1,721,085 research outputs found
Fixing the Corporation: a Management or a Governance issue?
Full text linkIn this chapter I first review the current state of play in corporate governance debates, highlighting challenges to the dominant agency view. Following a critique of the economic reasoning supporting shareholder primacy I consider two contrasting approaches to fixing the problems of labour engagement and capital commitment that affect economic performance. These approaches—which could loosely be called stakeholding—differ in the emphasis given to the roles of management on the one hand and governance on the other in addressing the identified problems. I analyse them here in respect of their logical consistency and also their feasibility. A management-oriented approach is unlikely in itself to be sufficient but it may help in creating the underlying institutional supports needed for governance reform
Corporate Governance and Why it Matters
No full textThis chapter introduces the idea of governance and proceeds to a structured discussion of what corporate governance means and why it matters. The discussion is divided into three themes: the first deals with enterprise—long-run commitments that firms make in terms of investment and innovation; the second deals with complementary inputs, in particular labour and the commitment of employees; the final theme is politics, where the external effects of company actions are discussed in a context where governments increasingly withdraw from roles traditionally considered public responsibilities. These themes are used to illustrate some of the major debates in governance today, not just in terms of a distinction between shareholder and stakeholder approaches but within each of these as well. From this overall perspective we consider each of the individual chapters and comment on their distinctive ideas and how they relate to the overall themes
Strategic Control and the Role of Executive Compensation in the Innovation or Financialization of Firms
Full text linkEconomists look to the middle of the 20th century as a period wherein the U.S. economy, driven by “Old Economy” firms, produced greater economic equality and strong economic growth. Since the 1980s, in spite of the development of “New Economy” firms, there has been a trend toward greater inequality, employment insecurity, and reduced productivity. The shift is in part a result of the ongoing financialization of the firm, which entails incentivizing top executives to adopt resource allocation strategies to boost stock market yields rather than plough profits back into innovative enterprise. As a result, top executives risk eroding or destroying productive capabilities built over decades. The broader financialization of the U.S. economy affects both “Old Economy” firms active during the post-war years and “New Economy” firms which grew to prominence toward the end of the 20th century.Financialization generally occurs when firms complete an historical transition from “retain-and-reinvest” to “downsize and distribute”: instead of retaining corporate revenues to reinvest in productive capabilities, top executives use their power to allocate resources to engage in layoffs and divestments which raises cash to increase distributions to shareholders in the form of stock buybacks and dividend payments. In this thesis I argue that financialization as a mode of value extraction exists in tension with innovation as a mode of value creation. The Theory of Innovative Enterprise (TIE) posits that innovation is the process of producing higher quality, lower-cost products than previously were available. As key members of the firm’s strategic control, top executives support innovation by using their power to allocate economic resources to satisfy the social conditions of innovative enterprise: strategic control, organizational integration, and financial commitment. Executives, assuming they have the ability to invest in innovation, may face significant pressure and incentives to financialize. Financialized resource allocation by definition threatens financial commitment as a social condition of innovative enterprise. The tension that arises between the need to invest in innovation and demands to financialize was increased by the rise of an active “market for corporate control” that developed during the 1980s through U.S. stock exchanges. The resulting imbalance of power over resource allocation decisions means that certain corporate insiders and outsiders may be positioned to extract value from the firm in excess of that to which they contributed.I argue that the tension between innovation and financialization is revealed through an historical analysis of the firm’s changing strategic control. The strategic control of firms tending to “retain and reinvest” firm resources into an innovative strategy generate economic value that, following a strategic shift, serves as a basis for corporate financialization. As a process of value extraction, financialization has negative impacts on income, employment, and productivity of the economy. To contribute to the development of the TIE and the financialization debate, I conduct case studies of an “Old Economy” and a “New Economy” firm, rooted in the TIE, that operated in the Chemicals and Medical Device industries. I provide insight into the ways in which top executives, as evidenced by their strategic choices, invested in innovation or transitioned the firms to financialization. In a third essay, I apply the findings of my case studies to the problem of executive compensation. I find that, in lacking a TIE, and notwithstanding an