Corporate Governance Theorising: Limits, Critics

Corporate governance theorising: limits, critics and alternatives (Letza, Kirkbride, Sun, Smallman, et.al) the authors discuss a spectrum of governance concepts and frameworks analyzed from the standpoint of a cross-section of governance models. The authors deserve credit for discussing how governance initiatives have failed over time, specifically in the areas of Enron and Tyco disasters of governance and oversight. What is fascinating about this article is that the authors successfully discuss the use of a variety of governance models in the context of shareholder interest and the ethics of CEO pay. Refreshingly the authors don't seek to defend the exponential rise in CEO pay relative to the flat or negative pay rates of employees but instead discuss the ethicacy of those that seek to protect these exorbitant pay raises. The use of the principle-agent model, stakeholder model, and corporate governance models provide various perspectives on the role of governance in organizations. The discussion of how economics has progressed from perceiving people as utility-maximizing beings to more social ones is also illustrative of the change in thought pervading governance theories as well.

Key Learning Points

There are many excellent learning points in this article, with one of the most significant being the realization on the part of economists that people are not utility-maximizing units of production, they actually have social concerns, influences and values as well. This is a revolutionary concept in the field of economics specifically and corporate governance in general. This trend is exacerbated by the growth of social networks (Bernoff, Li, 36) and the recognition that economic decisions are far more complex than they initially appear to be from a purely economic analysis perspective (Letza, Kirkbride, Sun, Smallman, 26). A second significant lesson learned is that the fallacy of an efficiency market model often becomes counterproductive over time. Instead of concentrating purely on efficiency, the article brings up the excellent point that there also must be trust. In fact one can infer from the article in the context of governance that trust is actually more of an enabler, or accelerator. There is much less friction in governance when trust has been established. The concepts of the Stakeholder Model and managerial freedom with accountability are also crucially important for the engraining of ethics within an organization. This is also inferred from the points made specifically about unitary hierarchal relationships and corporate governance models. The article concludes with an assessment of the various frameworks and their role in governance strategies.

Statements Agreed & Disagreed With

There are many statements that are factually correct and seek to define the truth about the role of governance to unjustly protect CEO salary levels. The statement "What is worse is that it legitimizes the self-serving managerial behaviors" in the context of CEO pay. This statement I agree with as CEOs have used governance to rationalize giving themselves exceptionally large raises without accountability and governance in place. Conversely the statement "Furthermore, markets or organisational hierarchies are assumed to provide genuine alternative optimal or appropriate governance structures" in the context of the discussion at this point in the paper is inaccurate. Organisations in fact produce governance structures that are highly inefficient and lack the necessary framework and foundation to accomplish these goals. Instead there is the need for continually turning trust into an accelerator and engraining governance into companies, not legislating it from the outside. This is the fatal error of the statement shown.

Critical Analysis

This is a well-researched peer review article that has the potential to deliver entirely new governance frameworks with additional effort on the part of the authors. Rather than just cataloging these governance frameworks, the authors need to also create entirely new governance frameworks as well. What is also a major omission from this paper is the lack of focus on how to engrain or integrate governance into the culture of organisations.

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