The benefit of market-based governance devices: Reflections on the issue of growing economic inequality as a corporate concern

Alexander Styhre and Ola Bergström

European Management Journal, 2019, vol. 37, issue 4, 413-420

Abstract: Growing economic inequality in advanced economies is explained by a variety of conditions and mechanisms, but a growing literature emphasises how corporate governance decisions serve to transfer wealth from labour to capital owners, including shareholders. The article introduces the term governance devices to examine how a consistent annual real wage growth (calculated to 1.20 percent) over the period 1997–2017 has been negotiated in Sweden, based on a bilateral market-based industrial agreement between the employer organisation and a confederation of trade unions. The article stresses the importance of governance decisions in counteracting secular stagnation of real wage growth, which reduces the purchasing power in an economy and incurs other externalities. Corporate governance is, therefore, a key mechanism in resolving the issue of how to allocate the residual cash being generated in the corporate production activities so that it benefits all constituencies and balances short-term returns to shareholders and medium-to long-term economic growth and stability.

Keywords: Corporate governance; Governance devices; Heuristics; Economic inequality; Real wage growth; Wage formation (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.emj.2019.01.002

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