American vs. German Corporations

By Hunter Wallace

Today I Learned …

“A problem in the United States is that American corporations are literally chartered by the various state governments rather than by the United States federal government – a situation that produces a race to the bottom in the sense that the states vie with each other to be the incorporating state and get the resulting state revenues. However, the competition is in the form of offering the most nondemanding conditions for incorporation. My home state of Delaware seems to have mostly won the competition, and I am sorry to say that it has done so by demanding little in return for the benefits it confers. As a result, the formal responsibility of a CEO is primarily to the shareholders – the stakeholders be damned. In virtually every other country in the world, corporations are chartered nationally and there are quid pro quos in terms of organization, responsibility, and performance.

Germany is the best example. There, the corporate charter establishes a supervisory board on which stakeholders representing labor, shareholders, the community, and other groups serve by overseeing the company’s management and its broad strategic goals. Under this board is a second board called the management board which consists of the company’s top managers and is responsible for development and execution of business plans and operations. The structure is very effective in ensuring both attention to stakeholder interests and alignment with broad national interests. Many German companies are quite global, but they also feel an obligation to keep the interests of Germany in mind. Other countries, such as Japan, France, Finland, and Singapore, have similar arrangements. The United States needs to have them, too.”

Is that right? This sounds significant.

If so, it would go a long way towards explaining why American multinational corporations seem so untethered to the United States in comparison to their German and Japanese counterparts.

Note: This excerpt is also from the Prestowitz book.