The setting of a coalition contract between controlling shareholder, managers and employees: how to mix incentive and political logics?

The leveraging of control is the possibility for the controlling shareholder to lower her direct participation in capital through a convergence of financial and economic interest with other shareholders or would-be shareholders in the firm. In this paper, the setting of a coalition contract is done by awarding stocks to managers and employees. This article analyses it, on one side, in a rationale of economic incentive and, on the other side, in a rationale of political coalition of the initial dominant shareholder with managers and employees. It is shown that the two logics are not opposite but complementary. The sharing of the private benefits between members of the new coalition is at the heart of a new implicit contract. The initial controlling shareholder 'buys' efficient efforts by awarding a stake of capital to managers or employees, but also by allowing them to share a part of the private benefits and to join a new dominant group. Even if the effort function of the employees is not productive nor observable, a targeted broad diffusion of new stocks may still respect the coherence between an economic incentive rationale and a political substitution rationale. At the end, we introduce the idea of political management of the leverage of control.