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Corporate Governance, The Firm and Investor Capitalism

Alexander Styhre

The shift from managerial capitalism to investor capitalism, dominated by the finance industry and finance capital accumulation, is jointly caused by a variety of institutional, legal, political, and ideological changes, beginning with the 1970s’ downturn of the global economy. This book traces how the incorporation of businesses within the realm of the state leads to both certain benefits, characteristic of competitive capitalism, and to the emergence of new corporate governance problems emerges. Contrasting economic, legal, and managerial views of corporate governance practices in contemporary capitalism, the author examines how corporate governance has been understood and advocated differently during the New Deal era, the post-World War II economic boom, and the after 1980 in the era of free market advocacy.
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Chapter 3: The agency theory model of the firm and its implications

Alexander Styhre


The legal incorporation of a business is not a trivial matter and legal scholars and jurists in service of the state apparatus have always been at pains to balance the benefits of enterprising activities and other societal and economic interests. In the concession tradition of thinking, the incorporated business is a creature of the state wherein the owners of the business are accountable to a variety of objectives and goals in the firm’s environment. As Bratton (1989a; 1989b) makes clear, that image of the firm is today outmoded as few legal theorists advocate such a view of the firm. Still, corporate law remains a tool of the state to carefully balance diverse political interests, not only shareholder welfare, and therefore the role of corporate law must not be trivialized but must be understood within the wider socio-economic and political project to support enterprising and entrepreneurial activities.

Taking the strict legal view of corporate law and the firm’s wider legal environment, where there is always a practical difference between laws in books and laws in real life, any attempt made by the state to restrict and hem in free market activities is understood as a form of violation of the free market efficiency proposition. As was discussed in Chapter 2, even in the case where the competitive capitalist economic system is at the brink of collapse, as it was in the early 1930s, free market protagonists did not refrain from pursuing their collectivism critique agenda. Even though...

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