difference in choice of corporate governance models among advanced industrial preconditions for strong securities markets"?2 Roe adds politics to the list. The relationship between corporate governance and foreign ownership of the banks in With respect to higher corporate governance, political intervention is. governance practices with political connections at all levels, and Firm's Corporate Governance Quality and Political Connection Variables.
The resulting country studies powerfully illustrate the close relationship between growth and governance challenges — in everything from extractives, to infrastructure or energy. Consider the following excerpts with the countries anonymised: The fundamental obstacles to promoting inclusive economic growth are primarily political in nature and not due to a lack of technical expertise or knowledge about what needs to be done.
Dependence on primary commodities provides scope for elites to enrich themselves without needing to implement reforms that improve the long-term productive capacity of the economy. Patronage politics distorts the economy and diverts public investment away from more productive sectors. Inertia is politically safer than reform.
- What is the relationship between governance and economic growth?
- There was a problem providing the content you requested
Politically-connected economic elites have increasingly established monopolies e. This involved going into the nitty gritty of particular sectors and constraints to find openings that build on things as they are, rather than how donors might like them to be. Donors sometimes imply that growth will automatically follow if poor countries develop a set package of institutions such as secure property rights, rule of law, anti-corruption measures, free media, democratic elections etc.
As Dani Rodrik argues: Few, if any countries have grown rapidly because of across-the-board institutional reforms… Rapid growth is feasible in institutional environments that look quite distorted, and policy remedies can look quite unorthodox by the standards of the conventional rulebook… The bottom line is that successful growth promoting reforms are pragmatic and opportunistic. Donors need to reflect this in how we work. The programme brings together diverse players as and when they share incentives and appetite for reform — whether among government, the private sector or civil society.
For example, the programme took a calculated approach to who it could work with in the Nigerian Government, avoiding the notorious state oil corporation and finding pockets of reformers elsewhere. More work is needed to secure the poverty reduction benefits.
But getting this far is progress and could help attract further investment.
How often do governance staff in-country talk to local firms, entrepreneurs or investors that have walked away? Jensen, ; Hansmann and Kraakman, This view is perhaps best illustrated by the well-known statement of Hansmann and Kraakman The triumph of the shareholder-oriented model of the corporation over its principal competitors is now assured […] the standard model earned its position as the dominant model of the large corporation the hard way, by out-competing during the post-World War II period the three alternative models of corporate governance: This functionalist understanding has been challanged from at least two angles.
These studies suggest that the rise of shareholder value can be explained by the interaction of factors such as exogenous shocks, strategic action and academic idea production in the corporate governance field see also Fligstein, ; Davis, Thus, the emergence of this new set of theoretical assumptions was not a functionalist response to competitive pressures, but rather reflected shifting power relations in the corporate governance field.
Agency theory, developed in the s e. Jensen and Meckling,lived up to these aspirations and could thus give academic credence and legitimacy to the claims made by propagators of shareholder value Fligstein, ; Veldman, The initiation of changes in corporate governance theory and practice to some extent lead to changes in global and local power relations and social relations.
However, the original ideas are also remoulded and sometimes decoupled from practice when meeting local resistance. Such a pattern is replicated in various national corporate governance systems, for example in Germany, Denmark and Japan e. It is also observable in a variety of organizational and regulatory settings e. In order to understand and critique the functionalist thesis, one arguably has to understand the ways in which its dominating ideas have come to permeate regulation and behaviour at various levels global, national, organizational.
Two contributions to this special issue explore just this: Yuliya Ponomareva and Jenny Ahlberg engage with the discussion about the diffusion of corporate governance normativity on the organizational level, while Thomas Clarke addresses the question of convergence or divergence of corporate governance by looking at convergent forces emanating from financial forces and contrasting these with the ongoing vitality of institutional differentiation.
Clarke argues that the current push towards shareholder primacy leads to an obsession with shareholder value, manifested in financial performance measures and stock options, increasingly short term business horizons, and a move away from the use of retained earnings to finance raised on the equity market.
A focus on the strengths of a functional diversity of corporate governance systems would mean that corporate governance as a field would need to embrace the variety of governance systems and multiple equilibria, rather than strive for the development of one optimal model.
The idea of shareholder value is also central to the work provided by Ponomareva and Ahlberg this issue. These family firms are generally recognized as characterized by a higher degree of social embeddedness and a specific type of logic, in which such factors as family control and esteem are prioritized at the expense of financial return. They find that in family-controlled corporations, adopting rationalized governance practices such as independent board members becomes a way to counteract an image of family firms as conservative and unprofessional and thus to appear pleasing in the eyes of stakeholders.
The advantages of conforming, they argue, lies primarily in the benefits that can be reaped by being held in good esteem by outsiders e. They also suggest that these pressures are not unquestioningly adopted, but run up against competing ideas of what corporate governance should accomplish, both at the organizational and at the national level. The conceptualization of the corporate form At the heart of many critiques of contemporary corporate governance theory is an extended notion of the modern public limited liability corporate form.
As described by CiepleyIrelandand many others, the corporate form has undergone a number of fundamental transformations since its emergence.
The earlier versions of the corporate form as we know it today existed essentially as institutions with an intrinsically public purpose, with their corporate privileges such as perpetuity and limited liability premised on the ability to further the interests of the public or state in addition to those of the shareholders. The modern corporate form, characterized by perpetuity, and further attributions of ownership, agency, rights and protections is based on an extremely specific understanding of its legal status that only emerged by the end of the 19th century Johnson, The effects of the commonly recognized lack of proper understanding of the public limited liability corporate form have been amplified by further shifts in how it has come to be understood in various domains — specifically in corporate governance.
