Agency Theory: Explaining or Creating Problems? Good Governance and Ethical Behaviour for Sustainable Business
The latest financial crisis is a negative lesson in how good corporate governance is essential for a sound economy and fundamental to the operations of any good corporate citizen. In this chapter we will focus on how we can implement good governance principles for a sustainable and sound business environment. We will try to make the case that corporations conceived as merely a nexus of private contracts is inadequate as a perspective from which to consider how corporations should be governed. Corporations’ role in the Great Recession, their role in the growing income inequality within even countries with advanced economies, and their role in climate change all suggest that we need to rethink the way we approach their governance.Many corporations are already adopting new perspectives motivated by their recognition that their long term survivals depend on new modes of operations. Increasingly CSR, Ethics and sustainability issues are regarded as strategic with potential to generate important competitive advantages for companies that recognize their success depends on engaging in good business practices – or business practices that are good.
Basing corporate governance on economic presumptions that are empirically invalid will not contribute to corporations being constructive participants in reducing the threats posed by environmental decline and growing relative poverty. We have provided an alternative, stakeholder based approach based on the principles of fairness and shared decision making, which hold out greater promise for sustainable societies than those proffered by the market triumphalists that delivered corporate scandals and financial crisis.