Corporate Governance: A Problem of Hierarchies and Self Interest

. Any realistic theory of the firm must take into account the governing structure of the enterprise. Unfortunately, neoclassical economic theory ignores most of the problems associated with firm goal structures and the issue of corporate governance. We argue that shareholder wealth maximization under less than perfectly competitive conditions has serious normative deficiencies. From a positive point of view, it appears that shareholders have such a weak position with respect to governance that they have little influence upon goal structures as well. It is observed that directors rarely function in the idealized trusteeship capacity. Efforts by government to make corporations more “responsible” may involve nothing more than attempts to strengthen the public sector at the expense of the corporate and, hence, may not be in the interest of shareholders at all. With corporations subject to increased regulation and government controls, two questions emerge: First, who should control corporate diction making (The corporate governance question.) Second, what is the appropriate role of corporations in our society. (The corporate responsibility question.) Corporate governance refers to shareholders. Corporate responsibility refers to alleged responsibility of the corporation to something called the social needs of the community1