Corporate Governance: The Role of Other Constituencies

Arbeitspapier

The paper discusses the role of various constituencies in the corporate governance of a corporation from the perspective of incomplete contracts. A strict shareholder value orientation in the sense of a rule that at any time firm decisions should be made strictly in the interest of the present shareholders would make it difficult for the firm to establish long-term relationships as the potential partners would have to fear that, at a later stage of the co-operation, the shareholders or a management acting only on their behalf could exploit them because of the inevitable incompleteness of long-term contracts. One way of mitigating these problems is to put in place a corporate governance system which gives some active role to the other stakeholders or constituencies, or which makes their interests a well-defined element of the objective function of the firm. A commitment not to follow a policy of strict shareholder value maximization ex post can be efficient ex ante. Such a system would clearly differ from what is advocated by proponents of a stakeholder approach, as it would limit the rights of the other constituencies to those which would have been agreed upon in a constitutional contract concluded between them and the founder of the firm at the time when long-term contracts are first established.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper Series: Finance & Accounting ; No. 3

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Organizational Behavior; Transaction Costs; Property Rights ; Business Objectives of the Firm
• Subject: corporate governance ; incomplete contracts ; theory of the firm ; Corporate Governance ; Unternehmensverfassung ; Theorie der Unternehmung ; Unvollständiger Vertrag ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schmidt, Reinhard H.
• Event: Veröffentlichung
• (who): Johann Wolfgang Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften
• (where): Frankfurt a. M.
• (when): 1997

Further information

• Handle: http://hdl.handle.net/10419/76913
• URN: urn:nbn:de:hebis:30-16584