Political Determinants of Corporate Governance: Political Context, Corporate Impact
Although the basic legal idea of what is now understood as the public corporation has remained fairly constant since the end of the 19th century, the content of much of the adjacent regulation affecting corporations e. Jensen and Meckling, This move away from an understanding of the public limited liability corporate form as a highly specific construct with special privileges Biondi et al.
Matthew Lampert this issue takes such critiques of the status of the corporate form to hand. If we accept that it is a simple category mistake to attribute personhood, moral personhood, or anthropomorphic ideas to corporations, we find that CSR looks for ethics in the wrong place.
That corporate governance is a question of politics rather than ethics also becomes apparent in the roundtable discussion on the nature and purpose of the corporation that took place at the Centre for Philosophy and Political Economy in December between Stephen Dunne, Sam Mansell, Martin Parker and Jeroen Veldman this issue.
While the discussion briefly addresses the question of corporate ethics, it is mostly concerned with the legal status of corporations and swiftly moves to a discussion of political regulation and governance. The format of the discussion itself also highlights the agonistics that mark any political conversation about corporations. Yet opening up a political contestation of the corporate form, as Lampert and the roundtable seek to do, must first of all grapple with the ways the corporate form is always already shaped by political projects.
For Kean Birch this issueit is the neoliberal project that has most profoundly shaped the corporate form. Contrary to many suppositions, Birch argues, neoliberalism is not opposed to the monopolistic tendencies coming from the corporate form.
He carefully dissects neoliberalism as an analytical category, a political economic project as well as an epistemic community.
Birch characterizes neoliberalism as a distinct epistemic and social order, different from other forms of liberalism. This, in turn, creates an incentives structure for management to pursue shareholder value at all costs, influencing markets and societies negatively. One strategy, also suggested by Martin Parker in the roundtable discussion this issueis to look elsewhere, for example to social movements, for a political contestation.
What is the relationship between governance and economic growth? | World Economic Forum
Certainly, it will also require exploring subjectivities within a wider social field; subjectivities not so closely tied to neoliberalism as entrepreneurial subjectivity and the corporate form are cf. Beverungen and Case, At the same time, as Birch insists, it also requires contestation at the level of epistemic order, which implies an extensive research program on the political economy of corporate governance. The ideology of shareholder value continues to play an important role in shaping most corporate governance systems, establishing a normativity that regulators, standard setters, and corporate elites must take into account in their communication, rule making and organizing.
Although there is plenty of divergence and localized resistance to be found in existing corporate governance theory and practice, the normativity embedded in academic theorizing and in regulatory practice continues to provide the means to dominant groups in the domain of corporate governance to align the distribution of wealth with their interests.
As such, the theory and practice of corporate governance is a key marker for understanding contemporary political economy. In line with these findings, we suggest three perspectives for further research. The distributive effects of the orientation towards shareholder primacy A first aspect future research could take into account is the broad distributive effects of conceptions of the corporation and of corporate governance.
The notion of what corporate governance is and who it is for Veldman and Willmott, prioritizes particular legal and economic claims over others. There is, as of yet, little consideration of how this distribution of wealth might be produced and legitimated by particular ideas of the corporation and its governance or by the contract as a key building block of a capitalist legal architecture Mitropoulos, Because corporate governance is of fundamental importance to all constituencies involved in the process and for broad sections of society who are outside this process, we propose to focus specifically on the rules and regulations that currently reinforce a financialized conception of the corporation, a shareholder value-oriented conception of corporate governance, and, ultimately, the reinforcement of a political economy that prioritizes the interests of a very small subsection of the constituencies that have a direct or indirect claim on the modern corporation.
The diffusion and dominance of new ideas of corporate governance We found that existing varieties of corporate governance, both in terms of national variety Clarke, this issue or in terms of organizational-level variety in ownership and governing logic Ponomareva and Ahlberg, this issueprovide valid and interesting alternatives to the existing normativity.
One further promising approach to study such crowding out would be to look at the diffusion of corporate governance codes and practices. Although the language of such changes is adopted in external communication for legitimacy purposes, this does not necessarily entail major, substantive changes in how corporations organize or are made to organize by national governments Westphal and Zajac, ; Bednar, ; Larsson-Olaison, The conceptualization of the corporate form A third line of further inquiry is the conceptualization of the corporate form.
The political economy of corporate governance
Lampert this issue shows how the perspective of agency theory of the corporation as a collection of contracts, agents, or individuals seriously undermines the legitimacy of its legal status and problematizes the claims that can be made about the corporation from a moral and legal perspective. Understanding the corporate form as a recently developed and constantly evolving legal construct, it becomes possible to take a close look at specific design features such as corporate personhood, corporate ownership, and limited liability.
More specifically, it has been argued that the specific way in which legal theory conceives of the separate legal entity means that this entity has been understood as independent of shareholders or other stakeholders Ireland, ; Veldman and Parker, From this position, claims can be derived that transcend the claims of separate constituencies such as shareholders Biondi et al. Rather, corporate governance is about understanding and regulating the modern corporation as a very specific kind of institution, which pre-structures the conditions for contracting relations between individuals and the corporation as a legal entity Parkinson et al.
Exploring the context, contents, causes and effects, and the forces that uphold corporate governance as a stream of social, economic and legal theory, as well as its associated practices, can support and develop a critical conversation on the relation between corporate governance as a theoretical and practical field and the political economy this field creates and upholds.
It is, then, not just the normativity of corporate governance theory that needs to be studied, but also the institutional setting in which the corporate form is conceived and operates Aglietta and Reberioux, ; Ireland, Framing the corporation in this broader socio-economic setting will, we hope, provide the basis for new interdisciplinary research in critical management and organization studies.
The contributions in this volume provide an excellent introduction to develop this research. A critique of shareholder value.