Taking Shareholder Protection Seriously? Corporate Governance in the U.S. and Germany


  • Theodor Baums,

    1. Professor of Law at the Institute for Banking Law, Johann Wolfgang Goethe Universtität, in Frankfurt
    Search for more papers by this author
  • Kenneth E. Scott

    1. Parsons Professor of Law Emeritus at Stanford Law School and a Senior Research Fellow at the Hoover Institution.
    Search for more papers by this author
    • *

      This article is a slightly shorter version of an article originally appearing in the American Journal of Comparative Law, Vol. 53 (Winter 2005), which has granted permission to publish this version. Many of the references to specific legal provisions and cases have been omitted; those interested in such references are urged to consult the original. We wish to express our appreciation for the comments of Herbert Hax, Christian Kirchner, and the other participants at the Corporate Governance Workshop of the Center for the Study of New Institutional Economics, University of Saarland, Saarbrücken, Germany, October 25, 2002, and of Ron Gilson and Richard Phillips.


This article provides a comparative study of four major dimensions of corporate governance in the U.S. and Germany: (1) the laws affecting corporate governance, particularly those designed to protect minority shareholders; (2) the prescribed role and actual conduct of corporate boards; (3) the market for corporate control (including hostile takeovers); and (4) incentive compensation.

The authors pose the question: If the primary purpose of the corporate governance system is to serve the interests of minority shareholders, how do the U.S. and German governance systems rank on each of these four dimensions ? Their conclusion is that although the U.S. system is more shareholder friendly in many respects than the German, both systems have major shortcomings, particularly in the market for corporate control. The authors conclude with a list of proposed changes to both systems that would amount to “taking shareholders seriously.”