174 InManagersWeTrust
in equity investment in terms of both those who demand it (start-
ups and expanding enterprises) and those who supply it (venture
capitalists and investors generally).
This ownership structure also rests on a cultural aversion to con-
centrations of power. The best examples are the Sherman and Clay-
ton antitrust acts that shut down trusts such as Standard Oil in the
climate of Theodore Roosevelt’s trust-busting populism. Another is
the Glass-Steagall Act, the Depression-era law that segregated the
industry of investment banking from that of commercial banking.
The repeal of that act in 1999 may reflect a degree of change in U.S.
attitudes, though it at least equally likely reflects the globalization
of the world economy, in which power is greatly diffused already;
the governmental efforts waged against Microsoft under the antitrust
laws suggest that such concerns remain prevalent.
Contrast all this with the so-called bank/labor model used to de-
scribe Japanese, German, and other Continental European corporate
systems. Instead of the shareholder market model’s fragmentation of
ownership, the central finance features of the bank/labor model are
ownership concentration and substantial investment intermediation.
Banks act as financial intermediaries by accepting individual de-
posits and compiling them for investment in corporations. Only a
relatively small number of these investing entities exist. This con-
centration of ownership and debt holdings reduces the pressure for
the development of actively functioning, deep, and liquid capital
markets. Moreover, nothing like the Glass-Steagall Act has prevented
the commercial and investment ban kunity that mitigates this con-
centration of investment ownership.
This centralization results in a small and powerful body of share-
holders and debt holders whose dual position requires few regulatory
governance mechanisms compared to the array of tools used to de-
fine the rights of various interests in U.S./U.K. corporations. Be-
cause a single ban kacts as both primary shareholder and debt
holder, there is less pressure to choose between models that favor
either shareholders or other constituencies of the corporation.
Also, less need exists for regulating governance mechanisms be-
cause of traditions that have put labor at the center of the gover-
nance structure rather than as a participant with contractually de-
fined interests. European nations are deeply committed to worker
protection, as evidenced by wage-setting policies and laws that make
firing workers difficult (in contrast to U.S./U.K. at-will employment).
These sorts of forces also explain why the disparity in compensation