The Relational Corporate Governance Approach
Chapter 4: Key Field No 1: The application of the principal theories of the firm to the relational approach
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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