Changing Models of Corporate Governance in OECD Countries

Abstract

Corporate governance has to do with the way in which business firms are run; that is, how these are managed and controlled. As the term suggests, it concerns the governance of corporations: more specifically, firms whose publicly traded shares of equity capital are listed on a stock exchange. Those firms are characterized by a separation of ownership and management, which poses the well-known agency problem between management and outside capital suppliers, such as external shareholders. In their survey article on corporate governance, Shleifer and Vishny (1997, p. 337) commence by posing the following three questions: ‘How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers?’