The governance of privatized firms: authority, reposnisbility and disclosure1

In any market economy, a fundamental question is how to make management accountable to shareholders and also to the requirements of law. This paper raises selective, critical issues of corporate governance that are particularly relevant to problems of the accountability of boards of directors to their shareholders in transition economies. These issues include the separation of ownership and control and the duties of directors; the need for disclosure given that separation; and the corporate charter as a vehicle for the direct participation of shareholders in governance. The paper suggests that one of the best models of corporate governance that transition economies can use is that employed by the leveraged‐buyout (LBO) and venture capital funds operating in the West. It argues that weaknesses in corporate governance may undermine the entire privatization process. Economics and law are too often seen as separate disciplines. In reality, they come together in transition economies perhaps with greater impact than elsewhere.