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 4: Key Field No 1: The application of the principal theories of the firm to the relational approach

Francesco de Zwart

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


This chapter examines Key Field No 1 – the Application of the Principal Theories of the Firm to the Relational Approach. More particularly, the chapter first examines the theoretical basis of the relational approach and, in particular, the governance theory or model underpinnings of the ‘weighing mechanism’ introduced in Chapters 1 and 2 comprising: ● the three relational axes of good governance; ● the eight governance factors; and ● the two interrelationship schemes. This chapter will demonstrate that the weighing mechanism or process constitutes the relational approach’s theoretical representation of the nexus. As part of the weighing of insider and outsider interests, the relational approach seeks to complement and add explanatory power to five of the existing principal ‘law and economics’ theories and models of the firm – the nexus of contracts, agency theory, the shareholder primacy model, the stakeholder model and the director primacy model. These principal theories and their interrelationship with the weighing mechanism of the three relational axes of good governance, the eight governance factors (that is, the eight recurring or underpinning aims or purposes which ‘good governance’ seeks to achieve drawn from the four Key Fields) and the two interrelationship schemes will thus be examined here.

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