Accountability, Corporate Governance and the Role of the State

This paper takes a look at corporate governance from a perspective seldom discussed: does the state play a role on corporate governance?

This paper has focused on the question whether corporate governance is primarily a matter of ‘legitimacy’, that is, the legitimacy of the enterprise from a legal perspective, and also the legitimacy of the State which seeks to control business enterprises in an increasingly globalized environment; or alternatively, whether corporate governance can be considered to be primarily a matter of ‘economic performance’ in the face of increasingly competitive capital markets; or finally, whether corporate governance can be seen to be a matter of ‘conflicts of ideology’, in which the objective is to achieve greater control and accountability for corporate enterprises. We have investigated these three perspectives through an examination of the historical role of the State in corporate governance. Essentially, the role of the State has been and continues to be to act as a mediator between conflicting perspectives in order to promote greater accountability to various types of power (i.e. royal, bourgeois, or civil). While the advocates of financial economics argue that the role of corporate governance is to enhance economic performance of the enterprise for the benefit of its shareholders, it clear that this has not been the primary role of the State through time. The role of the State in corporate governance has been to serve as a mediator among conflicting perspectives regarding legitimacy, performance and ideology, while enhancing economic stability and promoting greater levels of accountability. This has not been an easy task, and it is one which has been infused with political tensions and conflict. Nevertheless, it can be concluded that the role of the State in corporate governance has been central.

The prior literature dealing with corporate governance has largely neglected the role of the State, focusing instead on relationships between boards of directors, managing directors, shareholders and other stakeholders. This paper seeks to overcome this limitation through a historical summary of the evolution of the role of the State in corporate governance both in Europe and the United States. Developments in corporate governance have often been associated with financial scandals and crises, leading to interventions by governments in order to restore economic stability and resolve conflicts among contending parties. We believe that acknowledging the historically important role of the State in corporate governance will lead to a better understanding of the dynamics of regulation in advanced capitalism.

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