Financialization and Corporate Governance

Abstract:     
This paper argues that corporate governance, and Anglo-American corporate governance in particular, is in need of radical rather than ameliorative reform. Among the things that the current economic and financial crisis has highlighted is the deeply dysfunctional nature of the highly financialized corporate culture and system of governance that has developed in recent decades, particularly in places such as the US and the UK. In order to develop a better understanding of the nature of this financialized form of governance, the paper briefly sketches the rise, retreat and recent resurgence of financial power and traces its impact on the way in which corporations have been run. En route, it examines the critiques of financialization and financialized corporate governance developed by writers such as Thorstein Veblen, Adolf Berle, R H Tawney, Harold Laski and John Maynard Keynes in the opening decades of the twentieth century. Against this backdrop, the paper suggests that the simplistic conception of corporate governance as an ‘agency problem’, a straightforward question of investor protection, is itself a product of resurgent financial power and needs to be discarded. Corporate governance reform, it argues, is a complex, multi-faceted matter which demands that we rethink the way in which we conceptualise the large public corporation and radically revise our understanding of what corporate governance is about. The crisis in the financial system and the measures that governments around the world are being forced to take to try to rescue it, the paper concludes, may provide us with a historic opportunity to do this. In trying to map ways forward, it advocates a return to these earlier critiques for guidance as to the direction in which we should be heading.

Number of Pages in PDF File: 35

Keywords: financialization, corporate governance, Berle, Veblen, shareholder value

JEL Classification: B00, B15, B25

working papers series