Corporate Governance Adrift

Corporate Governance Adrift

A Critique of Shareholder Value

The Cournot Centre series

Michel Aglietta and Antoine Rebérioux

Recent corporate governance scandals have brought to the fore the inherent contradictions of a capitalism dominated by financial markets. This challenging book by Michel Aglietta and Antoine Rebérioux argues that capitalism’s basic premise – that companies must be managed in the sole interest of their shareholders – is incongruent with the current environment of liquid markets, profit-hungry investors and chronic financial instability. The authors advocate rather that a company should be managed as an institution where common objectives are developed for all stakeholders, and that this democratic principle should be extended to the management of collective savings to reduce macro-financial instability. These two conditions, they contend, could make contemporary capitalism a vehicle for social progress.

Chapter 7: Financial Crises and the Economic Cycle

Michel Aglietta and Antoine Rebérioux

Subjects: business and management, corporate governance, economics and finance, corporate governance, financial economics and regulation, industrial organisation


From spring 2000 to mid-autumn 2002, Western stock markets fell by between 50 per cent and 80 per cent. Business investment declined everywhere. Debts mounted dangerously. Those businesses most in debt were caught in the noose of an increase in credit spreads, drying up debt financing, and the reticence of banks to lend. The fall of stock market prices brought about vertiginous capital losses on business assets which had been acquired at exorbitant prices. The annihilation of billions of dollars of artificially inflated wealth shook the credulity of savers to the core. Our position is markedly different from the claim that the financial crisis that swept the Western world is an accident flowing from a cocktail of fortuitous events, clandestine frauds and passing failures to adapt to financial liberalization. The preceding chapter established the relations which we now tie together in order to reach an understanding of the economic cycle generated by finance. The interlinking of the financial logic of markets and of a regime of corporate governance controlled by the stock market is a dynamic system that oozes instability. In the present chapter, we show that the financial cycle is endogenous in economies where stock market valuation is the pivot of business strategies. A fruitful way to treat the problem is to take a certain historical distance, which economists almost always neglect. Yet the history of financial crises overlaps that of capitalism. Kindleberger (1996), who has spent a lifetime studying these problems, provides a magnificent...

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