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The philosophical foundations of corporate governance
Edited by Thomas Clarke
Fama and Michael C. Jensen ‘Agency Theory: An Assessment and Review’ Kathleen M.Contents Preface Acknowledgements ‘Introduction: Theories of Governance – Reconceptualizing Corporate Governance Theory After the Enron Experience’ Thomas Clarke PART 1 ECONOMIC FOUNDATIONS ix xi 1 31 34 45 ‘The Managerial Revolution in American Business’ Alfred D. Davis. Jensen and William H. F. Eisenhardt PART 3 MANAGERIAL HEGEMONY 93 96 108 ‘Directors: Myth and Reality’ Myles L. David Schoorman and Lex Donaldson . Meckling ‘Separation of Ownership and Control’ Eugene F. Lorsch and Elizabeth MacIver PART 4 STEWARDSHIP THEORY 115 118 ‘Toward a Stewardship Theory of Management’ James H. Chandler Jr ‘The Impact of the Corporation on Classical Economic Theory’ Adolf A. Agency Costs and Ownership Structure’ Michael C. Mace ‘Pawns or Potentates: The Reality of America’s Corporate Boards’ Jay W. Berle PART 2 AGENCY THEORY 55 58 64 78 ‘Theory of the Firm: Managerial Behaviour.
Convergence in Corporate Governance’ Douglas M. Cannella Jr and Ramona L. Paetzold ‘Institutional and Strategic Choice Perspectives on Board Involvement in the Strategic Decision Process’ William Q. Global . . Judge Jr and Carl P. Property and Democracy: A Conceptual Critique of Shareholder Ideology’ Ewald Engelen . . Hillman. Blair ‘The Stakeholder Corporation: A Business Philosophy for the Information Age’ Thomas Clarke 174 189 PART 7 THEORIES OF CONVERGENCE 203 206 ‘Corporate Leadership in a Globalizing Equity Market’ Michael Useem ‘Corporate Governance and Globalization: Is There Convergence Across Countries?’ Mauro F. Guillén ‘Capital Unbound? The Transformation of European Corporate Governance’ Martin Rhodes and Bastiaan van Apeldoorn ‘The Very Uncertain Prospects of . Albert A.vi C O NTE NTS PART 5 EXTERNAL PRESSURES 135 138 ‘The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change’ Amy J. William S. . Borgatti 149 159 PART 6 STAKEHOLDER THEORY 171 ‘Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century’ Margaret M. Branson 223 243 259 PART 8 CRITIQUE OF SHAREHOLDER VALUE 287 290 304 ‘Maximizing Shareholder Value: A New Ideology for Corporate Governance’ William Lazonick and Mary O’Sullivan ‘Corporate Governance. Hesterly and Stephen P. Zeithaml ‘A General Theory of Network Governance: Exchange Conditions and Social Mechanisms’ Candace Jones. .
C O NTE NTS vii PART 9 POST-ENRON THEORIES 319 322 ‘What Enron Means for the Management and Control of the Modern Business Corporation: Some Initial Reflections’ Jeffrey N. Gordon ‘What Caused Enron? A Capsule Social and Economic History of the 1990s’ John Coffee Index 333 355 .
pressed for time and responding to immediate political and public concerns. The pace has been set by the introduction of governance codes. This is a vain hope. In addition. however.Preface It is a pleasure to be asked to contribute a preface to this magisterial work. if not always consciously. and by the history and culture of the countries concerned. therefore. but at least this book provides access to the relevant writings on corporate governance. executive management was in charge and shareholders were dispersed. to changes in structure and process. Beyond all this. the balance of power is also shifting in countries where banks are the primary source of corporate finance. Its importance and usefulness lie in the way in which Professor Clarke has selected his material to present a comprehensive survey of the theoretical foundations on which the practice of corporate governance has been. What matters in practice is the way in which individuals put these structures to work. their selection and their motives count. given the inherent complexity of the subject. Each of the separate theories discussed throws light on some aspect of governance. The trusteeship model arrives perhaps at the nearest we yet have to a general governance theory. The Introduction. but their precise forms are less so. at the same time. Forms of corporate governance are shaped nationally by their economic. While these specific changes relate to countries where capital is raised through the issue of shares. we would call a halt to codes. Governance structures are important. since it addresses the basic question of corporate purpose in relation to society. so people. based. Insights from the social sciences. This in turn developed into the present position whereby the concentration of shares in the hands of institutional investors has increased their power in relation to boards and management and. the balance of power between the lead players in the corporate field has shifted in the last half-century. have their place alongside those from economics. against which to analyse and assess the theoretical foundations on which so much has been built so rapidly. At the start. Ideally. laws and regulations in this field to give time for theory to catch up with practical experience and illuminate it. we are studying a process in motion and the practice of corporate governance has developed dramatically in the last two decades. He has done this by allowing those who have played a key part in the thinking on corporate governance to have their say. but is limited to that aspect alone and thus cannot capture the theoretical basis of corporate governance as a whole. in the sense that they have to be clear and understood to be effective. More than that his excellent Introduction explains how the different governance theories relate to each other and how they have contributed to the development of corporate governance in practice. boards of directors were generally weak. however. Here the focus is now on the governance of . Another feature of complexity is the diversity of governance systems and processes around the world. political and legal backgrounds. clearly illustrates the difficulty of arriving at any general theory of corporate governance. Gathering investor pressure on the directors of under-performing companies. first nationally and then internationally. by their sources of finance. drawn attention to their responsibilities in matters of governance. led to a strengthening of boards at the expense of management. These codes have usually been drawn up in reaction to events and have been composed by practitioners. One feature of its complexity is that companies combine economic and social roles.
For practitioners and policy-makers it should be compulsory reading. a point which is relevant to the issue of convergence internationally. This chimes with my own view of the overall purpose of corporate governance. At whatever level corporate governance is studied and reviewed. Sir Adrian Cadbury May 2004 . as was demonstrated by regulatory reactions to Enron. The forces driving these changes have been mainly market based. the development of corporate governance. National codes were followed by international ones. A further source of movement and of complexity relates to the wider implications of corporate governance. They were designed to encourage investment to flow where it could be most productive by raising national corporate governance standards to acceptable international levels. Their contribution to better governance was real. which sets corporate governance squarely in its historical and theoretical context. corporations and society. whose aims were more inclusive. For students of the subject it is a one-stop shop. however. and it is one which varies country by country. but limited to the purposes for which they were designed.x P R E FA C E banks themselves and in turn on their responsibilities for the governance of the companies which they finance. and have relevance for. as the bridge between the providers of corporate funds and those who put them to work. there can be no doubt about the value of Professor Clarke’s book in bringing together and clarifying the theories which have contributed to. which is to align as nearly as possible the interests of individuals. It leads on. That again is a moving picture. to another question of balance. Governance codes began by focusing on the role of boards of directors. this time the balance between market and statutory regulation.
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