ABSTRACT
Two spectacular, yet under-theorized, phenomena define the global economy over the past several decades: the first is the tremendous power that corporations wield over all aspects of everyday life; the second is the dramatic, albeit highly uneven, rise of mass ownership of these corporate behemoths. No longer the exclusive domain of family dynasties, tycoons and the super-rich, stock ownership in publicly traded corporations1 has become increasingly widespread and dispersed (Blumberg, 1975). A key vehicle driving mass ownership has been the growing role of institutional investors, especially pension funds, in global financial markets. Take, for example, the pension market of countries in the Organization for Economic Co-operation and Development (OECD), which registered a staggering $24.6 trillion in 2006. Over half of this amount (66.1 per cent) was invested in two asset classes: company stocks; and government and corporate bonds (OECD, 2007). The increasing role of pension funds in corporations (both financial and non-financial) has meant that ‘Main Street’ savers have become increasingly dependent on, and therefore vigilant regarding, Wall Street (Clowes, 2000; Minns, 2001; Blackburn, 2002, 2006). Since the 1980s, pension funds have been actively attempting to influence company behaviour. Until now, the politics of resistance and domination vis-à-vis corporations have not been conceptualized as part and parcel of the power, paradoxes and struggles linked to the uneven and exploitative nature of capitalist society. This book attempts to reconnect these elements by mapping and analysing, on the one hand, the social constitution of corporate power in contemporary capitalism; and, on the other, the changing forms of, and limits to, shareholder activism. Mainstream approaches, which have dominated the corporate governance literature, have opted to examine and explain shareholder activism in terms of a level playing field. Such perspectives are premised on the notion that key actors, such as management, creditors, the board of executives and so forth, are not only able to effectively express their concerns and discontent, but also to challenge certain practices and policies (e.g. excessive executive pay packages, discrimination policies, environmental disclosure, and a vast array of labour standards and human rights issues) pursued by corporate management. Seen from this perspective, resistance to corporate power is expressed in terms of shareholder activism, which takes the form of proxy voting, dialogue with management and, more
rarely, divestment (Brancato, 1997; Monks and Minow, 2001; Tkac, 2006; see also Chapter 7). Resistance is framed by, and thereby limited to, a structured and sanitized exchange between those who own (shareholders or ‘principals’) and those who control (management and the board of directors or ‘agents’). Moreover, the extent and content of the interaction between shareholders and management is legally prescribed by the rules of government bodies such as the Securities and Exchange Commission (SEC) in the United States (US). The main venue in which these allegedly democratic exchanges take place is corporate governance. While there is no consensus on the meaning of corporate governance, the dominant definition, used by practitioners and scholars alike, is rooted in economic discipline and based on agency theory (Fama, 1980). The primary concern of the latter is to align the interests of agents to ensure the company is run in an efficient and transparent manner so that it may deliver the highest possible returns for shareholders, i.e. the ‘maximization of shareholder value’ (Shleifer and Vishny, 1997; Jensen, 2000; Monks and Minow, 2001). Since its emergence in the 1980s, corporate governance has assumed an almost cult-like status among scholars and practitioners. It stands both as the unity of institutions, processes and practices that shape the way shareholders, directors and management interrelate within the corporation, and as a framework for conceptualizing and legitimating these relationships. The most ‘marketized’ version of good corporate governance is the Anglo-American model, which accords primacy to shareholder activism and financial markets, among other things, and which has been heralded as one of the key pillars of a wellfunctioning and vibrant economy (Soederberg, 2004). Corporate governance has been the official treatment to perceived economic weaknesses ranging from the East Asian crisis and the subsequent construction of the New International Financial Architecture (NIFA) in 1999 (Chapter 6), to the Enron-style debacles of the early 2000s (Chapter 3). Because of its role and impact on the academic and policymaking circles and, more importantly, the everyday lives of people – with or without financial property – across the globe, I believe it is vital to challenge the idea of corporate governance as a given. We need to interrogate its political, social and ideological significance and meaning in the same way we have subjected other concepts that have entered and dominated our lexicon to rigorous appraisal and critique, such as globalization and global governance. The main objective of this study is to question and deconstruct the hegemonic position of corporate governance theory and practice so that its capitalist nature, paradoxes and relations of power may be exposed, scrutinized and, thereby, repoliticized. Despite the attempt to couple mainstream corporate governance theories with plurality, democracy and the empowerment of shareholders, the fact remains that even the most active of shareholders – American institutional investors – have had a modest impact on management and management decisions over the past three decades. As I discuss later in the book, recent legal rulings have sought to either maintain or scale-back the formal powers of shareholders vis-à-vis management and the board of directors (see Chapters 3 and 4). This is not to suggest
that there have not been important successes of shareholder activism over the past several decades. To the contrary, I believe activist owners have played, and continue to play, an important role in holding corporate power in check; indeed, several chapters of this book are devoted to exploring, albeit critically, the nature of shareholder activism. My point of contention, however, is that this form of resistance is limited and weakened within the corporate governance framework and its overriding goal of profit maximization (Glasbeek, 2002). Mainstream approaches to corporate governance tend to explain away the impotence of shareholders to effectively and meaningfully influence the way in which corporations operate by suggesting it is a result of either the short-termism of the financial markets or weak corporate governance strategies (see Chapter 5). According to critical legal scholar Paddy Ireland, one of the main obstacles in identifying and explaining the relations of power and the politics of domination and resistance within the corporate governance framework is that it rests on neoclassical ideology about the nature of the markets. This view tends to flatten hierarchy and smooth over the paradoxical and exploitative elements within corporations, suggesting that corporations lack any built-in structure of authority and power (Ireland, 2001). In addition, corporate governance tends to ignore or gloss over issues of social justice by reducing and limiting shareholder activism to the tensions between agents and principals, as described in agency theory. Put another way, the framework of corporate governance transfigures political contestation by recasting the form of the struggle in terms of agents and principals and by refocusing the content of contestation around agent-principal realignment, thereby re-emphasizing the ultimate and singular motive of profit maximization. Seen from the above angle, the hegemonic position of corporate governance in both the academy and policymaking circles – what I refer to as the ‘corporate governance doctrine’ – is constructed and reproduced by the US state and dominant interests in capitalist society. The danger of the corporate governance doctrine is that it depoliticizes power relations central to the workings of the corporation and obscures its impact on the wider social environment. Depoliticization of resistance occurs in at least two ways when framed within the bounds of corporate governance. On the one hand, resistance to current practices is recast in exclusionary terms of shareholder activism, i.e. those who do not directly own enough shares in a corporation cannot contest its policies, power or behaviour. On the other hand, resistance is subjected to a process of marketization, by which it is reduced to financial code and economic law. This tends to shift, and thus depoliticize, contestation of corporate power to the realm of the market, constructing what I term the ‘marketization of resistance’. This is evident in the realm of socially responsible investment (SRI), where struggles for social justice in the areas of the environment, labour standards and human rights have been subsumed under dominant discourse to a risk or hazard that can be resolved only through, for example, cost-efficiency calculus and risk management strategies (see Chapters 6 and 7). The remainder of this chapter has been organized into four sections. The first locates the present study within the wider literature. The second provides a
stylized and mainstream account of the primary issues surrounding the corporate governance doctrine, as well as its origins. The third summarizes several premises that run through each chapter in the book and act as the analytical backbone of my main thesis. The fourth and final section lays out the structure of the book.
