Theories of Corporate Governance

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Theories of Corporate Governance
The philosophical foundations of corporate governance

Edited by Thomas Clarke

Contents

Preface Acknowledgements ‘Introduction: Theories of Governance – Reconceptualizing Corporate Governance Theory After the Enron Experience’ Thomas Clarke PART 1 ECONOMIC FOUNDATIONS

ix xi 1

31 34 45

‘The Managerial Revolution in American Business’ Alfred D. Chandler Jr ‘The Impact of the Corporation on Classical Economic Theory’ Adolf A. Berle PART 2 AGENCY THEORY

55 58 64 78

‘Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure’ Michael C. Jensen and William H. Meckling ‘Separation of Ownership and Control’ Eugene F. Fama and Michael C. Jensen ‘Agency Theory: An Assessment and Review’ Kathleen M. Eisenhardt PART 3 MANAGERIAL HEGEMONY

93 96 108

‘Directors: Myth and Reality’ Myles L. Mace ‘Pawns or Potentates: The Reality of America’s Corporate Boards’ Jay W. Lorsch and Elizabeth MacIver PART 4 STEWARDSHIP THEORY

115 118

‘Toward a Stewardship Theory of Management’ James H. Davis, F. David Schoorman and Lex Donaldson

vi

C O NTE NTS

PART 5

EXTERNAL PRESSURES

135 138

‘The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change’ Amy J. Hillman, Albert A. Cannella Jr and Ramona L. Paetzold ‘Institutional and Strategic Choice Perspectives on Board Involvement in the Strategic Decision Process’ William Q. Judge Jr and Carl P. Zeithaml ‘A General Theory of Network Governance: Exchange Conditions and Social Mechanisms’ Candace Jones, William S. Hesterly and Stephen P. Borgatti

149

159

PART 6

STAKEHOLDER THEORY

171

‘Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century’ Margaret M. Blair ‘The Stakeholder Corporation: A Business Philosophy for the Information Age’ Thomas Clarke

174 189

PART 7

THEORIES OF CONVERGENCE

203 206

‘Corporate Leadership in a Globalizing Equity Market’ Michael Useem ‘Corporate Governance and Globalization: Is There Convergence Across Countries?’ Mauro F. Guillén ‘Capital Unbound? The Transformation of European Corporate Governance’ Martin Rhodes and Bastiaan van Apeldoorn ‘The Very Uncertain Prospects of . . . Global . . . Convergence in Corporate Governance’ Douglas M. Branson

223 243

259

PART 8

CRITIQUE OF SHAREHOLDER VALUE

287 290 304

‘Maximizing Shareholder Value: A New Ideology for Corporate Governance’ William Lazonick and Mary O’Sullivan ‘Corporate Governance, Property and Democracy: A Conceptual Critique of Shareholder Ideology’ Ewald Engelen

C O NTE NTS

vii

PART 9

POST-ENRON THEORIES

319 322

‘What Enron Means for the Management and Control of the Modern Business Corporation: Some Initial Reflections’ Jeffrey N. Gordon ‘What Caused Enron? A Capsule Social and Economic History of the 1990s’ John Coffee Index

333

355

Preface

It is a pleasure to be asked to contribute a preface to this magisterial work. Its importance and usefulness lie in the way in which Professor Clarke has selected his material to present a comprehensive survey of the theoretical foundations on which the practice of corporate governance has been, if not always consciously, based. He has done this by allowing those who have played a key part in the thinking on corporate governance to have their say. More than that his excellent Introduction explains how the different governance theories relate to each other and how they have contributed to the development of corporate governance in practice. Each of the separate theories discussed throws light on some aspect of governance, but is limited to that aspect alone and thus cannot capture the theoretical basis of corporate governance as a whole. The trusteeship model arrives perhaps at the nearest we yet have to a general governance theory, since it addresses the basic question of corporate purpose in relation to...
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