almost systemic failure to measure executive pay correctly, both proponents and critics of high executive pay in the U.S. are unable to determine whether stock price changes that drive the compensation of executives in their efforts to produce “shareholder value” are driven by innovation, speculation, or manipulation. My findings from each case study support the “shareholder value” thesis as an important explanation for corporate financialization, a reflection of the ideological dominance of agency theory in framing the corporate governance debate. “Maximizing shareholder value”, as a still-dominant ideology of corporate governance in the U.S. argues that firms should incentivize executives to use their power to allocate resources to boost stock prices, including by manipulating them with open market stock buybacks. My findings suggest that policy makers should advance, in particular, regulations that ban stock buybacks as a means of stock price manipulation, stock-based pay as the primary form of compensation given to top executives, and reform compensation disclosure rules to ensure that actual realized gains, and not “fair value” measures, are the standard measure of executive compensation for the purposes of compensation disclosure
Perspectives of the assessments of the feasibility of monetary integration of the West African monetary zone countries
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Corporate Governance in Contention
No full textCorporate governance is a complex idea that is often inappropriately simplified as a cookbook of recommended measures to improve financial performance. Meta studies of published research show that the supposed benign effects of these measures - independent directors or highly incentivised executives - are at best context-specific. There is thus a challenge to explain the meaning, purpose, and importance of corporate governance. This volume addresses these issues. The issues discussed centre on relationships within the firm e.g. between labour, managers, and investors, and relationships outside the firm that affect consumers or the environment.The essays in this collection are the considered selection by the editors and the contributors themselves of what are seen as some of the most weighty and urgent issues that connect the corporation and society at large in developed economies with established property rights. The essays are to be read in dialogue with each other, giving a richer understanding than could be obtained by shepherding all contributions into a single mould. Nevertheless taken together they demonstrate a shared sense of deep concern that the corporate governance agenda has been and still is on the wrong track. The contributors, individually and collectively, identify in this compendium both a research programme and a platform for change
Investment, Growth and Employment: Perspectives for Policy
No full textInvestment - in both facilities and know-how - is essential for growth. Economists try to understand the forces that determine investment, but investment behaviour is unruly; often the term animal spirits is used to explain the resulting volatility. This volume presents studies to explain international investment behaviour and assess its impact on growth and jobs. The authors also examine policy measures to reverse the climate of low investment that has characterised recent decades.The contributors examine how well standard models of investment work, the role of finance constraints, the effect of risk and uncertainty, the impact of alternative forms of corporate governance, the forces shaping the adoption of new technology, the impact of foreign direct investment, the effect of investment on the NAIRU and the causal structure of investment and growth. Editors introductions to the different sections of the book provide comprehensive overviews of the main theories of investment, the impact of investment on growth and employment and examine the main questions raised for policy makers
How including labour can improve corporate governance
No full textInvolving labour in decision-making has the potential to improve corporate governance, even in adversarial industrial relations systems such as the ones found in Anglo-American economies. Think of corporate governance as an information problem with potentially dramatic distributive consequences: how do shareholders and other interested parties to the activities of a company know that management is working in their best long-term interest? Without labour on board as a vocal actor in corporate decision-making, profits, often defined as short-term gains, will trump other considerations, while a system in which labour holds veto powers is likely to lead to lower profits, ceteris paribus. If both labour and business are represented in decision-making, however, the information asymmetries that each faces are significantly alleviated by the presence of the other, which leads to more balanced outcomes. Representatives of business – financial institutions, suppliers, or other firms in a similar industry know relatively little about how a company is run, but a lot about how the company is doing in its key product markets. Labour, on the other hand, may have only a tenuous grip on competitive strategy, but is highly cognisant of how the company is run – it has to deal , after all, with the problems that arise. A board system, not unlike the north-west European one, where representation is shared among these two key actors, thus forces management to be transparent and take into account the preferences of both
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