2.3 Different approaches to corporate governance  (Page 3/9)

For a complete case study see Stewart (complete reference below) and Anne Lawrence and James Weber, Business and Society: Stakeholders, Ethics, Public Policy, 13th edition (McGraw-Hill): 501-513.

Dunn focused on incompatible views of corporate governance as one of the causes of the rift that had developed between her and Perkins's: "Tom's model of governance may be appropriate in the world of venture capital, but it is outmoded and inappropriate in the world of public company governance." (Stewart, 165) She also made clear her strong views on board members leaking confidential information shared during board meetings to the press: "The most fundamental duties of a director--the duties of deliberation and candor--rely entirely upon the absolute trust that each director must have in one another's confidentiality. This is true for trivial as well as inmportant matters, because even trivial information that finds its way from the boardroom to the press corrodes trust among directors. It is even more critical when discussions can affect stock prices....Leaking "good" information is as unacceptable as leaking "bad" information--no one can foretell how such information may advantage or disadvantage one investor relative to another." (Stewart, 156)

Questions

Introduction

James B. Stewart, in a New Yorker article about Patricia Dunn and Hewlett-Packard, describes corporate governance as "a term that technically refers to all aspects of running a corporation but in recent years has come to emphasize issues of fairness, transparency, and accountability." This module looks at corporate governance from the macro perspective, (1) examining the management strategies adopted by a firm to ensure compliance and pursue excellence and (2) from the standpoint of government as it seeks to minimize unethical corporate behavior and to maximize the corporation's contribution to social welfare.

What you need to know …

Prisoner's dilemma: cooperation or competition?

Scholarly debates on corporate governance have turned on the advocacy of different approaches, many of which can be modeled mathematically. Two approaches are based on the concepts of agency and stewardship. (See Davis et. al. in Clarke 2004) To enter into this debate, you will reenact the "Prisoner's Dilemma." Imagine that two patriotic spies, A and B, have just been captured by the enemy. Both are placed in separate interrogation cells and are being pressured to confess and provide details about their spying activities. A and B would like to coordinate their actions but the enemy has kept them apart to prevent this. Their objective is to pit A against B another in order to get the desired information. To do this, they have set forth the following systems of motivations, i.e., punishments and rewards.