Corporate governance in transition economies

The transition economies in Central and Eastern Europe have privatized their economies at an unprecendented speed in the 1990s. The expectation was that under private ownership, formerly state-owned firms would act as dynamic, profit-oriented players driving economic restructuring and growth. Yet, the expectation has rarely been fulfilled, and lack of effective corporate governance is often seen as a culprit. Transfer of ownership to private hands does not suffice to create powerful incentives for managers to engage in the market economies along the objectives of the new owners. This articles outlines the methods of privatization used in Central and Eastern Europe, and their consequences in terms of corporate governance. Many stakeholders acquired shares in ownership, which enhances their ability to influence management and creates complex challenges for managers to coordinate influential stakeholders. Central and East European economies may thus develop unique forms of capitalism, especially with respect to corporate governance systems.