Deutsche Telekom, German Corporate Governance, and the Transition Costs of Capitalism

Thursday, January 1st, 1998 at 12:00 am by Jeffrey N. Gordon
Jeffrey N. Gordon, Deutsche Telekom, German Corporate Governance, and the Transition Costs of Capitalism, 1998 Colum. Bus. L. Rev. 185

In November 1996, Deutsche Telekom AG, the government-owned German telephone company, sold common stock representing approximately 25 percent of the company in a global stock offering that raised approximately DM 20 billion ($13 billion), the largest equity offering ever in Europe. In selling off this equity stake, the German government (i.e., the Federal Republic) had a number of motives. First, the sale was an important step in converting a government-run telephone monopoly into a nimble competitor in the emerging European and world telecommunications market. Second, the sale was part of an effort to establish an entrepreneurial culture at DT. Further, a major objective of the offering was to promote a “shareholding” culture among German citizens. There is apparently widespread sentiment among political actors that the system of bank-centered finance is hindering German economic development and thus the desire to develop stock market channels for equity finance. Initial public offerings are rare in Germany (only 10 in all of 1994), and the stock markets are famously illiquid and volatile. Among other things, this makes it difficult to imitate the U.S. pattern of high-tech development in which venture capital specialists nurture a startup with an eye toward a lucrative exit via an initial public offering. Banks are not seen as very effective in performing the venture capital role, so a shareholder culture might make possible alternative modes of finance for potential sources of innovation and growth.

Author Information

Professor of Law and Co-Director, Center for Law and Economic Studies, Columbia University