Book Review

• Author: Ilir Haxhi
• Published date: 01 July 2012
• Date: 01 July 2012
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00905.x

Book Review

Jonathan R. Macey, Corporate Governance: Promises Kept, Promises Broken, Princeton

University Press, Princeton, NJ, 2008, 344 pp, ISBN 978-0-691-12999-0

Optimal corporate governance (CG), strictly speaking,

does not exist. The last decade of corporate scandals –

from Ahold in the Netherlands, to Enron in the US, Maxwell

in the UK, and Parmalat in Italy – have instigated debate in

both academia and society at large on how public corpora-

tions are directed and controlled. Recent research in CG is

rich in both description and use of analysis. Building on this

literature, in his book Corporate Governance: Promises Kept,

Promises Broken, Macey proposes a multi-level societal and

legal alternative to economic accounts of CG – which he

labels the “promissory approach” – to persuade, induce,

compel, and motivate corporate mangers to keep their prom-

ises to invertors.

While sociologists and economists tend to def‌ine CG

broadly as “the institutions that inf‌luence how business cor-

porations allocate resources and returns” (O’Sullivan, 2000)

or as “an institutional framework in which the integrity of

the transaction is decided” (Williamson, 1996), Macey

def‌ines CG with a broad descriptive – rather than a norma-

tive – term: “various mechanism and institutions, including

law, contract, and norms, by which the shareholders and

other outside investors attempt to assure themselves that

management will be faithful guardians of their investment”

(p. 5). Thus, its purpose is to safeguard the integrity of the

promises made to shareholders.

Drawing mainly on US experience, the book addresses a

critical concern in the CG literature, the relevance of a pure

shareholder-centric perspective, and suggests going beyond

simple prof‌it maximization purposes to alternative models

such as the stakeholder-oriented (e.g., in Germany, France,

or Japan) or, to a lesser extent, even hybrid models (e.g.,

Altrushare Securities with two-third of its stocks controlled

by two charities). The book reads like a theoretical struggle

of economic accounts against the sociological account,

where the promissory approach plays a prominent role.

Macey’s approach is f‌irmly rooted in the tradition of eco-

nomic institutionalism, with actors in society-governments,

capital and management (Aguilera & Jackson, 2003), suppli-

ers, customers, and local communities operating not in iso-

lation but rather embedded in a dynamic social, political,

and cultural context.

The book presents Macey’s vision on “what CG is all

about and what sort of CG mechanisms and institutions

work best” (p. vii) by developing three original insights.

First, considering the non-contractual right of the sharehold-

ers to the corporate cash f‌lows, and the trust-based rather

than reliance-based enforcement mechanism, CG is about

promises. Since CG is about promises, it seems judicious to

assess the CG institutions on the basis of how well they will

facilitate or impede the promise keeping by corporate man-

agers. Finally, having analyzed the well-functioning of CG

devices under the political lens, regulation plays a dual role

in propelling and hampering these devices to operate in a

way – not always considered as the most effective – espe-

cially when it comes to Boards of Directors (BoDs) or credit-

rating agencies (CRAs).

Corporate Governance: Promises Kept, Promises Broken is

organized into two parts. Part I, which includes Chapters 1

through 3, contains a discussion of the main components of

the CG framework and its relation to corporate law, while in

Part II, which includes Chapters 4 through 15, Macey ana-

lyzes what he regards as the most remarkable mechanism

and institutions of CG infrastructure. Alternatively, the

book’s architecture can be dissected from an institutional

actor perspective of corporate insiders and outsiders, capital

and managerial actors (non-)f‌inancial or (non)market insti-

tutions, or the most effective (e.g., dissident directors, Ch. 6;

market for corporate control, Ch. 8; Initial Public Offerings,

IPOs, Ch. 9; hedge funds and private equity, Ch. 15) versus

less effective (e.g., BoDs, Ch. 4; CRAs, Ch. 7; outside accoun-

tants, Ch. 11; corporate whistle-blowers, Ch. 12; shareholder

voting, Ch. 13) CG devices.

In Chapter 1, Macey considers the way that contracts, in

the form of “corporation’s charter and bylaws” (p. 18),

articulate the contractualrelationship between a corporation

and its shareholders which, due to dispersed ownership,

rely on this CG institution to solve agency problems. With

respect to the decision-making process, he identif‌ies three

principal internal sources of inf‌luence – intraf‌irm contact,

legal rules, and societal norms and customs – which work as

intertwined complements and substitutes for each other,

where the statutory law in terms of non-contractual rules

serves as a contractual gap-f‌iller and a better way to solve

CG problems.

Focusing not solely on legal and contractual arrangements

but also on the cross-national diversity of social norms,

405

Corporate Governance: An International Review, 2012, 20(4): 405–406

© 2012 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00905.x