New Directions for Corporate Governance: A Comparative Capitalisms Perspective

What the paper says

Initial analyses of corporate governance focused on the apparently competing interests of those who own shares in companies and those who manage those companies. This focus was, perhaps, appropriate when the owners of shares in many large and prominent USA-listed companies were many and dispersed. However, globalization has heralded the emergence of other internationally important companies with different ownership structures, especially state-owned companies. These different corporate forms as well as dissatisfaction with the focus on maximizing shareholder returns that initial definitions of corporate governance privileged have led to broader, more encompassing definitions and analyses. The OECD recently defined corporate governance as the principles that help to promote an environment of trust and accountability that, in turn, leads to long-term investment as well as business and financial stability, sound economic growth and social inclusion. Such a definition facilitates comparisons of different corporate-governance systems, and evaluations of those systems in terms of various aspects of organizational performance (and not just shareholder returns). We build on this definition, combining it with insights from the comparative-capitalisms literature to show how different corporate-governance systems give rise to inherently different types of company that vary in their purpose, relative focus on profits, tendencies to invest in training for various groups of employees, and stewardship of the natural environment. Contrasting corporate-governance systems, therefore, co-constitute very different types of companies that have varying levels of performance across a range of important measures. We also extend the comparative capitalisms literature by highlighting five interrelated trends. First, research has highlighted the need to differentiate between types of investor in specific organizational settings to understand better organizational decision making. Second, the comparative-capitalisms framework draws attention to configurations of causal conditions, highlighting how interactions amongst causal conditions influence organizational decision making, and illustrating that any single causal condition does not have a uniform influence regardless of other institutional factors. Third, recent related research has re-examined who the main owners of shares are in some countries, finding that new investors, especially asset management funds, which often individually and collectively own significant numbers of shares in companies, may have too few incentives to monitor the performance of any particular company. Fourth, studies have illustrated how some large companies incorporate in one jurisdiction and list in another, impeding the ability of researchers and policy makers to discern who the key shareholders in such firms are, and impugning the assumption within the comparative-capitalisms literature that large companies incorporate and list in their country of origin, and that country’s corporate-governance system co-constitute firms “from” that country. Finally, these trends in comparative-capitalisms research suggest that a more explicit recognition of its similarities to a critical realist perspective would open up new directions in research that focus on identifying the causes and generative mechanisms of phenomena, and the role of meaning and interpretation in understanding institutional influences.