Financialization and Corporate Governance
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Financialization and corporate governance'
PADDY IRELAND2
Professor of Law, University of Kent
Corporate governance and financialization
t used to be thought that what we now call corporate governance was a rather complex
affair, involving a range of difficult issues: productive efficiency, wealth and welfare,
equity and justice.3 Which models of the corporation and corporate governance were
productively superior? Which most encouraged research and development and investment
in new technologies? Which best contributed to job satisfaction, to social cohesion and to
the realisation of some notion of the good life? In the 1970s and 1980s, as the developed
capitalist world lurched from one economic crisis to another, many commentators came to
believe that the more stakeholder- friendly models of the corporation found in Germany
and Japan were not only socially more cohesive than their more shareholder-oriented
counterparts in the US and the UK, but economically more efficient. Some continued to
make this argument well into the 1990s. In 1992, for example, one of America's most
influential management writers, Michael Porter, argued that American corporate ownership
and governance structures were seriously defective, prioritising short-term shareholder
returns over long-term productive investment. By incorporating the interests of employees,
suppliers, customers and the local community, he argued, the structures found in places
such as Germany and Japan better capture[d] the social benefits that private investment
brings.4 In the UK in 1996, as the country prepared for the inevitable electoral defeat of
the Conservatives and the advent of New Labour, commentators such as the business
1 This paper is based on a talk delivered to The Globalization of Corporate Governance colloquium held at
Queen's University Belfast in September 2008. Many thanks to the participants for their comments.
2 p. witreland@kent.ac.uk.
3 The term corporate governance emerged in the 1980s to refer to a range of issues concerning the proper
management of corporations, rising rapidly to pohtical and academic prominence as the idea that investor
protection and the maximisation of shareholder value were important policy objectives gained ground. In this
essay. I have taken the liberty of transporting the term back into history to describe earlier debates about the
running of large joint stock corporations.
4 M Porter, Capital disadvantage: America's failing capital investment s',stem (1992) 65(Sept-Oct) Hanard
Business Rerieu, 65-82. See also M Albert, Capitalism rersus Capitalism (New York: Four Walls light Windows
1993) and R Dore, Stock .Market Capitahsm-ll'lfare Capitalism: Japan and Germaqy versus the inglo-Sax-ons (Ox fo rd:
OUP 2000).](ViewImageLocal?handle=hein.journals/nilq60&div=4&collection=&method=preview&ext=.png&size=3)
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