Enhancing Firm Sustainability Through Governance

Enhancing Firm Sustainability Through Governance

The Relational Corporate Governance Approach

Corporations, Globalisation and the Law series

Francesco de Zwart

This important book presents a fresh perspective on corporate governance and how the relationship between governance mechanisms, processes and variables should be understood through a new unifying theory: the relational corporate governance approach. The approach acts as a tool for analysing the governance health of individual companies and suggests the actions required to remedy sub-optimal governance arrangements. A wide selection of articles, empirical studies and literature have been translated into an original theory which complements existing law and economics models of the firm.

Chapter 3: Governance variables in practice

Francesco de Zwart

Subjects: business and management, corporate governance, international business, law - academic, corporate law and governance

Extract

This chapter presents the results of the empirical studies of the effectiveness of governance variables comprising Key Field No 4 and examined in Chapters 7–10 of the relational approach. Those chapters combine the results of these empirical studies with the shareholder primacy interrelationship scheme to present a relational effect path for each governance variable. This path depicts the identity and number of the governance factors affected by a governance variable and the direction of the effect. The results of the relational approach are contained in two operational Tables – the Coverage Table and, ultimately, the Relational Proximity Table. The aim of these Tables is to present the results of the assessment of the relative importance or ‘relational proximity’ of individual governance variables in reducing (or increasing) agency costs and enhancing (or reducing) the long-term efficiency and survival or sustainability of the for-profit firm in a transparent manner. Similarly visible is the relational approach’s assessment of the interrelationships between individual governance factors and, in turn, the 39 governance variables in achieving these ends. Thus, the results for the relational effect path for each governance variable are presented ahead of the Key Fields to add explanation and analysis to those Fields.

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