The challenge of effective governance: the case of Swiss Air

Abstract

PurposeThe purpose of this paper is to address corporate governance structures. Effective corporate governance can lead to managerial excellence but managerial ethical excellence does not always exist without effective corporate governance. Embedded in both effective corporate governance and managerial excellence is the “rightness of decisions” or the ethical decision making process. This paper analyzes this key process in the case of the failure of Swissair.Design/methodology/approachThe authors examine the key corporate governance structure through an explanatory case analysis of Swissair. They look at the structure by applying institutional theory rather than agency theory. It is hypothesized that corporate governance structures must comply with the norms generated by various stakeholders as well as economic incentives. No one set of norms may dominate the compliance; otherwise a corporation loses legitimacy and resources. It is contended that this lack of compliance of all stakeholder norms led to the failure of Swissair.FindingsThe authors examined the strategies for governance in Swissair leading up to its failure. Critical examination of the various elements of effective corporate governance results in a model presented here for assimilating appropriate norms of behavior into the corporate decision‐making process. They purport that adoption of the model by corporations will improve decision making leading to improved survival and performance.Originality/valueThe case analysis provides for the development of a model of corporate governance which includes consideration of all facets of society, its stakeholders and the norms the stakeholders generate. It is contended that companies must consider ethical, social and political norms of behavior in corporate governance structures as well as economic concerns.