chapter  3
21 Pages

Repoliticizing corporate governance: Scandals, struggles and the Sarbanes–Oxley Act

In this chapter, I attempt to explore and explain the motivations behind this seeming incongruence between dominant laissez-faire policies on the one hand, and regulatory protection of shareholder interests on the other. There have been wide-reaching implications of the SOX for the US economy and the livelihoods of millions of Americans, many of whom depend on the stock markets to augment their old-age savings (Blackburn, 2002; Sweeney, 2002; see also Chapter 1). Despite these implications, the Act has not been subjected to critical investigations in the social sciences. This condition of apathy is itself, I suggest later, symptomatic of the pre-eminence of mainstream corporate governance theory and practice. Where debates about the SOX have emerged in academia, they have remained firmly grounded in technical analyses of legal studies and managerial sciences. These discussions shed light on the technical strengths and weaknesses of the Act, but they ignore social and political considerations. Moreover, the debates tend to be confined to questions regarding either the effectiveness of legislation in curbing fraudulent behaviour of corporate executives, including boards of directors (Longnecker, 2004; Peters, 2004; Tracey and Fiorelli, 2004; Weismann, 2004; Westbrook, 2004), or as ways to strengthen transparency and accountability at the firm level in order to protect shareholder value (Van den Berghe and De Ridder, 1999; Cioffi, 2000; Vives, 2000; MacAvoy and Millstein, 2004). Without conflating the differences between these various perspectives and authors, it is possible to identify a common preoccupation in the debates: What constitutes good corporate governance and how can it be maintained to achieve economic stability and efficiency in the operations of publicly traded firms? According to one of the world’s leading management consultancy firms, McKinsey & Company, ‘Not since the mid-1980s have we seen such a clear political, investor, and corporate focus on corporate governance. SEC and stock exchange reviews are ongoing, intensified investor pressures are visible, even the president has proposed governance reform’ (2002a: 1). The corporate governance doctrine is not a discipline per se, but an emerging field of inquiry about the nature of managing the various interests involved in publicly traded corporations. While corporate governance has its roots in the study of law (Blair, 1995), it has become the pre-eminent analytical framework in understanding the internal and external dynamics of publicly traded firms across a variety of disciplines, including the social sciences, as well as in media and policy circles.1 Put another way, the corporate governance doctrine guides and rationalizes policies affecting corporate behaviour, such as the SOX. As noted in the previous chapter, the corporate governance doctrine is concerned with understanding how a firm’s key participants (i.e. shareholders, management and the board of directors) achieve the ultimate goal of a profit-seeking firm: the highest possible earnings for its shareholders, also known as ‘maximization of shareholder value’ (Monks and Minow, 2001). Given the prominence of this framework, it should not come as a surprise that the rationale of the SOX was largely portrayed in terms of a need to deal effectively with the root cause of the crisis: weak corporate governance practices (e.g. fraud, lack of transparency and accountability).