This chapter takes off from the last chapter and looks at issues broader than mergers. Mergers are part of a broader market for corporate control and governance as mergers and acquisitions cause change in corporate control. Corporate control and governance take on special meaning in the U.S. because professional managers of most large corporations are not dominant shareholders of the company. In other words, there is separation between ownership and control. What makes managers work in the best interest of the shareholders? What are the mechanisms, which will ensure that shareholder interests are heeded by the managers when they decide on important investment and financing decisions? How does the U.S. system differ from its counterparts in other industrialized countries? These are some of the questions raised and answered in this chapter.

The chapter starts with simple definitions of some commonly terms used in the discussion; corporate control denotes the power to make investment and financing decisions. Corporate governance stands for the broader oversight structure of a corporation including the role of board of directors and shareholders’ actions to influence corporate decisions through the management. In essence, control is the day-to-day management and governance structure, which ensure that shareholders’ interests are kept in mind by the management when it makes important decisions. Financial architecture is the financial organization of the whole business; it is partly corporate control and partly corporate governance.

The chapter has four sections. The first section two sections discuss leveraged buyouts (LBO), spin-offs, and other restructuring of corporations as attempts to change corporate control. The well-known RJR-Nabisco buyout of the eighties is described at length to bring out the main lessons from the tale. The following section describes conglomerates and the pros and cons of this corporate phenomenon, which appears to have differing degrees of success in different countries. While they are not considered particularly successful and appear headed for extinction in the U.S., they are alive and well in many other countries. The next section compares the governance structures in the U.S., Japan, and Germany and points out the striking differences across these three highly successful industrialized countries. It appears that the governance systems and financial architecture of large industrialized companies have evolved in somewhat different ways in these countries. Each country's history and the evolution and sophistication of its financial markets seem to drive its corporate ownership structure and funding sources. These in turn appear to be the key factors determining the corporate governance.