Varieties of Insider Capitalism: Liberal Reforms and Informal Institutions in France, Italy, and Spain

This paper explains the impact of liberalising legal reforms on corporate practices. The cross-country comparison of six corporate governance indicators shows how the implementation of a similar set of liberalising reforms had a puzzlingly divergent impact in France, Italy, and Spain - three countries historically characterised by Continental corporate models at odds with Anglo-Saxon practices. While Spain and France moved closer to the Anglo-Saxon model, Italian capitalism remained largely unchanged. Even the Spanish and the French trajectories diverged to some extent, as the two countries implemented a different set of Anglo-Saxon practices. Why did the adoption of a similar set of legal reforms in structurally similar countries have such an opposite effect? Why did France and Spain partially converge towards the Anglo-Saxon model, while Italy has retained all its traditional corporate features? Why have even those countries that were more responsive to the Anglo-Saxon reforms adopted different practices?

Dominant corporate theories have proved ill-suited in answering these questions because of their exclusive focus on formal legislation as the key determinant of corporate outcomes. These theories all share the core assumption that corporate models are ultimately shaped by legal rules. However, such a claim is clearly irreconcilable with the French, Italian and Spanish trajectories, as the adoption of the same set of liberalising reforms in three structurally similar countries led to increased divergence, rather than convergence. Aware of this shortcoming, this paper relates the persisting divergence in governance practices among European countries to the existence of a different set of underlying de facto rules, here labelled as informal institutions. In virtue of their unparalleled power resources, business leaders – either large blockholders or leading managers – have a last say in the definition of informal institutions. As a consequence, domestic business insiders are in a position to shape the effects of liberalising reforms according to their preferences.

An actor-centred coalitional approach is then applied to show how the diverging outcome of the liberalising reforms implemented in France, Italy and Spain is due to the fact that, although structurally similar, the three countries have historically been characterised by the domination of three different groups of business insiders - a managerial elite product of the grandes ecoles system in France; family blockholders in Italy, and large banking groups in Spain. Leveraging their unparalleled power resources the insiders could determine the impact liberalising reforms had on domestic corporate practices. French managers, Italian family blockholders and Spanish bankers favoured the implementation of those aspects of the Anglo-Saxon model that matched their preferences, resisting those that could potentially threaten them. Hence, the trajectory of the three countries is only apparently diverging, as their corporate models are the result of the very same dynamic: the domination of business insiders. In this sense, the three countries are now different varieties of insider capitalism. These findings call into question the excessively formalistic approach of many corporate studies, and show how, rather than favouring outsiders' contention, liberalisation further strengthened the insider nature of French, Italian, and Spanish corporate governance.