Corporate Governance: Accountability in the Marketplaceby Elaine Sternberg
Businesses and corporations are not the same thing: not all corporations are businesses, and most businesses are not corporations. Whereas 'business' designates a particular objective, 'corporation' designates a particular organisational structure.Corporate governance refers to ways of ensuring that corporate actions, assets and agents are directed at achieving the corporate objectives established by the corporation's shareholders (as set out in the Memorandum of Association or comparable constitutional document). Many criticisms of corporate governance are based on false assumptions about what constitutes ethical conduct by corporations, and confusions about what corporate governance is. Protests against takeovers, 'short-termism', redundancies and high executive remuneration are typically objections to specific corporate outcomes, not criticisms of corporate governance. Many misguided criticisms of the Anglo-Saxon model come from confusing corporate governance with government: it is a mistake to criticise corporations for not achieving public policy objectives, and for not giving their stakeholders the rights and privileges commonly associated with citizenship Some criticisms of the traditional Anglo-Saxon model of corporate governance are justified. There are serious practical obstacles that prevent shareholders from keeping their corporations and corporate agents properly accountable. Though commonly praised, the German and Japanese systems are considerably less capable of achieving the definitive purpose of corporate governance than the Anglo-Saxon model is. Neither is designed to protect, nor typically used for protecting, property rights. The increasingly popular stakeholder theory is also incapable of providing better corporate governance. Stakeholder theory is incompatible with all substantial objectives and undermines both private property and accountability. Regulations that attempts to improve corporate governance by limiting shareholders' options, and reducing their freedom to control their own companies as they choose, is necessarily counterproductive. They way to respond to flaws in current Anglo-Saxon corporate governance mechanisms is to improve the accountability of corporations to their ultimate owners, preferably by having corporations compete for investment, and institutional investors for funds, in part on the degree of accountability they offer to their beneficial owners. In this book Dr Elaine Sternberg brings much needed clarity to the debate on corporate governance which has become hopelessly confused between the positive and normative aspects of company objectives and how they should be achieved. First she seeks to clarify exactly what corporate governance is by identifying its essential nature and distinguishing it from concepts with which it is frequently confused.
- Institute of Economic Affairs
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