Perspective Chapter: Governing Corporations in Appearance but Not in Fact – A Possible Unintended Consequence of the Corporate Governance Movement

Abstract

Corporate failures trigger corporate regulations. The corporation is a fiction that is theorized as a nexus of contracts. Mechanisms for monitoring corporations, namely the external audit function and corporate governance, have been promoted and propagated. Whether corporations are governable is a question. An argument made in the accounting literature is that the audit function has been successful because of the ability of external auditors to appear independent when they might not be. The board of directors of such corporations may appear governing executive managers while they are in fact not or cannot. With the ideology of “profit over people,” multinational companies run the world with CEOs who are the most powerful individuals in the corporate model. Without corporate financers’ active involvement, corporations are unleashed. Corporate financers need to be aware of their power and be able to hold executive management accountable to make their corporations good citizens of the globe. Corporate monitoring mechanisms do not make up for their absence in the corporate model, which makes the view that corporations are founded to maximize the value of absentees naïve. A long history of corporate failures has proven its fallacy.