Corporate governance is best understood in the context of the broader institutional environment. The structure of corporate ownership and corporate control, for example, are reflected in corporate governance solutions and in regulatory outcomes.
The effects of regulation vary depending on the institutional environment; where certain regulatory mechanisms effectively address governance concerns in one type of environment, the same mechanisms may be less relevant or ineffective in other circumstances. The quality of courts and agencies or the structure of corporate ownership can be relevant factors in this regard. It can be disingenuous, for example, to expect minority shareholder interests to be enforced through the courts, if the legal system is not geared to deal with corporate matters or if the risks related to legal action are significant.
Regulatory intervention is the outcome of political processes, where the ability of corporate constituencies to coordinate their interests varies. Regulatory outcomes can be expected to reflect the best interests of politically dominant constituencies - but are also affected by the institutional structure of the political processes. For example, in the EU context the agenda setting powers of the Commission and the evolving political dynamic among EU institutions provide topical areas of research in this regard. It remains important to understand the politics of legislative processes - especially at the supranational level.
Corporate governance and other corporate regulation are highly significant for the competitiveness of corporate enterprise. It is therefore important to understand the dynamics of corporate ownership, regulation and regulatory processes so that legal strategies are better tailored to the institutional environment.
Politics of Corporate Governance
There has been increasing pressure to hold corporations accountable for social and environmental aspects of the business enterprise - not only by external interest groups but by key stakeholders such as institutional shareholders. As the economic and political significance of corporations has increased, stakeholders pursue political agendas through the corporation using corporate governance mechanisms. CSR and the debate on corporate purpose can be best understood in terms of a political approach to corporate governance.
State ownership is in revival, and warrants renewed research. Public ownership of private enterprise introduces the potential for significant conflicts of interest between political and economic goals; state-owned enterprises may also skew the market given the public backing of their balance sheets; government monitoring of management can also be less than efficient. Governments have introduced mechanisms to alleviate these concerns in enterprises with co-investors. Yet the original concerns prevail, as political agendas enter corporate decision making.
The significance of EU regulation has increased in the fields of corporate and securities regulation. For all practical purposes, all material securities regulation in Europe originates from the EU level. The role of EU regulation in corporate matters has started to increase significantly after the financial crisis and the trend is likely to continue as the political aspects of CG are emphasised. Understanding the political dynamic of EU legislative processes, and of supranational regulatory systems in general, is more important then ever.
Nordic Corporate Governance
There has been an increasing interest in Nordic models of corporate governance - they have been perceived to have an appropriate balance between shareholder primacy and stakeholder interests. Yet these models only reflect the political economy of their respective institutional environments - the models are supported by tax and social security systems and are vulnerable to capture by politically dominant interest groups. Nordic corporate governance must be understood and measured in the context of this environment.