The relationship between corporate governance, global governance, and sustainable profits: lessons learned from BP

Abstract

PurposeThe recent oil spill disaster in the Gulf of Mexico as well as a multitude of other corporate scandals repeatedly draw attention to the importance of good corporate governance. This paper seeks to explain the possible reasons for violations of principles of good corporate governance in corporate practice.Design/methodology/approachThe paper opens with a brief illustration of the Deepwater Horizon case by relating BP's corporate governance rules to its actual decision making in the context of offshore drilling in the Gulf of Mexico. The insights gained through this analysis are used to identify a basic precondition for the realization of good corporate governance in corporate practice.FindingsThis paper finds a link connecting the conflicts in the relationship between short‐ and long‐term interests of corporations and good corporate governance. Occasionally, deficits in the institutional environment foster the pursuit of quick wins through violations of corporate governance rules. To resolve the tension between short‐ and long‐term objectives, good institutions are required that provide incentives for sustainable behavior without endangering corporations' short‐term competitiveness. This is the starting point for global governance efforts.Practical implicationsOn the basis of the analysis in the paper, new implications for business are derived with respect to the relationship between corporate and global governance.Originality/valueThe paper derives a theoretical framework that captures the relationship between corporate governance and global governance. This framework identifies an interplay between corporate and global governance that allows corporations to bring good corporate governance to life and thereby to invest in the conditions of their sustainable success.