Elon Musk has been called a “geopolitical chaos agent” for inserting himself into volatile conflicts around the world. The Chinese government launched a “de-tycoonification” campaign to curb the influence of billionaire founders of private firms—such as Jack Ma, co-founder of multinational technology conglomerate the Alibaba Group—in its domestic internet industry.

Lee Jae-yong, heir to the controlling patriarch of Samsung, a business group virtually synonymous with South Korea’s impressive economic development, was jailed for bribing his country’s president in an incident leading to her impeachment.

To date, corporate governance scholars have focused exclusively on the economic impact of corporate control—the creation and diversion of wealth by controlling shareholders. Scholars have not examined the distinctive role of controlling shareholders in the exercise of corporate power and the range of policy domains in which controlled firms are key protagonists.

Particularly at a moment when the impact of corporations on society is receiving considerable attention, it is necessary for corporate governance scholarship (and boards of directors around the world) to grapple with the global ramifications of the power of corporate control.

The controlling entity

Why is it necessary for corporate governance scholars to analyse the reach of controlling shareholders and controlled firms into these much broader (geo)political questions? Because the power of corporate control is a product of basic corporate law and governance principles, with implications extending well beyond the firm itself.

For example, consider the most straightforward case in which a government is the controlling shareholder of a state-owned enterprise (SOE). SOE objectives (China is a good example) might include pursuing industrial policy goals, increasing employment, or securing state control over the “commanding heights” of the economy.

Or consider private controlling shareholders and their interactions with the home country government, for example, decades of relations between the Lee family of Samsung and the presidents of South Korea.

Concentrated corporate control, typically using controlling minority share structures (pyramidal and circular ownership patterns) provides coordination benefits for a growth-minded government that facilitate economic development. It is probably not coincidental that a number of developmental “miracles” have featured close, lasting interactions between private business groups under the control of their founders and their growth-minded home governments.

Next, consider an individual (human) controlling shareholder (for example, Jack Ma or Mark Zuckerberg). Private technology firms under the control of individual founders using dual class and analogous governance structures have claimed ownership over vast quantities of data: assets of enormous, dual commercial-public significance. The influence of these firms and their controlling shareholders on domestic politics and public discourse has generated a major backlash.

States of control

In the global economy today, a range of different political-economic systems coexist, each of which could loosely be characterised as “corporate capitalist”. In each, the corporation is a central actor in a distinctive mixture of market forces and state regulation, influence and/or control.

In developmental state capitalism, the chaebol business groups—conglomerates typically controlled by single families or individuals—have a distinctive history closely linked to the development of the Korean economy. The relationship between the chaebol and the Korean government that emerged out of this partnership for economic growth is best described as “symbiotic”. Korea’s economic success has served to validate the government’s reliance on the chaebol as engines of growth, exports, and employment.

In Chinese party-state capitalism, the governance characteristics of SOEs generate an unusually potent fusion of economic and political power. This fusion makes the SOE a convenient instrument of policy channeling for the party-state. Control over the SOEs has remained with the party-state, not principally as a result of its equity ownership or through the functioning of corporate governance organs such as shareholders’ meetings and boards of directors, but through political mechanisms.

In Russia, an oligarchic-klepto state capitalism has emerged. Controlled firms in Russia generate cash flow to support Putin’s autocracy and finance his invasion of Ukraine. As one commentator notes, the “problem is not only state capitalism but how the Kremlin pursues it. It ignores competition, investment, technological development, and entrepreneurship. The state enterprises have many other purposes—political control, social mitigation, and personal enrichment of the Putin elite…”

Lastly, we now have high-tech surveillance capitalism. Surveillance capitalism may loosely be defined as the use of data on human behaviour as raw material for a new form of market exchange. In surveillance capitalism, the “behavioural surplus” generated by user interactions with an internet platform or app is claimed as the property of private firms for the generation of profits; and thus, the power over this data, along with its potential manipulation for behaviour modification, is held in the first instance not by the state, but by “surveillance capitalists” such as Facebook/Meta and Alibaba, under the control of their founders.

The world view

The most acute geopolitical implications of controlling shareholders and corporate control lie in the realm of national security, together with the closely related fields of data protection and technological innovation. The rise of China under its system of party-state capitalism poses major challenges to the United States and other western countries. Increased scholarly attention to the political-economic effects of corporate control can sharpen thinking about the regulation of controlled firms in the global economy.

International sanctions are also affected by controlling shareholders. Russia’s invasion of Ukraine in February 2022 highlighted the importance of economic sanctions in the arsenal of responses to state aggression and violations of international law.

Yet controlling shareholders complicate the efficacy of economic sanctions. For example, sanctions on Rusal, one of the world’s largest aluminium producers, imposed in response to suspected Russian interference in the 2016 election, created turmoil in the global aluminium market. The sanctions against Rusal were eased by the Trump administration after heavy criticism by US customers. Economic sanctions also frequently result in the tightening of state control over the target economy.

Controlling shareholders also often wield significant influence in domestic politics. Elevated socio-political status in the home country is an important non-pecuniary benefit of corporate control. This influence carries significant risks for domestic political systems and institutional development. Take the Korea example again, where chaebol interests have greatly affected its legal system and media.

In the US, there is a debate in the corporate governance literature about the economic perils of dual-class capitalisation structures. But this debate is completely disconnected from rising concerns over outsized political influence of the tech industry and its key protagonists, such as Mark Zuckerberg, among some antitrust thinkers and politicians. Yet dual-class structures are the mechanism by which control in the tech industry is achieved.

Where next for stewardship?

Related to the issue of domestic political influence is the role of stewardship codes and ESG movements in markets where controllers dominate. Stewardship codes are intended to invigorate institutional investor engagement with portfolio firms to advance long-term corporate sustainability goals and inclusive practices.

The original stewardship code adopted in the UK, which propelled the global proliferation of such codes, fits a corporate governance environment of dispersed ownership and strong institutional investors.

These codes are an awkward fit in most of the rest of the world, where controlling shareholders are prevalent. Their adoption in controlling shareholder regimes may risk diverting attention from more difficult legal reforms that would actually serve to enhance the protections of minority shareholders vis-à-vis controllers.

The interaction between ESG, (geo)politics and corporate governance raises a number of significant questions directly relevant to boards of directors.

For example, in addition to managing an already daunting list of stakeholder interests, are boards of globally active firms prepared to grapple effectively with geopolitical risk and ESG? Whom do the independent directors of geopolitically important controlled firms represent and what interests should they safeguard? Might boards be subject to liability for failing to appreciate and mitigate the geopolitical risks facing their companies, for example, the possibility of supply chain failures caused by economic sanctions or bilateral economic friction?

Even more broadly, the ESG movement represents a call for the expansion of corporate influence over many domains of public governance in response to real and perceived failures of governments to address pressing environmental and social problems.

As this short article indicates, the lens through which controlling shareholders are viewed by corporate governance scholars needs to be greatly widened. Doing so prompts new thinking about the power of corporate control and its implications well beyond the boundaries of the firm itself—shifting the focus to the corporate protagonists who feature prominently in contemporary geopolitical tensions and corporate influence in domestic political systems.

Today, these broader concerns belong within the purview of corporate governance scholars, policymakers and practitioners. Globally, the political-economic effects of corporate control are, at the very least, as consequential as the economic implications of a controlling shareholder’s propensity to expropriate (“tunnel”) minority shareholder wealth, a preoccupation of corporate governance studies for the past two decades.

Curtis J Milhaupt is the William F Baxter-Visa International Professor of Law at Stanford Law School. A longer version of this article, ‘The (Geo)Politics of Controlling Shareholders’, can be found here