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Corporate Governance

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  • Kay, John
  • Silberston, Aubrey

Abstract

Both those who are critical of the current structure of corporate governance, and those who support it, share a common set of prenaises. The corporation is owned by its shareholders: managers exert power and responsibility on behalf of their shareholders: corporate governance is a question of effective accountability to shareholders. If there are problems, they should be dealt with by making these mechanisms more effective. This article challenges that view.The principal-agent model bears no relationship to the way large companies are actually run. The attempt to bring reality in line with the model is one possible road to reform: another is to adjust the model to reality. Shareholders do not own large companies, in any ordinary sense of the word own. Firms like BT or BP are social institutions, owned by nobody. The distinction between plc and the owner managed limited company should be real, and not just titular. Corporate managers are not the agents of the shareholders, but the trustees of the assets of the corporation, which include its reputation, its distinctive capabilities, and the skills of the employees and suppliers. Their objective should not be to maximise shareholder value but to further the interests of the business.This account is probably a better description of the current state of British company law than the principal-agent model, but we advocate a new company statute to put the matter beyond doubt. Disposing of the fiction that executives are the agents of shareholders allows us to establish an effective system for achieving the key goals of corporate governance: freedom for managers to manage, combined with real accountability for their performance. We advocate a fixed four-year term for company chief executives, involving a wide ranging and searching review of effectiveness which would involve not only directors and shareholders but advisors, associated companies and employees.It is better that property should be private, but that man should make it common in use …. it is the task of the legislator to see that the citizens become like that. Aristotle

Suggested Citation

  • Kay, John & Silberston, Aubrey, 1995. "Corporate Governance," National Institute Economic Review, National Institute of Economic and Social Research, vol. 153, pages 84-107, August.
    • Handle: RePEc:cup:nierev:v:153:y:1995:i::p:84-107_7
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    Cited by:

    1. Cosh, Andy & Hughes, Alan, 1997. "Executive remuneration, executive dismissal and institutional shareholdings," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 469-492, July.
    2. Tylecote, Andrew & Ramirez, Paulina, 2006. "Corporate governance and innovation: The UK compared with the US and 'insider' economies," Research Policy, Elsevier, vol. 35(1), pages 160-180, February.
    3. M. Ali Choudhary & J. Michael Orszag, 2003. "Are Performance Conditions On Executive Options Driven By Fundamentals?," School of Economics Discussion Papers 1103, School of Economics, University of Surrey.
    4. Conyon, Martin J. & Girma, Sourafel & Thompson, Steve & Wright, Peter W., 2001. "Do hostile mergers destroy jobs?," Journal of Economic Behavior & Organization, Elsevier, vol. 45(4), pages 427-440, August.
    5. Kevin Levillain & Blanche Segrestin, 2019. "From primacy to purpose commitment: How emerging profit-with-purpose corporations open new corporate governance avenues," Post-Print hal-02290622, HAL.
    6. Josef C. Brada, 1996. "Privatization Is Transition--Or Is It?," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 67-86, Spring.
    7. Antonio Tencati & Laszlo Zsolnai, 2009. "The Collaborative Enterprise," Journal of Business Ethics, Springer, vol. 85(3), pages 367-376, March.
    8. Levillain, Kevin & Segrestin, Blanche, 2019. "From primacy to purpose commitment: How emerging profit-with-purpose corporations open new corporate governance avenues," European Management Journal, Elsevier, vol. 37(5), pages 637-647.
    9. Zingales, Luigi & Dyck, Alexander, 2002. "The Corporate Governance Role of the Media," Working Papers 184, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    10. John Armour & Simon Deakin & Suzanne J. Konzelmann, 2003. "Shareholder Primacy and the Trajectory of UK Corporate Governance," Working Papers wp266, Centre for Business Research, University of Cambridge.
    11. Marc J. M. Bohmann & Vinay Patel, 2022. "Informed options trading prior to FDA announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1211-1236, July.
    12. Siti Sakinah Azizan & Rashid Ameer, 2012. "Shareholder activism in family-controlled firms in Malaysia," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(8), pages 774-794, August.
    13. Virgile Chassagnon, 2011. "The Network Firm as a Single Real Entity: Beyond the Aggregate of Distinct Legal Entities," Journal of Economic Issues, Taylor & Francis Journals, vol. 45(1), pages 113-136.
    14. Simon Learmount, 2002. "Theorizing Corporate Governance: New Organizational Alternatives," Working Papers wp237, Centre for Business Research, University of Cambridge.
    15. Mishra, Chandra S., 2022. "Does institutional ownership discourage investment in corporate R&D?," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
    16. Thomas, Randall S. & Cotter, James F., 2007. "Shareholder proposals in the new millennium: Shareholder support, board response, and market reaction," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 368-391, June.
    17. Roger Spear, 2004. "Governance in Democratic Member‐Based Organisations," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 75(1), pages 33-60, March.
    18. Armour, John & Deakin, Simon, 2002. "Insolvency and employment protection: the mixed effects of the Acquired Rights Directive," International Review of Law and Economics, Elsevier, vol. 22(4), pages 443-463, December.
    19. Helen Short & Kevin Keasey & Mike Wright & Alison Hull, 1999. "Corporate governance: from accountability to enterprise," Accounting and Business Research, Taylor & Francis Journals, vol. 29(4), pages 337-352.
    20. Karpoff, Jonathan M. & Malatesta, Paul H. & Walkling, Ralph A., 1996. "Corporate governance and shareholder initiatives: Empirical evidence," Journal of Financial Economics, Elsevier, vol. 42(3), pages 365-395, November.
    21. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.
    22. Ibo, Sunday Adekoya & Olasupo, Rachael Ifeoluwa, 2024. "Normative Accounting Theory and Investment Decision in Selected Listed Manufacturing Companies of Consumer Goods in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(8), pages 2196-2212, August.
    23. Silke Machold & Pervaiz Ahmed & Stuart Farquhar, 2008. "Corporate Governance and Ethics: A Feminist Perspective," Journal of Business Ethics, Springer, vol. 81(3), pages 665-678, September.

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