Two Cultures Shaping the Corporate Governance Debate

International Research Journal of Applied Finance, Vol. 3, No. 6, June 2012

15 Pages Posted: 9 Oct 2012

See all articles by Donald Margotta

Donald Margotta

Northeastern University - D'Amore-McKim School of Business - Finance and Insurance Area

Date Written: June 12, 2012

Abstract

This paper discusses an alternative to the conventional finance framework for analyzing corporate governance problems in the modern corporation. That framework, going back to at least 1932, suggests that governance problems arise because managers control the corporation and may use their positions to enrich themselves at the expense of shareholders who are not able to effectively monitor them. Alternatively, this paper suggests that some governance problems arise because major shareholders think differently about certain issues than do corporate managers, and these differences in thinking arise from their different “cultures.” The paper focuses on institutional shareholders and discusses how their culture, rooted in finance theory, may conflict with corporate managers whose cultures are based largely on legal theory. Several examples illustrate how shareholders and managers may come to legitimate, but opposing views on certain corporate governance issues, and the paper stresses that these opposing views do not assume that either side acts with bad motives.

Keywords: Corporate Governance, Market Efficiency, Business Judgment Rule

Suggested Citation

Margotta, Donald, Two Cultures Shaping the Corporate Governance Debate (June 12, 2012). International Research Journal of Applied Finance, Vol. 3, No. 6, June 2012, Available at SSRN: https://ssrn.com/abstract=2158846

Donald Margotta (Contact Author)

Northeastern University - D'Amore-McKim School of Business - Finance and Insurance Area ( email )

Boston, MA 02115
United States
617-373-4739 (Phone)

HOME PAGE: http://web.cba.neu.edu/~dmargotta/

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