As in the past, participants in the stakeholder and takeover debate generally array themselves into two distinct camps: one, which views any judicial or legislative attempt to protect stakeholders from harms not explicitly prohibited by corporate contracts as anathema ('non-protectionists'), and the other, which regards corporate responsibility for stakeholder harms as an innate and natural feature of the system of modern corporate governance ('protectionists'). In a perceptive article, Romano attributes part of the differences among scholars on divisive issues of corporate law to the starkly divergent normative beliefs that underlie each side. For non-protectionists, the underlying normative framework is individualistic liberalism, whereas for protectionists, it is usually communitarianism. Given the gulf that divides these underlying normative views, the hope for a principled and durable resolution to the stakeholder debate is indeed dim.

Predictably, the announcement of the resignations created considerable consternation in the financial community, the magnitude of which was enhanced when, just one week after the Westar resignations, the entire board of PWA Corp. resigned en masse from the boards of each of its subsidiaries, including Canadian Airlines Ltd. As in the case of Westar, the directors attributed their decision to the fear that they "would be forced to pay employee wages, taxes or some other obligation out of their own pockets should the struggling airline run out of money".

These highly publicized defections have been invoked by critics as exemplifying the rather myopic and unthinking addiction that Canadian governments have developed to the elixir of directors' liability. By one legal practitioner's account, in Ontario alone more than 100 different federal and provincial statutes prescribe some type of directors' liability. Some critics have gone further and have viewed the board resignations as a powerful passion play that demonstrates in vivid terms the callous and hostile treatment that Canadian shareholders and business managers can expect to receive at the hands of populist legislatures.

Another regulatory change that has spurred increased competition is the reduction, (or, in the case of American owned Schedule II banks, outright elimination) of the constraints that have traditionally limited the operations of foreign financial institutions in Canada. Not surprisingly, the reduction of these restrictions has spawned the growth of a highly dynamic foreign financial industry in Canada.

Given the focus on globalization and competitiveness, it is not at all surprising that academics have expended considerable energy identifying and analyzing the determinants of national economic success in this new international order. Although the composition of the basket of favoured policies varies from scholar to scholar, most accord at least some importance to the quality of the system of corporate governance that obtains in a given country. Tracking the modern use of this term, most scholars look beyond the mere operation of a firm's formal governance apparatus (i. e., the board of directors) and consider how a wide range of market (e.g., capital, product, managerial and takeover markets), legal (e.g., derivative and personal suits) and political (e.g., shareholder voting) devices combine to discipline managerial behaviour.

This Article describes an interactive system of corporate governance and provides a stylized theory of the role of lenders within this system. The divergence in the interests of these lenders and other stakeholders does not preclude interactive governance, but it does threaten to reduce the net benefits from the process. Therefore, the authors identify a number of legal and institutional mechanisms that help to channel the efforts of the lender toward the common goal of containing and correcting managerial slack.

The interactive perspective thus permits new explanations for phenomena such as debt covenants, bankruptcy preference rules and lender liability laws. For example, the definition of debt covenants and events of default in lending agreements raise the likelihood that the lender exit is prompted by slack rather than lender opportunism and thereby enhances the informational value of the exit. Bankruptcy preference rules encourage early exit before the firm becomes insolvent, thereby enabling remaining stakeholders to take action before the firm's condition becomes irreparable. Thus, debt covenants and preference rules provide a window that increases the value of lender exit in prompting the correction of managerial slack.

Our study shows that the extreme incentive-based compensation schemes used by Hees-Edper firms encouraged managers to adopt high-risk strategies, and that the intercorporate co-insurance (allowed by the interlocking ownership structure of the firms) made this possible by increasing the group's apparent debt capacity. Since this higher risk did not improve overall performance, it was arguably at an economically inefficient higher level. The higher leverage of Hees-Edper companies should have produced a sizable tax advantage because of the deductibility of interest at the corporate level. The mediocre performance of the companies thus raises the possibility that abnormally poor performance was masked by tax breaks.

At least since the time of Adam Smith, commentators have expressed concern about the effect of separating those who own a corporation from those who manage it, an effect resulting from the adoption of a widely held ownership structure (Smith 1937, 700; Berle and Means 1933). The suggested problem is that, if those who manage do not have a personal interest in the returns generated by the firm's assets, those assets will be utilized in a way that may be beneficial to the manager but not to the owners.

