A Theoretical Framework for Corporate Governance

Santosh Pande and Valeed Ahmad Ansari

Indian Journal of Corporate Governance, 2014, vol. 7, issue 1, 56-72

Abstract: We lack an overarching and unifying theory of corporate governance. The most popular theoretical framework, the agency theory, led to the evolution of the Anglo-Saxon model of corporate governance that is used widely to help the board of directors in curbing excessive executive power in the hands of management. However, with the blurring of the roles of the principal and the agent, the currently prevalent governance frameworks, based on this theory, have become self limiting and ineffective. Efforts to supplement the agency theory with alternative theoretical frameworks such as the stakeholder theory and the stewardship theory have, at times, tended to place the board of directors in conflict with their legal obligations that requires them to work in the interests of the shareholders. A governance model based on the Gandhian concept of trusteeship, while providing fresh insights, suffers from problems in implementation and remains, at best, an idealistic goal to aim for. We need new theoretical insights that will take us towards a comprehensive theory of governance. This paper seeks to revisit the discussion on the various theoretical frameworks for corporate governance and suggests that a new and different framework is required as the underlying theory for corporate governance. One such framework is based on viewing the �organization as an organism� with its primary focus on the organization�s longevity and growth and which seeks to maximize the long term strategic value for an organization.

Keywords: Corporate Governance; Agency Theory; Stakeholder Theory; Stewardship Theory; Trusteeship; Strategic Value (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ijcgvn:v:7:y:2014:i:1:p:56-72

DOI: 10.1177/0974686220140104

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