Corporate governance as a reform movement

Abstract

Purpose – The purpose of this paper is to consider the way in which agency theory has crowded out other approaches to understanding the governance of modern businesses. The paper rescues the meaning and context which informed the American corporate governance reform movement originally and demonstrates how the economically predicated agency approach became dominant in academic considerations of corporate governance. Design/methodology/approach – Both primary and secondary sources were considered in a Foucauldian history of ideas approach. Findings – Other approaches to corporate governance have been pushed out of the mainstream of corporate governance discourse by an economic model which excludes many of the key issues which informed the notion originally. Practical implications – Dominant academic attitudes to corporate governance have occluded other ways in which the governance of corporations can be understood. Originality/value – Previous accounts of corporate governance have ignored the alternative approaches represented before agency theory became dominant.

Industrial democracy and corporate governance: two discourses of reform in liberal-market economies

“…broader aspects of political economy. First coined as an expression by Eells (1960), corporate governance is both a firm-external and internal concern, a matter of both public and private government (Eells, 1962;Mees, 2015).…”

“…Jensen and Meckling's seminal statement of agency theory appeared during the time of the first major corporate governance debates in the US which arose after the spectacular failure of the Penn Central Transportation Company in 1970 (Daughen and Binzen, 1971;Sobel, 1977;Cheffins, 2013Cheffins, , 2015Mees, 2015). Eells's work analysing the business corporation from a political-economy perspective seemed largely to have been forgotten by this time.…”

“…Reversing the direction of influence which had traditionally applied in such matters, the British approach to public company governance reform would become increasingly American in style and focus during the Prime Ministership of Thatcher and her Conservative successor John Major, with British public companies appointing an increasing number of non-executive or independent directors, establishing audit and nominating committees, and pursuing other comparable ways of improving firm performance through formal mechanisms of governance (Mees, 2015). Any suggestions of industrial democracy were now seen as too radical (much as the terms of reference of the Bullock committee had described the proposed adoption of codetermination).…”

“…As Milton Friedman had argued since the 1960s (Friedman, 1962), corporations existed to make money, and the main claimants on that profit had been intended to be shareholders historically, not management elites or workers. The new American economic approach to corporate governance that first arose in the 1970s quickly became principally focused on maximising returns to shareholders, not issues of democratisation (Mees, 2015). Works councils and worker directors seemed quite outside the bounds of the new discourse of American corporate governance reform.…”

“…This new concern was for the first time labelled 'corporate governance', but was articulated in a manner which displaced previously mainstream narratives that equally centred on debates regarding the proper governance arrangements to be adopted by listed firms. The label 'corporate governance' was the umbrella under which a particular kind of business reform was advanced, replacing one discursive formation with another in a classical Foucauldian manner (Mees, 2015).…”