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Archive for May, 2016

Overview of the main Corporate Governance topics

Included as a preface in their forthcoming book “Understanding the company: Corporate Governance and Theory”, Barnali Choudhury and Martin Petrin offer a brief summary (1) of academic debates on the topic, mainly regarding:

  • The nature of the firm. A debate that started at the Roman times and gained intensity in the XIXth century. Although scholars and courts have given up in their effort to define the “nature of the firm”, two opposite views dominate the debate; on the one hand, the nexus of contracts model describes the firm as a set of contracts between different constituencies which so aim to produce goods and services, and thus constitute a firm. The Director Primacy theory extends this view, defining the firm not as a nexus of contracts but having a central nexus, the board of directors. Corporate law consequently intends to reduce the cost of negotiating, settling the concepts and basis for it. The nexus of contracts theory is connected with the Shareholder Primacy theory and the idea that shareholders´ interest should precede other constituencies´ones, and that corporations have no social or moral duties. (A recent decision by Google based on moral or social reasons recently generated some criticism as for the possibility that shareholders could sue directors for having breached their fiduciary duties, (2)).

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