Corporate Governance

Abstract

The debate in the literature on corporate governance seeks to examine the form that the governance of corporations takes and whose interests are protected or promoted by different structures and processes of governance. The literature offers not only theories that are descriptive or explanatory but also has a strong normative element in that it seeks to provide advice on what is the most appropriate or effective forms of governance. Shleifer and Vishny (1997:737) note that ‘the subject of corporate governance is of enormous practical importance’. What is sought is a direct relationship between theory and practice in the field of corporate governance. The difficulty of connecting theory to practice is a key theme in governance debates and the corporate governance literature gives us a chance to explore the topic. According to John Maynard Keynes: ‘the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist’ (Keynes 1933/1950:383). This chapter suggests that Keynes observation may be particularly true when it comes to the issue of corporate governance — the governing of firms and companies in modern economies.