Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors,managers,shareholders, creditors, auditors, regulators, and otherstakeholders) and specifies the rules and procedures formaking decisions in corporate affairs.
While it islegitimacy that gives a board theauthority to impose its will on management, it is credibility that makes a board effective and value creating.
Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society.
Freeman is the acknowledged father of the stakeholder approach. HisStrategic Management: a Stakeholder Approach (1984) introduced the concept of stakeholders, all of those individuals or groups other thanshareholders (or owners) who have a stake in the particular decision or action of companies. The book proved to be a landmark in the development ofstakeholder theory, a theory of management and business ethics that emphasises morality and ethicality in managing organisations. This theory was a departure from the dominant Anglo-Saxon approach that grants priority to shareholders and independence of management. Nowadays, the stakeholder approach is mentioned in virtually every publication on corporate governance and corporate social responsibility. By interacting with their stakeholders and societal context, organisations are able to establish their (social) responsibility system, enforced in part through laws and regulations but also increasingly voluntarily through company codes and business principles. Thestakeholder theory is applied within various scientific disciplines ranging frombusiness to law, from politics to health.
Berle andMeans’ book remains the point of departure and the central reference for reflection about corporate governance. It has given rise to differing, even contradictory interpretations, which explains how it could be used in support of opposing theories, notably on the question of the relationship betweenshareholders and managers. Thus, it has been used to argue in favor of the shareholder conception that is now dominant, even though it contains, as we shall see, a conception of the corporation that is radically different to the contractualist view that underpins the current doctrine of shareholder primacy.
Olivier Weinstein (2012). "Firm, property and governance: From Berle and means to the agency theory, and beyond]."Accounting, Economics, and Law, Vol. 2 [2012], Iss. 2.
