Corporate law in an emerging economy must address a broader set of goals, and operate within a far less evolved market and legal infrastructure, than corporate law in developed economy. The paradoxical consequence is that the protective function of corporate law becomes more important precisely when fewer other resources are available to support that nction Consider first the goals of corporate law in emerging economies. The efficiency goal of maximizing the companys value to investors remains, in our view, the principal function of corporate law. But the balance between investor protection and the business discretion of corporate managers needed to achieve this goal will be quite different in emerging than in developed economies. In addition, in countries that are emerging from heavy state control of industry, a second central objective is the political goal of fostering public confidence in a market economy and in private ownership of large enterprises The efficiency goal dictates that corporate law provide more investor protection in emerging than in developed economies, for several reasons. One is that insiders are likely to exercise voting control over most public companies. Such controlled ownership structures raise the obvious concern that the insiders, whether managers or controlling shareholders, will behave opportunistically toward other shareholders. In Russia, for example, the structure of mass privatization has led to the great majority of privatized public companies being controlled by management-led coalitions of managers and workers, which typically hold 51-75% of a companys voting shares. Outside shareholders -including banks and investment(voucher) funds-- hold on average 15-20% of the voting shares, while the remaining shares are likely to be held by individuals, by other companies, and by a state property fund. 6 This ownership structure presents a clear risk of opportunism toward outside shareholders. Although the te Is The corporate laws of emerging economies tend to reflect a different balance between enabling and restrictive provisions than do the laws of developed economies. The survey of advanced emerging markets in the Appendix shows that many of these countries have retained(in varying degrees)more substantive and procedural protections for outside shareholders and creditors than have developed economies such as the United States See Joseph Blasi Andrei Shleifer, Corporate Governance in Russia: An Initial Look, in 2 Corporate Governance in Central Europe and Russia: Insiders and the State, supra note at 78, 79-82(reporting a urvey of 200 privatized Russian companies that shows mean(median)employee ownership of 65%(60%)) For background on Russias privatization scheme, see Anders Aslund, How Russia Became a Market Economy 223-71(1995): Maxim Boycko, Andrei Shleifer Robert Vishny, Privatizing Russia 69-123 ( 1995); and Maxim Boycko, Andrei Shleifer Robert w. Vishny, Voucher Privatization, 35J. Fin Econ. 249, 256-65(1994)[hereinafter Boycko, Shleifer& Vishny, Voucher Privatization o I7 A recent example in which even sophisticated investors were hurt was a large stock issuance(roughly bling the number of outstanding shares) by the Komineft Oil Company, which had been among the most popular Russian stocks among foreign investors. The new shares were sold in early 1994, principally to the anagers and employees of Komineft, at far below market value, but the issuance was not publicly announced until six months later. The issuance heavily diluted the interests of large shareholders who invested in15 The corporate laws of emerging economies tend to reflect a different balance between enabling and restrictive provisions than do the laws of developed economies. The survey of advanced emerging markets in the Appendix shows that many of these countries have retained (in varying degrees) more substantive and procedural protections for outside shareholders and creditors than have developed economies such as the United States. 16 See Joseph Blasi & Andrei Shleifer, Corporate Governance in Russia: An Initial Look, in 2 Corporate Governance in Central Europe and Russia: Insiders and the State, supra note *, at 78, 79-82 (reporting a survey of 200 privatized Russian companies that shows mean (median) employee ownership of 65% (60%)). For background on Russia's privatization scheme, see Anders Aslund, How Russia Became a Market Economy 223-71 (1995); Maxim Boycko, Andrei Shleifer & Robert Vishny, Privatizing Russia 69-123 (1995); and Maxim Boycko, Andrei Shleifer & Robert W. Vishny, Voucher Privatization, 35 J. Fin. Econ. 249, 256-65 (1994) [hereinafter Boycko, Shleifer & Vishny, Voucher Privatization]. 17 A recent example in which even sophisticated investors were hurt was a large stock issuance (roughly doubling the number of outstanding shares) by the Komineft Oil Company, which had been among the most popular Russian stocks among foreign investors. The new shares were sold in early 1994, principally to the managers and employees of Komineft, at far below market value, but the issuance was not publicly announced until six months later. The issuance heavily diluted the interests of large shareholders who invested in 9 Corporate law in an emerging economy must address a broader set of goals, and operate within a far less evolved market and legal infrastructure, than corporate law in a developed economy. The paradoxical consequence is that the protective function of corporate law becomes more important precisely when fewer other resources are available to support that function. Consider first the goals of corporate law in emerging economies. The efficiency goal of maximizing the company's value to investors remains, in our view, the principal function of corporate law. But the balance between investor protection and the business discretion of corporate managers needed to achieve this goal will be quite different in emerging than in developed economies.15 In addition, in countries that are emerging from heavy state control of industry, a second central objective is the political goal of fostering public confidence in a market economy and in private ownership of large enterprises. The efficiency goal dictates that corporate law provide more investor protection in emerging than in developed economies, for several reasons. One is that insiders are likely to exercise voting control over most public companies. Such controlled ownership structures raise the obvious concern that the insiders, whether managers or controlling shareholders, will behave opportunistically toward other shareholders. In Russia, for example, the structure of mass privatization has led to the great majority of privatized public companies being controlled by management-led coalitions of managers and workers, which typically hold 51-75% of a company's voting shares. Outside shareholders -- including banks and investment (voucher) funds -- hold on average 15-20% of the voting shares, while the remaining shares are likely to be held by individuals, by other companies, and by a state property fund.16 This ownership structure presents a clear risk of opportunism toward outside shareholders.17 Although the