From Minimization to Exploitation: Re-Conceptualizing the Corporate Governance Problem
CLPE Research Paper No. 16/2009
32 Pages Posted: 29 Jul 2009 Last revised: 28 Oct 2014
Date Written: July 29, 2009
Over the past three decades, the topic of corporate governance has become an increasingly high profile aspect of social-scientific scholarship, both in the Anglo-Saxon world and continental Europe. To a significant extent, however, the conceptual boundaries of the corporate governance debate have been set narrowly in accordance with the logic and language of the dominant 'agency' paradigm of governance. According to agency theory, the central 'problem' of corporate governance is the question of how to minimize the (harmful) consequences of the separation of ownership and control within public companies first identified by Berle and Means (1932), by reference to competitive market pressures coupled with market-based incentive and disciplinary mechanisms. In this article, we present an alternative interpretation of the corporate governance 'problem' premised on the logic and language of institution rather than the market, which we argue is both more empirically relevant and conceptually defensible than the dominant agency paradigm. To this end, we rely on existing (US) corporate law doctrine in conjunction with recent developments in the economic theory of the firm. According to the proposed 'institutional' model of corporate governance, the central governance 'problem' is that of how to exploit, rather than minimize, the (beneficial) consequences of the separation of ownership and control, so as to engender the development of a more dynamic and sustainable system of governance than that emanating from the free interplay of (stock) market forces.
Keywords: corporate governance, financial markets, law, USA, team production, employee voice
JEL Classification: D23, K22, L21
Suggested Citation: Suggested Citation