ERIM Research Clinic: Competing Perspectives on Comparative Corporate Governance
The separation of ownership and control in publicly listed firms has long functioned as the defining problem for the field of corporate governance. In these firms, managers are best situated to take the bulk of everyday corporate decisions, while (dispersed) shareholders are best able to bear residual risk without being actively involved in the firms they own. Because in making everyday decisions managers may serve their own interests over those of the shareholders, this separation of ownership and control results in so-called agency costs that constitute a deadweight loss economically and that therefore ought to be avoided as much as possible. As a result, the bulk of corporate governance research to date has focused on empirically assessing the effectiveness of various corporate governance practices, both at the firm and country levels of analysis, in mitigating the agency costs that result from the separation of ownership and control in publicly listed firms
In this lecture, I will try to move beyond this well known and widely accepted view of corporate governance in three distinctive ways (while also discussing some of my own ongoing research along the way). I will argue, first, that the dominant agency theoretical view of corporate governance is theoretically too narrow, and will demonstrate the usefulness of alternative conceptual frameworks in comparative corporate governance research. Second, I will argue that comparative corporate governance research will need to move beyond publicly listed firms in order to understand the specific corporate governance challenges and practices of other forms of enterprise organization. Third, I will argue that in order to secure the (long term) legitimacy of capitalism, corporate governance ought not exclusively be about parties inside the firm (i.e. managers, owners and employees), but also about the interests of parties outside the firm (e.g. customers, creditors, suppliers, third parties) that are vulnerable to the effects of welfare destroying decisions inside the firm.
Required reading: (if too much, please read the first 20 pages only).