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Corporate governance: Structure, process, practice

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By Clive Smallman, Gael McDonald, Jens Mueller

Published: 2010
ISBN: 978-0-9775242-3-5
Pages: 144
Imprint: eContent Management



Professor Clive Smallman
Lincoln University, New Zealand

Professor Gael McDonald
Unitec, New Zealand

Associate Professor Jens Mueller
University of Waikato, New Zealand

To those of us affected by the global recession that started in late 2007, it is sobering to realise that much of what has been wrought upon us is the result of decisions made behind closed doors by corporate directors, regulators and politicians. Boardroom, regulatory and political behaviours are all grounded in the desires, emotions and knowledge of the human beings who aspire to be business leaders, regulatory watchdogs and politicians.

Despite increasingly stringent political and regulatory intervention in corporate governance in the wake of a string of scandals, what went on behind the boardroom doors has resulted in a shameful litany of corporate collapses.

Hence, it is fair to say that directors' behaviours lie at the root of many failures both in the northern hemisphere (e.g., Enron, Parmalat, WorldCom), and closer to home (e.g., HIH - Westfield, 2003; Fortex - Martin, 2004; and Feltex - Vaughan, 2009). Even so, academic investigation of the role of directors' behaviours in corporate performance remains relatively scarce.

Much of what exists follows conventional 'variance' theoretic and methodological approaches (Mohr, 1982), offering valuable, if limited, insights into the world of directors. Some of this research has rightly become established benchmarks (e.g., Hambrick, 2005). Within this convention, one theoretical perspective remains dominant, and agency theory (Jensen & Meckling, 1976) remains the base de rigueur for many doctoral theses in governance. This dominance is strange given that it lacks 'both face validity and empirical support' (Ghosal, 2005: 81; Daily, Dalton & Canella, 2003). Its attraction is that it is relatively easy to access the artifacts of the governance process, the analysis of which allows the operationalization of agency theory. Crucially, we believe that the dominance of agency theory has led (explicitly and implicitly) to a widespread belief that it is possible to legislate for behaviour, i.e., mandated structures and processes force compliance.

Unfortunately, in the case of most corporate failures, it is the moral compass of directors and chief executives that takes firms off course, and 'morality cannot be legislated' (Martin Luther King Jr. - emphasis added). Moreover, in corporate failure, an obsession with compliance often acts as a decoy for damaging phenomena or behaviours which go unnoticed until too late (Stead & Smallman, 1999).

Developing process theoretic and methodological approaches (Mohr, 1982) from a non-agency perspective is more challenging. However, we argue it offers a route to a rich understanding of behaviours (Corley, 2005; Huse, 2005; Pye & Pettigrew, 2005; Roberts, McNulty & Stiles, 2005), particularly in the context of business failures with their complex socio-technical aetiology (Stead & Smallman, 1999; Weick & Sutcliffe, 2001). There is a clear need for a 'behaviorally plausible, decision-centred' theory of governance, perhaps building on a recent call to develop a Neo-Carnegie theory of the firm (Gavetti, Levinthal & Ocasio, 2007), but one which accommodates the effects of directors' 'desires, emotions and knowledge' on boardroom behaviour.

It was frustration with the apparent lack of in-depth process studies of governance that was the genesis of this Special Issue, which seeks to contribute to and widen the understanding of the research process and practice of corporate governance, and its practical application in today's organizations, whether for-profit, non-profit, governmental or others. The rich variety of theory, methods and findings that are presented in this issue successfully delve more deeply into the boardroom and provide fascinating insights on management and organizations for the benefit of scholars, educators, students, practitioners, policy-makers and consultants.

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