The Corporate Governance Dimension

The Corporate Governance Dimension

Copyright: © 2015 |Pages: 17
DOI: 10.4018/978-1-4666-6469-2.ch009
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Abstract

The main purpose of this chapter is to present the definition of corporate governance, why corporate governance matters (especially from the viewpoint of the formative connections of the AGG Model), what is expected from corporate governance from a public policy perspective, and finally, the chapter shows some important governance aspects related to the model of “open innovation.” It attempts to present the most relevant theoretical and practical aspects of corporate governance that can contribute to a proper understanding of the concept of corporate governance as a connection between the architectural design, operation, and growth of enterprises, and its alignment to the architecture, operation, and growth of markets.
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1. Introduction

In his 2006 book, entitled The Theory of Corporate Finance, particularly in his introductory chapter, entitled ‘Corporate Finance’, Prof. Jean Tirole (from the Institut d’Economie Industrielle at the University of Social Sciences in Toulouse, France) begins by stating that in 1932 Berle & Means (1932) wrote a pathbreaking book documenting the separation of ownership and control in the United States. They showed that shareholder dispersion creates substantial managerial discretion, which can be abused.

This, according to Tirole (2006), was the starting point for the subsequent academic thinking on corporate governance and corporate finance. Subsequently, a number of corporate problems around the world reinforced the perception that managers are unwatched. Most observers are now seriously concerned that best managers may not be selected, and that mangers, once selected, are not accountable.

Gillan (2006) observed that the amount of corporate governance research has increased dramatically during the last decade. A search of Social Sciences Research Network – SSRN (www.ssrn.org) papers (at the end of 2013) containing the term ‘corporate governance’ results in more than 10,700 papers. For the sake of comparison of what this number represents, the term ‘corporate structure’ results in a few more than 4,300 papers in that network, the term ‘corporate finance’ results in a few more than 3,000 papers, and the term ‘corporate growth’ results in a few more than 2,600.

So, the purpose of Chapter 9 is to present the definition of corporate governance, why corporate governance matters (especially from the viewpoint of the formative connections of the AGG Model), what it is expected from corporate governance from a public policy perspective, and, finally, it shows some important governance aspects related to the model of ‘open innovation’.

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2. Background

The governance of corporations has attracted much attention in the last two decades. Increased media coverage has turned ‘transparency’, ‘managerial accountability’, ‘corporate governance failures’, ‘weak board of directors’, ‘hostile takeovers’, ‘protection of minority shareholders’, and ‘investor activism’ into household phrases (Tirole, 2006).

In parallel, Tirole (2006) reminds us that as severe agency problems continued to impair corporate performance both in companies with strong managers and dispersed shareholders (as is frequent in Anglo-Saxon countries) and those with a controlling shareholder and minority shareholders (typically of the European corporate landscape), repeated calls have been issued on both sides of the Atlantic for corporate governance reforms.

As a result, there is also a burgeoning, scholarly literature on corporate governance, as reflected in the numerous conferences and special issues of academic journals on this topic and the development of specialized journals in this area (e.g. Corporate Governance: An International Review and the Journal of Management and Governance).

This phenomenon, observed by Mike Wright, Donald S. Siegel, Kevin Keasey, and Igor Filatotchev in their introductory chapter for The Oxford Handbook of Corporate Governance (2013), is also accompanied by the growing number of graduate courses and programs relating to corporate governance in business and law schools. As these authors stress, until now there has not been a definite source that integrates and synthesis academic studies of corporate governance, and that is exactly the purpose of their handbook.

But what is significant to this book is the fact that the governance dimension in general (reviewed in Chapter 8), and the corporate governance (dealt in this chapter) and the information technology governance (treated in the next chapter) in particular, are the key tools connecting the architecture of enterprises and the architecture of markets (dealt in Chapters 5 and 6) to the growth of enterprises and to the growth of markets (treated in Chapter 11), as it is suggested by the AGG Model outlined by this book.

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