Transnational Corporate Governance: The State of the Art and Twenty-First Century Challenges

This chapter explores corporate governance as a subfield of corporate law, which was traditionally embedded in a country’s legal-economic culture and to a large degree reflective of historically grown structures of industrial development, corporate ownership and specific levels of market regulation. Mirroring the rise in importance of the idea of shareholder wealth maximization as a firm’s definitive performance measure, corporate governance rules have been aimed at meeting the ‘market expectations’ of investors who could inject as well as remove crucial financial assets into their countries’ corporate actors with the ease of a mouse click. In this context, corporate governance began to push against and, increasingly, grow beyond the confines of nationally specific cultures and historical experiences of corporate law, to become, instead, a hotly contested, transnational regulatory field of competing visions of firms’ institutional and normative infrastructure in search of creating the most advantageous conditions to attract capital in volatile markets. This shift occurred at the same time that regulatory transformations in Western post-industrial societies since the early 1980s had begun to significantly shift public service provision and state-organized frameworks for old age security guarantees, access to health services or education to the sphere of the market. Today’s corporate governance laboratory is a transnational force field, fought over by a host of different state and non-state actors, including national governments as well as international organizations such as the United Nations or the OECD, but also by private actors such as institutional investors, ranging from banks to hedge funds as well as semi-public expert committees, think tanks and consultancies. Meanwhile, following, on the one hand, the two financial land-mark crises in 2001 and 2008/09 and, on the other, the simultaneously growing pressure on corporations from human rights, gender equality and environmental groups, the corporate governance debate again appears to be shifting. This time, the diversity of issues discussed under the corporate governance rubric points towards a wider and more comprehensive engagement with the firm’s purpose and functions, but also with its societal obligations and responsibilities as part of a wider, more broad-based, critical engagement with capitalism. Given the crucial role of firms as the residual claimants of a wide-ranging retreat of the state from its role in guaranteeing and providing a wide range of social functions, corporate governance is a telling mirror for the transformation of public and private power in our age and its transnational nature has to address the twenty-first century challenges unfolding in a globally intensifying, competitive economy of intertwined markets, sourcing streams and distribution patterns on a planetary scale.