VARIOUS THEORETICAL FRAMEWORKS UNDERLYING THE DISCOURSE ON CORPORATE GOVERNANCE.

VARIOUS THEORETICAL FRAMEWORKS UNDERLYING THE DISCOURSE ON CORPORATE GOVERNANCE.

By: Mohd Zamre Bin Mohd Zahir 

"Corporate governance promotes effective performance. Effective performance concerns all stakeholders with an interest in the corporation, whether direct or indirect, directors, management and other employees, shareholders, customers and suppliers."[1]

Corporations have become a powerful and dominant institution. They have reached to every corner of the globe in various sizes, capabilities and influences. Their governance has influenced economies and various aspects of social landscape. Shareholders are seen to be losing trust and market value has been tremendously affected. Moreover with the emergence of globalization, there is greater deterritorialization and less of governmental control, which results is a greater need for accountability (Crane and Matten, 2007). Hence, corporate governance has become an important factor in managing organizations in the current global and complex environment. In order to understand corporate governance, it is important to highlight its definition. Even though, there is no single accepted definition of corporate governance but it can be defined as a set of processes and structures for controlling and directing an organization. It constitutes a set of rules, which governs the relationships between management, shareholders and stakeholders (Ching et al, 2006).

In fact, the term “corporate governance” has a clear origin from a Greek word, “kyberman” meaning to steer, guide or govern. From a Greek word, it moved over to Latin, where it was known as “gubernare” and the French version of “governer”. It could also mean the process of decision-making and the process by which decisions may be implemented. Henceforth, corporate governance has much a different meaning to different organizations (Abu-Tapanjeh, 2008). In recent years, with much corporate failures, the countenance of corporate has been scared.

Corporate governance includes all types of firms and its definitions could extend to cover all of the economic and non-economic activities. Literatures in corporate governance provide some form of meaning on governance, but fall short in its precise meaning of governance. Such ambiguity emerges in words like control, regulate, manage, govern and governance. Owing to such ambiguity, there are many interpretations. It may be important to consider the influences a firm has or affected by in order to grasp a better understanding of governance. Owing to vast influential factors, proposed models of corporate governance can be flawed as each social scientist is forming their own scope and concerns. Hence, this article reviews various fundamental theories underlining corporate governance. These theories range from the agency theory and expanded into stewardship theory, stakeholder theory, resource dependency theory, transaction cost theory, political theory and ethics related theories such as business ethics theory, virtue ethics theory, feminists ethics theory, discourse theory and postmodernism ethics theory.

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[1] Rashidah Abdul Rahman, “Corporate Governance in Malaysia” (Sweet & Maxwell Asia 2009) online, available at http://www.sweetandmaxwellasia.com.my/products/prod_spec.asp?ProdId=2085&cvalue=a25a54a117a48 accessed on 14^th December 2011.