole. A general model of corporate governance should make this clearer. Corporate Governance as a System Modern economic theory views the firm as a nexus of contracts(Milgrom and Roberts 1992:20 ). The term contract is to be understood in a very broad sense, as it includes not only written, but mostly implicit obligations by the respective parties. A firm entertains contractual relations with em­ployees, managers, equity owners, creditors, sup­292 Franz Waldenberger, From Corporatist to Market Capitalism? IPG 3/2000