Document Type : Research Paper

Authors

• Seyyed Ali Kahangi Shahreza ¹
• Zahra Rokhsarizade ²
• mohsen sadeghi, ³

¹ M.A. in Criminal Law and Criminology, University of Judicial Sciences and Administrative Services, Tehran, Iran.

² M.A. in Private Law, Shiraz University, Iran.

³ Assistant Professor of Private Law Department, Faculty of Law and Political Science, University of Tehran, Tehran, Iran

Abstract

The principle of independence versus unity of management and ownership in commercial enterprises represents a foundational debate in corporate governance, reflecting divergent legal philosophies and institutional practices across jurisdictions. This study conducts a comparative legal analysis of Iranian and U.S. corporate law to evaluate the efficacy, structural challenges, and normative implications of these competing paradigms. By adopting a qualitative, analytical-doctrinal methodology, the research examines the historical evolution, conceptual frameworks, and practical outcomes of corporate governance models in both systems, with a focus on their alignment with global governance standards and dynamic capital market demands.
In Iran, corporate governance remains entrenched in the Continental European model, emphasizing the unity of management and ownership. This approach, historically influenced by French commercial law, mandates that directors hold equity stakes in the company, theoretically aligning their interests with shareholders. However, the study identifies critical structural flaws in this model, including concentrated ownership patterns, opaque informational practices, and inadequate accountability mechanisms. These issues exacerbate agency costs, entrench majority shareholder dominance, and marginalize minority stakeholders. Legal provisions requiring directors to hold qualifying shares, intended to incentivize responsible management, paradoxically restrict access to external expertise and create barriers to professional governance. Furthermore, Iran’s regulatory framework lacks robust safeguards against conflicts of interest, enabling managerial opportunism and undermining investor confidence.
By contrast, the U.S. corporate governance system, epitomizing the Anglo-American model, institutionalizes the separation of ownership and control through precise regulatory mechanisms and market-driven accountability. Post-Enron reforms, particularly the Sarbanes-Oxley Act (2002), redefined governance standards by mandating independent director majorities on boards, enhancing audit committee autonomy, and enforcing rigorous disclosure requirements. Stock exchange regulations, such as those by the NYSE and NASDAQ, further operationalize independence by disqualifying directors with material financial or familial ties to the company. These measures mitigate agency problems, promote transparency, and align managerial actions with shareholder welfare. The U.S. system’s adaptability to financial crises—evidenced by iterative reforms after the 2008 global crisis and COVID-19 pandemic—highlights its resilience and capacity to balance stakeholder interests through iterative, evidence-based policymaking.
The study underscores the theoretical underpinnings of these models. Proponents of managerial independence argue that it curtails majority shareholder expropriation, reduces informational asymmetry, and fosters equitable decision-making through impartial oversight. Independent directors, devoid of material ties to the company, are posited to prioritize organizational welfare over factional interests, thereby enhancing board efficacy and financial reporting quality. Conversely, advocates for the unity of ownership and management contend that shared equity stakes align incentives, reduce agency costs, and ensure managerial accountability to residual claimants. However, empirical evidence from Iran reveals that concentrated ownership often perpetuates “tunneling” practices, where controlling shareholders divert resources at the expense of minority investors, while regulatory gaps enable earnings manipulation and suboptimal capital allocation.
The research further analyzes the systemic consequences of each paradigm. In Iran, the fusion of ownership and control stifles market dynamism by deterring external investment and professional management. Restrictions on non-shareholder directors limit access to specialized expertise, hindering strategic innovation and operational efficiency. Conversely, the U.S. emphasis on independent governance, while not without critiques of over-regulation and boardroom inefficiency, correlates with higher investor confidence, liquidity, and market resilience. The study identifies critical disparities in disclosure practices: U.S. mandates for real-time financial reporting and auditor independence contrast sharply with Iran’s fragmented and often retrospective disclosures, which impede stakeholder oversight.
The study concludes with prescriptive recommendations for Iran’s corporate governance reform. Foremost, it advocates institutional separation of management from ownership by abolishing mandatory director shareholding requirements, thereby attracting professional managers and diversifying board expertise. Enhancing transparency through standardized, real-time financial disclosures and independent auditing mechanisms is deemed essential to reducing informational asymmetry. Integrating independent directors into board structures—particularly in audit and nomination committees—would mitigate conflicts of interest and align Iranian practices with global benchmarks. Additionally, fostering shareholder activism through enhanced minority rights and derivative action provisions could counterbalance majority dominance. Legislative reforms should prioritize adopting a principles-based governance framework, akin to the U.S. Model Business Corporation Act, to ensure flexibility and adaptability to market evolution.
In parallel, the study acknowledges contextual challenges. Iran’s economic sanctions, political economy constraints, and underdeveloped capital markets necessitate phased reforms. Hybrid models, blending localized practices with incremental adoption of Anglo-American norms, may offer pragmatic pathways. For instance, the gradual introduction of independent directors in listed companies, coupled with training programs to build governance literacy, could ease transition costs. Strengthening regulatory bodies like the Tehran Stock Exchange to enforce compliance and penalize governance violations is critical to institutionalizing accountability.
Ultimately, this comparative analysis illuminates the dialectic between legal tradition and economic pragmatism in corporate governance. While Iran’s historical preference for unity reflects civil law influences and centralized economic planning, globalization and capital market integration demand convergence toward transparency and accountability. The U.S. experience demonstrates that regulatory rigor, coupled with market discipline, can reconcile shareholder primacy with broader stakeholder welfare. For Iran, systemic reform is not merely a legal imperative but a strategic necessity to attract investment, enhance competitiveness, and participate meaningfully in the global economy.

Keywords

• Corporate Governance
• Separation of ownership and control
• Unity of Management and Ownership
• Managerial Independence
• Anglo-American Model
• Continental European Model

Main Subjects

• Private Law