Rethinking Corporate Governance The Forming of Operative and Financial Strategies in Global Corporations
The Forming of Operative and Financial Strategies in Global Corporations
Chapter 2: Towards a theory of corporate governance
Many economists addressing governance issues have used a combination of the classic theory of the firm and agency-like theories as their conceptual platform; therefore, in their writings, they have foremost adopted a financial perspective that ultimately is rooted in ideas about an ‘effective’ capital market. Those researchers have often concentrated their efforts on the functioning of that market, expressing less interest in its connections to (individual) corporations. In the theoretical effort that is at the core of this book, that one-dimensional theory is expanded to a two-dimensional one through the addition of an operational perspective. A corporation (company) is defined as an association of actors created under the authority of law that houses powers and liabilities and exhibits a continuous presence independent of its actors (cf. note 1, Chapter 1). It is then essentially composed of two flows (cf. Figure 2.1) – an operational one and a financial one. A double vertical arrow is used to illustrate the financial flow, and a double horizontal arrow is in a similar way used for the operational flow. That view means that two different constructs together determine the practical demarcation of a corporation: one determines what counts as a financial unit and one defines what makes up an operational unit. Thus, the financial rationale and the operational rationale are treated as two simultaneous and equally important elements both for the defining of the corporation and in its governance process.
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