CORPORATE LAW'S LIMITS mismanagement. Other institutions do. For these other institutions (product market competition, incentive compensation, takeovers shareholder primacy norms, etc. ) corporate law is at most a supporting prop, not the central institution. And, even if one thinks law has an equa role to play in both--in motivating managers as well as in deterring insider machinations-the two depend on different laws and different institutions These would vary in strength, because of differing national histories, politics, and economic conditions; countries can, and do, better deal with one than the other, thereby affecting which organization-close or diffuse ownership-its institutions favor Among the world's richer nations, several by measurement have goo minority stockholder protection, which the quality-of-corporate law theory would predict should have long ago facilitated separating ownership from control. But despite protective results that keep the rampages of the majority stockholders in check, ownership has not yet neatly separated from control. Our task is to assess the theoretical implications of why paration did not happen, since these counter-examples tell us that deficient corporate law probably was not the basic impediment The fact that ownership did not separate from control in a nation does not tell us whether it didn't separate because blockholder rampages are uncontrolled or because managerial agency costs would be far too high if ownership separated. Each could have prevented separation. Or one alone could have, with the other not standing in the way. If underlying economic, social, or political conditions make managerial agency costs very high, and if those costs are best contained by a controlling shareholder, then concentrated ownership persists whatever the state of corporate law in checking blockholder mis-deeds I speculate on what underlying economic, political, and social conditions could make managerial agency costs persistently high. I also speculate on how a shrinking of these agency costs, one plausibly now going on in continental Europe, could raise the demand to build legal institutions that facilitate separation. Many business features could keep agency costs higher in one nation than another: a weak product market is one; especially opaque businesses is another; an inability to use incentive compensation effectively because it would, say, disrupt relationships within the firm, is a third; a high level of social mistrust that impedes professionalization of management is a fourth2 CORPORATE LAW’S LIMITS mismanagement. Other institutions do. For these other institutions (product market competition, incentive compensation, takeovers, shareholder primacy norms, etc.), corporate law is at most a supporting prop, not the central institution. And, even if one thinks law has an equal role to play in both—in motivating managers as well as in deterring insider machinations—the two depend on different laws and different institutions. These would vary in strength, because of differing national histories, politics, and economic conditions; countries can, and do, better deal with one than the other, thereby affecting which organization—close or diffuse ownership—its institutions favor. Among the world’s richer nations, several by measurement have good minority stockholder protection, which the quality-of-corporate law theory would predict should have long ago facilitated separating ownership from control. But despite protective results that keep the rampages of the majority stockholders in check, ownership has not yet neatly separated from control. Our task is to assess the theoretical implications of why separation did not happen, since these counter-examples tell us that deficient corporate law probably was not the basic impediment. The fact that ownership did not separate from control in a nation does not tell us whether it didn’t separate because blockholder rampages are uncontrolled or because managerial agency costs would be far too high if ownership separated. Each could have prevented separation. Or one alone could have, with the other not standing in the way. If underlying economic, social, or political conditions make managerial agency costs very high, and if those costs are best contained by a controlling shareholder, then concentrated ownership persists whatever the state of corporate law in checking blockholder mis-deeds. I speculate on what underlying economic, political, and social conditions could make managerial agency costs persistently high. I also speculate on how a shrinking of these agency costs, one plausibly now going on in continental Europe, could raise the demand to build legal institutions that facilitate separation. Many business features could keep agency costs higher in one nation than another: a weak product market is one; especially opaque businesses is another; an inability to use incentive compensation effectively because it would, say, disrupt relationships within the firm, is a third; a high level of social mistrust that impedes professionalization of management is a fourth