Berle and Means (1933), however, were more pessimistic, predicting not only that corporations not owned by their managers would underperform corporations owned by managers but also that these widely held corporations would eventually become the norm in developing industrial economies. The argument was simple. As an economy grows and firms strive for scale economies, entrepreneur-managers are not capable of raising money to finance the firm's growth on their own and thus are compelled to go to equity markets to finance expansion. In repeatedly going to equity markets, of course, the entrepreneur eventually loses control of the firm. Because of the unceasing demand for capital in a rapidly industrializing society, the economy will in time largely comprise widely held corporations, which, given their inadequate governance by disinterested managers, does not bode well for the efficiency of the economy.

It is apparent, however, that Berle and Means overstated the likelihood of an economy replete with widely held firms. While the widely held corporation is indeed the norm in the United States, firms controlled by very few shareholders remain predominant in other industrialized countries, such as Germany, Japan, and Canada. In Canada, for example, Morck and Stangeland (1994) report that just under 16 percent of the 550 largest corporations in Canada in 1989 were widely held in the sense that no single shareholder owned more than 20 percent of outstanding voting stock. Using the same definition, Demsetz and Lehn (1985) had found earlier that almost 50 percent of the largest 511 corporations in the United States were widely held.

We first provide. a brief outline of the literature on corporate governance and ownership concentration. l Next, we examine legal issues that, as a positive matter, may have contributed to the concentrated ownership structure in Canada. We then examine the normative implications of these causal relations.

With some notable exceptions, the focus of the debate on sanctions and liability rules has resulted in the relative neglect of an essential ingredient in effective deterrence; the capacity to monitor and detect wrongdoing within the corporation. The lack of attention to the potential for increased compliance through improved monitoring and detection is surprising for several reasons. First, as Jennifer Arlen notes, "[m]any corporate crimes - such as securities fraud, government procurement fraud, and some environmental crimes cannot be readily detected by government". Second, there is a significant body of literature on regulatory reform that relates the ineffectiveness of many traditional "command and control" forms of regulation to the costs and difficulties which are inherent in government monitoring and detection of wrongdoing. Third, one of the most generally held tenets of contemporary criminology is that increasing the likelihood of detection and prosecution tends to be a more effective means of strengthening deterrence than making sanctions more severe. In other words, it is better to put another cop on the beat than to build more jail cells.

This study is intended to help redress the inadequate emphasis on monitoring and detection in the current debate on corporate criminal and regulatory responsibility. Accepting the proposition that direct monitoring of corporate conduct by government as a means of detection is unlikely to be cost-effective, our concern is to identify agents within the corporation who can be enlisted in the cause of monitoring and detection, and to consider how public policies can provide stronger incentives, and make it easier, for these agents to identify and disclose wrongdoing within the corporation. In conducting this analysis, we begin by considering one such policy that has generated sustained public attention and controversy over the last decade: so-called "whistleblower protection."

In attempting to identify the sources of delay in the process, Western commentators have attributed the lion's share of responsibility to policy-makers in the NLCs. This line of attack implicitly assumes that the programs devised by Western policy analysts (largely economists) are fundamentally sound, and that it is only the lack of commitment to, or intellectual appreciation of, the rather unassailable case for radical privatization policies that has impeded successful policy implementation. If this assessment is accurate, then the possibilities for hastening the pace of privatization programs are extremely limited.

In this article, we advance a rather different explanation for the debilitating delays and uncertainty that have plagued privatization in Central and Eastern Europe. Instead of focusing on implementation difficulties, we argue that the source of the faltering pace of privatization in the NLCs lies within the basic architecture of the programs themselves.

Recently, however, recognition of the survival of concentrated share ownership corporations in other countries, namely Germany and Japan and even in the United States, has caused American scholars to reconsider their commitment to the evolutionary inevitability of the Berle and Means' corporation. No longer the byproduct of innate economic forces, the American corporation has of late been viewed by many as merely path dependent, more particularly the result of a confluence of political, historical and cultural factors. Perhaps the most important was the restriction barring financial intermediaries from holding or voting ownership interests in commercial companies. Had these barriers not been created, ownership may have come to reside in sophisticated large stakes shareholders, who were much more likely than retail investors to control managerial agents.

In the face of certain corporate migration in response to more stringent regulation, states will have no choice but to refrain from adopting socially optimal regulation. This is because states fear the loss of benefits associated with corporate activity: namely, employment, investment and tax revenue. The effect is an international "race to the bottom" in which states are rendered helpless in countering the effect of heightened corporate mobility.