Corporate Governance

Abstract

The Review is pleased to give hospitality to CLARE group articles, but is not necessarily in agreement with the views expressed; responsibility for these rests with the authors. Members of the CLARE Group are M.Both those who are critical of the current structure of corporate governance, and those who support it, share a common set of prenaises. The corporation is owned by its shareholders: managers exert power and responsibility on behalf of their shareholders: corporate governance is a question of effective accountability to shareholders. If there are problems, they should be dealt with by making these mechanisms more effective. This article challenges that view. The principal-agent model bears no relationship to the way large companies are actually run. The attempt to bring reality in line with the model is one possible road to reform: another is to adjust the model to reality. Shareholders do not own large companies, in any ordinary sense of the word own. Firms like BT or BP are social institutions, owned by nobody. The distinction between plc and the owner managed limited company should be real, and not just titular. Corporate managers are not the agents of the shareholders, but the trustees of the assets of the corporation, which include its reputation, its distinctive capabilities, and the skills of the employees and suppliers. Their objective should not be to maximise shareholder value but to further the interests of the business.This account is probably a better description of the current state of British company law than the principal-agent model, but we advocate a new company statute to put the matter beyond doubt. Disposing of the fiction that executives are the agents of shareholders allows us to establish an effective system for achieving the key goals of corporate governance: freedom for managers to manage, combined with real accountability for their performance. We advocate a fixed four-year term for company chief executives, involving a wide ranging and searching review of effectiveness which would involve not only directors and shareholders but advisors, associated companies and employees.

Chairman of the board: demographics effects on role pursuit

“…As a result, the enterprise is required to provide a financial return on shareholder investment, which commentators as Kay and Silbertson (1995) point out, is the sole purpose of the publicly quoted company. Thus, two counter balancing pressures are prevalent on the board of the Anglo-American enterprise, the realising of profit for shareholders involving the exercising of governance disciplines for the protection of shareholder rights, and the nurturing of a proactive business culture for the purpose of financial and reputational gain.…”

Institutional Transplant and American Corporate Governance: The Case of Ferodyn

“…In the Anglo-American agency model of corporate governance posits the maximization of shareholder value as its goal. By contrast, managers in Continental Europe and Japan are inclined to view the development of the company as an end in itself; hence, they are charged with sustaining the interests of all stakeholder groups without giving priority to any particular group (Kay and Silbertson 1995). …”

The law and economics of the modern firm: a new governance structure of power relationships

“…Consequently, the firm cannot be treated as a set of individuals aggregated into a homogenous group of interests called "the owner." The firm must be recognized as "an end in itself ", which needs a model of corporate governance to give it existence that is independent from its shareholders (Kay and Silberston, 1995). The lawyer Ireland (1999, p. 56) rightly argues that "by facilitating recognition of the corporation not as an owner, nor as an object capable of being owned, but as a network of social and productive relationships, it would enable us to begin the process of reconceptualising the corporation and corporate property."…”

“…On the other hand, the governance of the modern firm should undertake the industry-specific aims. It appears that the agency and the shareholder value models should be replaced by the trustee model (4), which aims to balance the divergent interests of different current stakeholders linked to each other by long-term trust relationships (Kay and Silberston, 1995 ;Donaldson and Preston, 1995). It is time to reconsider the positive relationship between the firm's performance and the industrial operations, and to preserve corporate coherence (Rumelt, 1991 ;Teece et al, 1994).…”