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HomePolicy Articles Article Summary

Changing the Nature of Governance to Create Value

Commentary by Yvan Allaire, Mihaela Firsirotu

In this commentary Allaire and Firsirotu discuss three different modes of corporate governance: fiduciary, shareholder rights, and value-creating. They argue that after a period of generally slack governance standards, there are undeniable intrinsic benefits to tightening up the fiduciary and monitoring role of boards of directors. They point out that fiduciary duty has come to define the new governance orthodoxy.

The authors argue, however, there are a number of problems with the fiduciary mode of governance: 1) it does not correlate with company performance; 2) it does not provide a fail-safe insurance against misdeeds by management; 3) it makes the “independence” of board members the key to good governance; and, 4) it fails to address the fundamental flaw of corporate governance: the agency problem.

Allaire and Firsirotu propose a value-creating approach to governance. They base their approach on four pillars of governance: the legitimacy and credibility of board members; the strategy process and dialogue; quality of financial and strategic information; and, the compensation and incentive system.

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Policy Publication Details

Author(s): Yvan Allaire; Mihaela Firsirotu;
Publisher: C.D. Howe Institute [ Visit Website ]
Year Published: 2003; Publisher Type: Research Institute
Publicly Available: Yes Research Focus: National;
Registration Required: No Language: English
Payment Required: No Publication Format: Adobe PDF

Subjects / Categories:

Policy Articles / Monetary & Capital Management / Government & Business Enterprises
Policy Articles / Monetary & Capital Management / Government & Business Enterprises / 2003
Policy Articles / Monetary & Capital Management

Keywords / Tags:

corporate policy; corporate governance; modes of governance; fiduciary mode; value-creating approach; governance standards;