Conclusiones Parciales

Whenever one hears the word ‘govern’ and its cognates, such as ‘govern-ance’ 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 deter-mine 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 gover-nance 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: 4). Based on the dominant neoclassical economic premises, three main models have been put forward. The first is the definition of the firm as a ‘nexus of con-tracts’ (Alchian and Demsetz, 1972), an idea with which we are already quite familiar.

The second, called a ‘property rights’ view, conceives the firm essentially as a collection of physical assets that are jointly owned (Grossman and

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Hart, 1986; Hart and Moore, 1990). Ownership of the physical assets then becomes the key to corporate governance issues because it confers the right to decide over what the initial contract has left unspecified. Hence, a duly modified explanation of corporate governance then becomes ‘the complex set of constraints that shape the ex post bargaining over the quasi-rents generated by a firm’ (Zingales 1997: 4). From a narrow but less technical view, Shleifer and Vishny state that corporate governance ‘deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment’ (Shleifer and Vishny, 1997: 737). In effect, ‘the fundamental concern of corporate governance is to ensure the means by which a firm’s managers are held accountable to capital providers for the use of assets’ (Gregory, 2001: 438). Compared to the first definition, this holds the advantage of distinguishing the firm from ordinary contrac-tual relationships. However, it also has the fault of limiting considerations exclusively to the rights of the owner of the physical assets. As suppliers of capital, shareholders alone would have the power and authority to decide over governance issues.

Arguing that, in the ‘new enterprise’, the importance of human capital relative to physical or inanimate assets has considerably increased, a third model currently construes the firm as a ‘network of specific investments’, a combination of reciprocally specialized assets and people that cannot be reproduced by the market (Rajan and Zingales, 2000). Unlike in the second definition, all mutually specialized parties such as workers, suppliers and customers can now be considered as belonging to the firm. We now have an explicit recognition of the other stakeholders – apart from shareholders or owners of physical capital themselves – as parties to corporate governance.

From this wider perspective corporate governance may be understood as the relationship among shareholders, management and the board as it deter-mines the direction and performance of corporations (Monks and Minow, 2001: 1). More specifically, it refers to the processes surrounding the election of board members, their compensation and the evaluation of their task of supervising management. Although this explanation outlines the board’s major functions, it may however obscure other dimensions of governance.

As Koehn observes, ‘corporate governance is better understood as the art of governing – in a principled fashion – so as to maximize the welfare of the company and of its relevant stakeholders’ (Koehn, 1999: 1). Agency prob-lems involved in corporate governance would be better addressed not only with legal safeguards and economic incentives, but also with trust-building institutional practices: ‘Governing well ultimately means acting in a trust-worthy fashion. No company will ever succeed in the long run if it is not trusted by its customers, employees, suppliers, advisors, shareholders, and other important stakeholders’ (Koehn, 1999: 13).

After determining who should ‘control the firm’, that is, who should possess the ‘residual rights’ to make bargaining decisions, most corporate governance literature goes on to explain how these interests are to be safe-guarded in light of the incentives of each of the parties involved. This is usually done under two different scenarios: ex ante, that is, before specific investments are sunk by means of a contract, and ex post, when the con-tingent quasi-rents are to be divided (Zingales, 1997: 7–11). In other words, corporate governance issues undergo careful scrutiny before one takes the leap and commits oneself and one’s resources to a business venture and again afterwards, when profits are to be distributed. It is within these con-texts that issues concerning the allocation of ownership, capital structure, managerial incentives, corporate takeovers and the structure and dynamics of boards of directors, among others, are commonly discussed.

At its very core, therefore, corporate governance may be interpreted as the manner in which quasi-rents are best to be produced or generated (in terms of efficiency, granted the available resources) and best to be distrib-uted among relevant parties (within the context of a particular sense of justice) in a business firm. These two tasks are to be carried out under con-tingency conditions that make it impossible to make ex ante decisions or to devise fixed rules beforehand about how future quasi-rents are to be parti-tioned and seal them through a contractual agreement. Contigency and the absence of rules are of the essence of corporate governance in this respect.

When it comes to politics, we often hear that, just like governance, it is basically a matter of deciding ‘who gets what, when, where, how and at what price’. This is the essence of the ‘social contract’ on which most modern political theories are founded. For, indeed, cynicism aside, politics concerns itself with how certain ‘goods’ are generated or produced – that is, things that purportedly satisfy human needs, desires or interests – and how these ‘goods’ are later on distributed among various claimants.

Efficiency and justice, undeniably, also play important roles. And these political decisions are necessarily made in the absence of previously set rules and under conditions of uncertainty. In other words, they are not the mere execution of directives that have already been agreed upon before-hand, and prudence, the knack for making correct decisions on the fly, becomes utterly crucial.

Aristotle’s Politics is generally recognized as an obligatory reference for the study of government, particularly, of the government of states:

‘Government . . . is the subject of a single science, which has to consider what government is best and what sort must it be, to be in accordance with our aspirations’ (Politics, henceforth Pltcs, 1288b). If corporate governance is essentially a form of government, albeit applied to the firm and not to the state, could we not find in Aristotle’s Politics any useful considerations?

Probably yes, but first we have to develop the analogy between Greek city-states and modern business firms. At present, corporations have evolved into primordially economic entities characterized by limited investor liability, transferability of investor interests, legal personality and professional management (Monks and Minow, 2001: 8–10). For obvious historical reasons Aristotle could not have imagined any such institution.

For their part, Greek city-states have been transformed largely into the image of Westphalian nation-states; that is, self-contained territories inhabited by people related to each other by blood, having the same birth-place and culture (Krasner, 1999: 20–25). Given these fundamental differences, would it still be possible to find meaningful similarities between states and corporation?

We honestly think so, if only because at their very root both happen to be social institutions with clearly defined objectives. Firstly, both states and corporations are composed of a large number of people divided into mul-tiple social classes that are hierarchically ordered. Secondly, both states and corporations admit a plurality of regimes, depending on their particular structures of authority and power. And finally, in both states and corpor-ations, these different groups of people are organized in such a way that a common purpose or end is optimally pursued: a political one in the case of the state and one of an economic nature in the case of the firm. We can therefore work out the analogy between states and corporations, that is, focus on their similarities and differences as social institutions, on the basis of three main points: the kinds of people who comprise them, the types of organizations or regimes they assume, and the particular ends they seek.

Let us begin with this last one.