FUNDAMENTALS OF CORPORATE GOVERNANCE
By Thomas Clarke and Marie dela Rama
SAGE Publications (2008) London; Thousand Oaks CA.
THE FUNDAMENTAL DIMENSIONS AND DILEMMAS OF CORPORATE
As the scale and activity of corporations has increased immeasurably, the governance of these entities has assumed considerable importance. Business corporations have an enduring impact upon societies and economies, and “how corporations are governed their ownership and control, the objectives they pursue, the rights they respect, the responsibilities they recognize, and how they distribute the value they create – has become a matter of the greatest significance, not simply for their directors and shareholders, but for the wider communities they serve” (Clarke and dela Rama 2006:xix). These concerns originated with industrial capitalism, but have become accentuated with the extensive internationalization of corporate activity in recent decades, the global deregulation of financial markets, and a growing awareness of the damaging economic and social consequences when corporate governance failures occur.
Corporate governance has competing definitions, but in Margaret Blair’s estimation encompasses the “the whole set of legal, cultural, and institutional arrangements that
determine what publicly traded corporations can do, who controls them, how that control is exercised, and how the risks and returns from the activities they undertake are allocated” (1995:3). These expansive dimensions of corporate governance were narrowly translated in recent decades with the increasing ascendancy of financial markets and intellectual domination of agency theory into an almost obsessive concern for the problems of accountability and control involved in the dispersal of ownership of large listed corporations, and a rigid focus on the mechanisms that orientate managers towards delivering shareholder value (Dore 2000; Froud et al 2000; Davis 2005).
The insistent focus of corporate governance on boards, CEOs and shareholders – oriented almost obsessively towards financial markets has not served the discipline well. This approach not only narrows the dimensions of corporate governance to a restricted set of interests, as a result it has a very limited view of the dilemmas involved in corporate governance (Jurgens et al 2000; Aguilera and Cuervo-Cazurra 2004; Deakin 2005). There are competing corporate governance systems in the market based Anglo-American system; the European relationship based system; and the relationship based system of the Asia Pacific (Clarke 2007). This diversity of corporate governance systems is based on historical cultural and institutional differences that involve different approaches to the values and objectives of business activity. Furthermore the OECD business advisory group stressed the importance of strategic choice in the determination of governance systems “Entrepreneurs, investors and corporations need the flexibility to craft governance arrangements that are responsive to unique business contexts so that corporations can respond to incessant changes in technologies, competition, optimal firm
organization and vertical networking patterns…To obtain governance diversity, economic regulations, stock exchange rules and corporate law should support a range of ownership and governance forms” (1998:4). (This injunction was subsequently forgotten by the OECD and other international agencies in their insistence in implying the AngloAmerican model as the only reasonable way forward for other countries and regions to adopt).
Superiority of any one system of governance cannot be accepted in this way (O’Sullivan 2001; Lane 2004; Clarke 2007). Confidence and trust in the Anglo-American system after the market crashes of 1987 and 2001 cannot be assumed, even if the recovery was quicker than expected (Lorsch 2005). Essentially the US...
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