Corporate Governance – By Robert A. G. Monks and Nell Minow

• Author: N. Balasubramanian
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00876.x
• Published date: 01 January 2012
• Date: 01 January 2012

Book Review

Robert A. G. Monks and Nell Minow, Corporate Governance (4th Edition), John Wiley & Sons

Ltd, Chichester, England, 2008, ISBN 978-1-4051-7106-9

At its most fundamental level, corporate governance

involves the interplay of three constituencies, the

shareholders, the board of directors, and the executive

management, and their combined interface with the exter-

nal society as represented by the state, the communities,

and the environment including the earth’s resources.

Shareholder wealth maximization is a permitted initiative –

having been legitimized by the laws of the land – so long

as the tenuous equilibrium between and among business,

society, and government is not unduly disturbed. The

authors continue this celebrated tradition by structuring

the study pretty much on these fundamental anchors and

bringing the diverse nuances and sub-themes within this

framework.

The opening chapter is a very instructive recapitulation

of the journey thus far in the evolving structure and profile

of the corporate format of business; it is particularly valu-

able in tracing the origins and rationale of many of the

concepts that are intuitively taken as given today: limited

liability, one-share-one-vote, board versus shareholder

primacy, and so on. Setting the artificial business corpora-

tion in the context of public policy and societal interest

clearly brings out the theoretical limits on corporate power

and influence, much as the corporations and their top man-

agers may dislike the idea of any such fetters! That the

corporations, through their directors and executives, often

transgress these boundaries with seeming impunity is the

reality since they have “no soul to be damned and no body

to be kicked,” as Edward, the First Baron Thurlow, the

English Lord Chancellor during 1778 to 1792, is credited

with saying (p. 21). With all the financial and other

resources at their command, they are often able to delay or

dilute due punishment even when punitive actions are ini-

tiated against them.

The next three chapters delve in detail to the nuts and

bolts of roles, responsibilities, and relationships between

and among the three key institutions involved in govern-

ing corporations – the shareholders (ownership dimen-

sion), the executive (the performance dimension), and the

boards (the monitoring dimension). The key message of the

chapter on shareholders is the emphasis on their virtual

vulnerability to overlording by corporate directors and

managers, once their investment has been made. While

there are some attempts to restore a measure of share-

holder primacy over the board and the executive on certain

important issues – “Say on Pay” for example – the concep-

tual underpinning in this field is still a contentious issue of

debate in legal scholarship.1

The modern corporation has also transformed the con-

cepts of property ownership as earlier accepted; for

example, did the shareholders own a fraction of their com-

panies or did their ownership only mean title to the share

certificates with which they could do whatever they pleased

– hold, sell, gift or whatever.

At least two consequences flow from this modified

version of property ownership. First, control rights gener-

ally get divorced from economic rights. Second, as a

corollary, the corporation as an independent legal entity

assumes the rights of ownership of its tangible and intan-

gible property and associated obligations. In due course,

this separation of ownership from control would lead to

the emergence, especially in the United States, of manage-

rial capitalism, where operational control effectively vested

in executive management rather than those who “owned”

the corporation. “The new oligopolies [corporations] were

owned not by robber barons [as in the earlier century] but

by...million[s] of ordinary shareholders” (Micklethwait &

Wooldridge, 2003:112), none of whom had any say in how

their corporations were being controlled and run!

Chapters 3 and 4 deal with directors and management

respectively, the other two important components in the

scheme of governance. Directors and boards are a corpo-

rate enigma – although they are the ultimate power center

in corporations with authority to recruit, reward, and as

necessary, replace the CEO, consistent exercise of these

powers in the larger interests of the shareholders has been

conspicuous by its absence in several cases as brought out

in the high profile corporate scandals that occur decade

after decade. The very institution of non-aligned or inde-

pendent directors charged with the task of protecting

investors’ interests has been short on performance in

several corporations around the world; the jury is still out

on whether this is due to the overpowering executives and

their well-planned neutralization of board independence

(Burrough & Helyar, 1990) or inappropriate choice of

personnel (Minow, 2008), or some other factors such as

119

Corporate Governance: An International Review, 2012, 20(1): 119–120

© 2011 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00876.x