Corporate Governance Notes
MAPE 8205
01 CORPORATE GOVERNANCE AND GOVERNMENT
1 GOVERNANCE AND GOVERNMENT FROM AN ARISTOTELIAN PERSPECTIVE
Whenever one hears the word 'govern' and its cognates, such as 'governance' and 'government', the notions of 'authority' and the exercise of power and control immediately come to mind. Normally, one also thinks of a political unit such as the state in its dual role as both the subject and the object of the act of governing. The state governs the lives of those found under its authority, although at the same time - and in the best of cases - those who live under the state's authority are precisely the ones who determine how the state should go about this task. In other words, the state is ideally an instrument through which the very same people who are subject to its authority do in fact govern themselves. It is indeed surprising that none of these associations takes place upon a simple reading of the definition of a corporate governance system: the complex set of constraints that shape the ex-post bargaining over the quasi- rents in the course of a relationship (Williamson, 1985). Not even after it is explained that the definition refers to a contractual relationship of an incomplete kind, such that no previous agreement on how to divide the spoils (so to speak) arising from the relationship can be made. A governance system seems to indicate rules of bargaining over contigent future goods that escape contractual agreements. This distance between the common understanding of what it means to govern and the formula afforded us by a corporate governance system further increases when the latter is linked to the market. Given the context of an economy where the free market is responsible for the efficient allocation of resources, what need is there for authority and control, as governing implicitly demands (Zingales, 1997: 2)? As it cannot be otherwise, the concrete notion of corporate governance is dependent on the theory of the firm adopted (Zingales, 1997:
01 CORPORATE GOVERNANCE AND GOVERNMENT
1 GOVERNANCE AND GOVERNMENT FROM AN ARISTOTELIAN PERSPECTIVE
Whenever one hears the word 'govern' and its cognates, such as 'governance' and 'government', the notions of 'authority' and the exercise of power and control immediately come to mind. Normally, one also thinks of a political unit such as the state in its dual role as both the subject and the object of the act of governing. The state governs the lives of those found under its authority, although at the same time - and in the best of cases - those who live under the state's authority are precisely the ones who determine how the state should go about this task. In other words, the state is ideally an instrument through which the very same people who are subject to its authority do in fact govern themselves. It is indeed surprising that none of these associations takes place upon a simple reading of the definition of a corporate governance system: the complex set of constraints that shape the ex-post bargaining over the quasi- rents in the course of a relationship (Williamson, 1985). Not even after it is explained that the definition refers to a contractual relationship of an incomplete kind, such that no previous agreement on how to divide the spoils (so to speak) arising from the relationship can be made. A governance system seems to indicate rules of bargaining over contigent future goods that escape contractual agreements. This distance between the common understanding of what it means to govern and the formula afforded us by a corporate governance system further increases when the latter is linked to the market. Given the context of an economy where the free market is responsible for the efficient allocation of resources, what need is there for authority and control, as governing implicitly demands (Zingales, 1997: 2)? As it cannot be otherwise, the concrete notion of corporate governance is dependent on the theory of the firm adopted (Zingales, 1997: