"Corporate virtue" strategies are more likely to cause "good governance" than stricter "compliance and control" regimes

Résumé du document

What is "good corporate governance"? And how an enterprise can achieve to have it? A number of writers and researchers gave their contribution to this subject. Nevertheless, some disagreements and conflicting points of view appeared among them. Indeed, some suggested that corporate virtue strategies are the main factor explaining a "good governance", while others preferred underlining the benefits of compliance and control regimes.
First of all, let's define both expressions "corporate virtue strategy" and "compliance and control". The first refers to the way of acting and deciding according to its beliefs, values, and to its own definition of goodness and righteousness; while the second ones deals with the state of being in accordance with the wish, requirements, demand of authorities and implementing systems to control this compliance. In 2002, Roger L. Martin created a virtue Matrix, a tool which can helps us to set up the basis of the two different factors influencing a corporate decision. In this matrix, he argued that corporate governance take its decision within a civil foundation, composed by customs, norms, laws, and regulations. Companies engage in its practices either by choice (by favouring norms, customs) or in compliance with regulations and law. According to us, we could add to this Virtue Matrix, corporate culture, values and beliefs in the decision making process which is done by choice.

Extraits

[...] “Corporate virtue” strategies are more likely to cause “good governance” than stricter “compliance and control” regimes What is “good corporate governance”? And how an enterprise can achieve to have it? A number of writers and researchers gave their contribution to this subject. Nevertheless, some disagreements and conflicting points of view appeared among them. Indeed, some suggested that corporate virtue strategies are the main factor explaining a “good governance”, while others preferred underlining the benefits of compliance and control regimes. First of all, let's define both expressions “corporate virtue strategy” and “compliance and control”. [...]

[...] To our opinion, thanks to those measures, stakeholders were able to trust again on business concerns, and more than it would have been possible with “compliance and control regimes”. Moreover, considering their success a “creation of a ‘European Oversight Body' is being conduct as a way to unify ethics and governance legislation across continent.”[2] Limitations In an editorial in the Wall Street Journal, it was stated that “there is a kind of ethical absolutism that no human institution can sustain [ At some point the untrammelled pursuit of virtue becomes irresponsible”[3]. [...]

[...] Corporate virtue strategies do cause “good governance” From the article: Corporate governance for crooks? The case for corporate virtue by Margit Osterloh and Bruno Frey In this academic paper, Osterloh and Frey explain that increasing monitoring, control and sanctioning tend to worsen the problems they were designed to solve. They start by explaining the reaction of politicians, who defend the existing corporate governance system according to the Agency Theory. This theory suggests “three methods of counteracting the misuse of power by management: intensive monitoring and sanctioning, pay for performance and corporate control by hostile takeovers”. [...]

[...] Indeed, top management must show that they are committed to those ethical values. As Osterloh and Frey suggested, firms should hire people with a high personal sense of ethics. Finally, let's also underline the subjectivity engaged in the word Because we think that doesn't only mean complying with laws and regulations, we would like to say that the perception of what is good or not can depends from company to company, depending on their own set of values, beliefs, culture, and ethics. [...]

[...] for performance” systems are mainly focused on extrinsic motivation. Employees perceive the money received as being an overriding incentive, some people even manipulate the results in order to get more bonuses. As Argyris (1964) suggested, strict control has a paradoxical effect: leads to a never- ending and continuously expanding need to increase control.” As extrinsic motivations are unable to solve social dilemmas, firms should focus on employees' intrinsic motivations. Employees should be committed to the company: the decision making process of firms should strengthen their participation and self-governance as a part of corporate governance. [...]