Identifying Significant Shifts in Operating Environments: The Role of Corporate Governance

Corporations possess unique legal attributes that provide shareholders with asymmetric advantages and protections in the marketplace. Created and sanctioned by the state, corporations remain abstractions until they are populated by people—shareholders, managers, and directors—and commence their activities. Those who populate the corporation, and those who engage with it, construct their own understandings of what corporations are and how they should behave. Of key importance in this chapter are those who understand corporations in three different ways: legal, economic, or political entities. These mental constructions and meanings shape the activities, behaviors, and operational goals of the corporation as it engages with its external environment. One persistent characteristic of that external environment is change, which sometimes can be slight and incremental and sometimes significant and disruptive. This chapter suggests that the recognitions and perceptions of long-term environmental change are viewed differently by those who understand the corporation as either an economic or a political entity. It recommends that successfully recognizing and confronting long-term change requires corporate governance that is future-orientated, strategically flexible, and diverse in terms of understanding the nature and purpose of the corporation.