Governance of stakeholder relationships; the German and Dutch experience
The function of governance institutions is to strengthen the commitment of parties not to keep to an initial agreement. Thus, international differences in governance institutions affect relationship-specific investments. Two stylized models of stakeholder relationships can be distinguished, the Anglo-American model and the German model. Market orientation and competition characterize the Anglo-American model. Long-term relationships and cooperation are distinctive features of the German model. Strong elements of the Anglo-American model are fast reallocation of financial, physical and human capital through the market. Short-run flexibility facilitates a shift of resources towards innovative emerging technologies, in particular towards start-up firms. The German model is strong with respect to the development of long-term commitment, investments in relationship-specific physical and human capital, cooperation between companies. This model promotes technological progress and re-allocation of resources within established enterprises. The position of Dutch corporate governance institutions, which govern the relationships between management and financiers, does not stand out as favourable compared to both the German and the Anglo-American models of corporate governance. In the Netherlands, share ownership is dispersed, so that monitoring by block shareholders is largely absent. In this respect the situation in the Netherlands is comparable to that in the United States and the United Kingdom. However, in contrast to the Anglo-American model the market for corporate control is virtually absent in the Netherlands. Cooption of members of the supervisory board and extensive use of juridical anti-takeover defence mechanisms substantially restrict the influence of shareholders on management. Therefore, Dutch corporate governance institutions neither strongly encourage investments in relationship-specific assets, nor strongly enhance flexible reallocation of capital or risk-sharing finance. Recent policy changes will probably lead to a moderate shift to the German model. Dutch work governance institutions, which concern the governance of relationships between management and employees, more closely resemble those in Germany. This implies that the performance within large established firms is enhanced through worker influence, but external allocation through the labour market is less efficient compared to the functioning of markets in the Anglo-American model. Future policy changes that strengthen Dutch worker influence will be beneficial for performance in established firms, and are in accordance with the gradual shift towards German governance structures.