Book reviews edited by Chris Taylor : Rethinking Corporate Governance: From Shareholder Value to Stakeholder Value

Citation

Sun, W. (2013), "Book reviews edited by Chris Taylor : Rethinking Corporate Governance: From Shareholder Value to Stakeholder Value", International Journal of Law and Management, Vol. 55 No. 3, pp. 250-252. https://doi.org/10.1108/17542431311327673

For the last three decades, the most sparkling research phenomenon in corporate governance has been the fierce debate on shareholder value versus stakeholder value and the associated governance structures and mechanisms derived from and promoted by the two different perspectives. The shareholder value model became prevalent mainly in the Anglo‐American business environment in the 1980s, where we saw a heated wave of hostile takeovers occurred as an advocated mechanism of the “market for corporate control”, along with the movement of privatisation beginning from the UK and the USA. In the late 1980s and the 1990s, scholars, judiciaries, politicians, business practitioners and the media in the Anglo‐American business environment started to promote the stakeholder value model, mainly due to the negative consequences of hostile takeover movement and the national comparative disadvantageousness of shareholder capitalism over stakeholder capitalism (represented by Germany and Japan) in the 1980s. However, from the late 1990s until the 2008 financial crisis, the globalisation movement, the booming of the global financial markets, and the European economic and monetary integration, all favoured the shareholder primacy thinking over stakeholder perspectives so much that even stakeholder capitalism was subject to changes towards shareholder value orientation. The 2008 financial crisis seemed to be a good chance for the stakeholder value model to win the ideological battle, as evidence showed that the countries that adopted stakeholder perspectives with regulated economies (such as Germany, Japan and the Nordic countries) were more resilient to the crisis than the countries favouring shareholder value primacy and liberal markets and economies (such as the USA, the UK and Ireland).

This edited book is under the above background to call for a rethinking of corporate governance frameworks and for challenging the dominance of shareholder value model over stakeholder value model in corporate governance and management. In the Editorial, the editors tell us that the chapters in the book are papers selected from an international conference held in Italy in March 2010. The key theme of the conference under discussion was whether shareholder or stakeholder approaches to management have better employment outcomes, with a focus on employee involvement or participation. As many observers argued that the 2008 financial crisis might indicate an ideological bankruptcy of neoliberalism in promoting the ideas of market fundamentalism, shareholder value, self‐regulation, self‐interest human behaviour and managerial incentive schemes, the conference in early 2010 was a timely initiative for such discussions and debates. Thus, this collection of papers serves as an important vehicle for a wide audience to reflect on the theoretical debates and practical implications, to recapture the current practical trends of stakeholder governance and employment relations, and to rethink the future direction of corporate governance developments in both theory and practice.

In the first two parts of the book, ten chapters discuss about collective bargaining and employee participation as practices of stakeholder governance. Those chapters examine different models, approaches and various issues in employment relations in different societal contexts, including Western Europe (France, Germany, Norway, Spain, etc.), Eastern Europe (Poland), Africa (South Africa and Nigeria) and Asia (Singapore). Based on either stakeholder‐oriented tradition or shareholder‐oriented convention embedded in such contexts, stakeholder governance in the form of employee involvement or participation is seen quite diverse with unequal effects and efficacies. While collective bargaining is shown to be positive for corporate governance in general, those chapters provide detailed insights on how adversarial collective bargaining and strategic collective bargaining work in differing economic, social and political conditions.

Employee involvement and participation in the forms of employee share ownership and employee elected directorship are more advanced structures of stakeholder governance. Employee participation in decision making is directly linked to stakeholder‐oriented corporate governance systems, mainly in continental Europe and Japan. For many, the advocacy for stakeholder value in corporate governance is through the formal structure of employee (and other stakeholder) participation system, that is, the representatives of employees and other key stakeholders are allowed to sit on the boards of directors to make decisions for the interests of the stakeholders. However, it is interesting to read the chapter contributed by Inger Marie Hagen, which questions the assumption that employee representatives at the board level is a token of stakeholder value and makes real differences for better corporate governance. Based on the Norwegian context with a stakeholder‐oriented tradition, Hagen's empirical study reveals that the employee participation system is actually grounded on a labour‐capital comprise rather than on any stakeholder value consensus, and employee representatives on boards are only powerful if they have close relationship with CEOs and if they are also trade union representatives. The findings of this chapter echo a few of previous studies on the effectiveness of the two‐tier board structure and employee participation in continental Europe (du Plessis and Sandrock, 2005; Jungmann, 2006; Miller‐Reyes and Zao, 2010). The chapter offers fresh understanding of the stakeholder value model in corporate governance and provides a research basis for further studies on the nature and practical operations of the stakeholder model.

Stakeholder perspectives are largely overlapped with CSR frameworks. The third part of the book concerns with CSR and labour relations. Four chapters in this section have their own merits and highlight different issues. For example, Eric Ogilvie‐Brown's chapter traces the origin of limited liability and argues that limited liability is a privilege granted for extending benefits to society as a whole rather than a right for making profits to businesses only. CSR must be the corollary of such a privilege. Ekaterina Ribarova's chapter examines why CSR has limited impact on eastern European industrial relations and labour markets, and finds that CSR is an imported concept from foreign‐owned multinational companies rather than a concept embedded in the societal contexts.

The final part of the book concentrates on corporate governance and regulatory models. Addressing the paradigmatic shifts of shareholder and stakeholder models, the chapters of Kees J. Vos and Sumanjeet Singh are an interesting read. While Sumanjeet Singh's chapter reviews both shareholder and stakeholder perspectives and calls for a balance between the two, Kees J. Vos's chapter shows that in Europe the attempt to balance shareholder and stakeholder values through the introduction of European Social Model (ESM) in the mid‐1990s eventually gave way to the US‐style shareholder value model before the 2008 financial crisis due to globalisation, the pressure of global capital markets and the European monetary integration. Although the recent financial crisis has shifted the balance a little backwards from the shareholder value model, the future perspective remains uncertain. Two other chapters by Michele Faioli et al. and Femke Laagland and Ilse Zaal also discuss the regulatory and paradigmatic conflicts of shareholder and stakeholder value systems/models as shown in transatlantic economic relations and cross‐border mergers and acquisitions. In terms of human resources governance, Helio Zylberstajn's chapter identifies two categories in practices: inside‐oriented and outside‐oriented. With globalisation, the outside‐oriented HR governance has grown significantly. As a result, extended stakeholder bargaining has become one of the important sources of workers' rights, alongside labour and employment law and collective bargaining.

The book does not have a concluding chapter on whether or not there has been or should be a shift from the shareholder value model towards the stakeholder value model. In the Editorial the editors claim that the shareholder model was discredited in the financial crisis. This might be the case. But Kees J. Vos's chapter mentions that after a fast rebound of economy from the Great Recession in the Anglo‐American countries, it looks like that shareholder value model will remain dominant until next crisis. Furthermore, as discussed by some chapters in the book, the stakeholder value model has limitations in both theory and practice. This might indicate that the stakeholder model is not always an ideal and universally applicable model. Perhaps, we need to see the paradigmatic shift between shareholder and stakeholder models is a natural dynamics driven by both internal impetus for change and external environmental influences. The move forward and backward rather than towards one direction should be natural, as they are rooted in societal contexts and contingent situations.

Overall, most of chapters in the book provide insightful views, empirical findings and fresh understandings on one of the key aspects of corporate governance: labour relations and employee involvement or participation in different economies and societal backgrounds. It deserves a valuable read for a wide audience.

William Sun

Leeds Metropolitan University, Leeds, UK