The paper was published in the Oxford Research Encyclopedia of Business and Management.

Corporations are traditionally concerned with the structure of rights and responsibilities among corporate actors. That’s why corporate governance focuses mainly on monitoring executive boards, protecting minority shareholders, corporate reporting and disclosure.  But this is a time of global political and economic instability, with tensions between stakeholders, and increasing state activism.

Institutional perspective

In this context, an institutional perspective is very useful in understanding corporate governance around the world. ‘An institutional perspective provides a comprehensive, in-depth, and nuanced picture of the different corporate governance models', says Haxhi. Depending on the country, these models are affected by the national institutions in which they operate.

Impact of institutions on corporate governance

An important finding in his work is that the institutional comparative analysis shows that there is no such thing as a ‘superior’ or ‘best’ model of corporate governance. Haxhi: ‘Alternative and hybrid models co-exist around the world. These models could be optimal in different institutional contexts’. His paper identifies 5 institutions that are particularly important for the future directions of corporate governance:

• The state’s role as a key actor in corporate governance is rapidly increasing worldwide. Ongoing changes in major global industries, such as energy, banking, or high-tech, have led countries to accept state intervention. Examples include governmental bailouts in the US or the involvement of the French state in the energy sector.
• Increased shareholder activism affects corporate governance stability. Some of the reasons for this growing activism are a general rise in ownership concentration and more acquisitions of companies in the Global North by multinationals based in emerging-markets;
• Informal institutions that are replacing weak or ineffective formal institutions in corporate governance models. These can be seen especially in emerging-market countries. A good example is Indian small and medium enterprises (SMEs). They are responsible for approximately 45% of India’s total industrial output. They are mostly family firms that are controlled through informal mechanism such as reputation, trust, and reciprocity.
• The tensions between the interests of shareholders and stakeholders continue to be particularly important. For example, in the context of the Russia-Ukraine war, large multinationals such as BP and Shell have been forced to divest their assets in Russia.
• Pressures to adopt environmental, social, and governance (ESG) practices are increasingly resulting in tensions between what the corporations claim they do in annual reports and what they actually do.