The Geopolitics of Governance: The Impact of Contrasting Philosophies

Citation

Kakabadse, A. and Kakabadse, N. (2002), "The Geopolitics of Governance: The Impact of Contrasting Philosophies", Corporate Governance, Vol. 2 No. 3, pp. 37-37. https://doi.org/10.1108/cg.2002.2.3.37.1

In writing this compact but discerning book, the Kakabadses are to be congratulated for their breadth of vision as much as their scholarship. Their focus is not dominated by the search for corporate governance best practices that will improved corporate performance. Rather, their concern is with examining the impact of different governance models (essentially, the shareholder and stakeholder models (with variations) on society (illustratively, the USA, the UK, Germany and Japan). This they make very clear in their Introduction (p. xiv):

… the governance debate needs to be pursued more at the societal/political level, rather than the enterprise level, as the burning issues surrounding governance are ones of social inequality and not of transparency in reporting economic performance for the purpose of greater enterprise economic gain.

Societies’ expectations of corporate behavior are set within the prevailing set of cultural norms, which have been hardening against corporate autonomy in recent decades. This has happened in response to well‐publicized incidences of business wrongdoing and business decision making that has created uncompensated external costs to be borne by individuals, communities, governments, and future generations. Societies are, rightly or wrongly, increasingly holding business responsible for many of the evils of the modern world. The public interest domain within the corporate governance terrain has thus, contestedly, been extended from matters of corporate probity and performance to matters of corporate social responsibility, and thus corporate accountability, regulation and public policy. How this is best achieved is at the heart of The Geopolitics of Governance.

The Kakabadses demarcate two models of corporate governance: the shareholder model, which is well‐suited to deal with turbulent market conditions, where corporate success is associated with efficient decision making and strategic adaptability for the purposes of wealth creation; and the stakeholder model, which is well‐suited to deal with the interests of contending stakeholders, where corporate success is associated with building long‐term corporate and personal relationships that permit the integration of wealth creation with the equity of its distribution. These models embody different presumptions about the corporations, particularly corporate power (vested in shareholders or stakeholders), corporate mission (short‐term shareholder value or long‐term stakeholder value), and corporate control (external or internal control mechanisms).

The structure of The Geopolitics of Governance reflects the authors’ desire to analyse corporate governance from a societal or socio‐political perspective. The opening chapter (“Markets: contrasts of perspective”) articulates contending perspectives on the market and its emphasis on efficiency and competitive advantage, its neglect of externalities and its amorality. In Chapter 2 (“Governance”) varying interpretations of corporate governance are identified and placed into their historical context. Then there is “an in‐depth examination of the thinking behind the concepts of stakeholder and shareholder value”. Those interested in a rigorous analysis of these two corporate governance perspectives will be disappointed, however, with this chapter. The next chapter (“Geopolitics of governance: contrasts of application and control”) “focuses on the examination of historical, societal and financial trends and the developments in the USA, UK, Germany and Japan, which have determined the nature of the corporate governance models and their application in these four countries”. This is an excellent, albeit curt, comparative review of the national corporate governance practices. Chapter 4 (“Reform and repercussion”), which is by far the best, reviews the governance reforms in France, Germany and Japan, and concludes that they have “led to an erosion of the stakeholder model and its steady supercedence by the shareholder values philosophy” (p. 64). This, it is persuasively argued, has produced three societal‐level consequences: an ever‐increasing salary differential between executives and workers; a growing social burden carried by society (in terms of income and wealth distribution, poverty and social expenditure), and the political stability (in the light of the relative decline in the share of income and wealth attained by the long‐protected middle classes and the prospect of politically unacceptable levels of poverty). The final chapter (“Reflections on geopolitical impact”) argues, again quite persuasively, that the jury is still out on whether corporate governance structures and practices have any significant impact on enterprise performance; but that “organisational and societal variables, such as social, political and economic structures, legal and financial systems, and the nature and orientation of each enterprise have an impact on corporate governance and corporate performance” (pp. 87‐8). The book concludes with a plea (p. 94):

Today, with the momentum for change accelerating, aggravating the pervasive sense that the world’s social and political structures are becoming more and more out of step with new economic realities, there is a need for leaders from politics, academia, civil society and business to promote the debate over the new social and political models that are needed to move forward progressively. Leaping into adopting models globally because it “happens to be around and also makes a few bucks”, is hardly the best way to move forward. Building and promoting positive community values in conjunction with the creation of wealth is the prime governance challenge in an age of progressive globalization.

Societies have evidenced a willingness to exercise significant social control over all corporations. They are prepared to go well beyond merely seeking to control industry entry, to combat fraud, or to regulate restrictive practices by embracing social regulation in order to protect particular social groups. They have been willing to impose upon corporations a variety of social obligations, such as occupational health, safety and welfare requirements, consumer protection, environmental protection and planning restrictions, technology assessment, and antitrust (antimonopoly) restrictions. They have also imposed expectations of social responsibilities on corporations, thus holding them to public account for their support of good causes and for acting in the public interest. What these social obligations, responsibilities and control mechanisms are is a matter of public policy, and their determination involves the state in a delicate balancing act between individual autonomy (the protection of the freedom of corporate owners and managers to make a profit) and collective control (constraining their freedom to make a profit in order to protect the interests of a diversity of stakeholders). The message, almost explicitly stated in this book, is that business must engage with all its stakeholders, even those with whom it violently disagrees, for all stakeholders are strategically important to both its short‐term profit and long‐term survival in a globalized world.