An enlightened approach to corporate governance

Posted on July 22, 2014 by

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singapore

Legal researcher Dr Vincenzo Bavoso finds that a new form of corporate governance is needed to restore societal imbalances worsened by the global financial crisis.

Dr Bavoso investigated corporate law and governance issues that emerged within the context of the global financial crisis. As large public corporations have become the engine of modern western economies, and play an increasingly central role in society, they affect the lives of many societal groups. While corporate strategies are today aimed at increasing the value of shares in the short-term, often through risky practices, the downside of these risks is borne by those other than shareholders such as employees, taxpayers, and the environment. While this is established business practice it is not altogether supported by the law or the courts in the UK and US.

This largely unfair balance of powers has led to societal imbalances, which have been exacerbated by more recent events, such as the 2007–08 banking crisis. Bavoso proposes a new structure for boards of directors of corporations whose activities impact on a wide range of social constituencies. This new governance structure is based on the ‘enlightened’ involvement of the state as a natural arbiter of different collective interests in the decision-making process of these systemically important corporations. The result would be a democratic underpinning of the management of these firms and their social legitimisation. More practically it would represent a gatekeeping function for monitoring risk.

Key Finding:

The increasing influence on society exerted by large public corporations is governed by a narrow shareholder value approach. A new governance structure is needed to
provide a democratic underpinning and a social legitimisation of these firms’ activities.

Papers:

Bavoso, V. (2014) The Global Financial Crisis, the Pervasive Resilience of Shareholder Value and the Unfulfilled Promises
of Anglo-American Corporate Law. International Company and Commercial Law Review, 6.

Bavoso, V. (2014) Sustainable Companies through Enlightened Boards: Combining Private and Public Interest in the Decision- Making of Large Public Firms. European Company Law, 11 (2).

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