Article2011

The relationship between corporate governance, global governance, and sustainable profits: lessons learned from BP

48 citations0/0 files storedCorporate Governance

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Corporate Finance and Governance Corporate Governance and Financial Management Governance, Compliance, and Sustainability

Abstract

Purpose The recent oil spill disaster in the Gulf of Mexico as well as a multitude of other corporate scandals repeatedly draw attention to the importance of good corporate governance. This paper seeks to explain the possible reasons for violations of principles of good corporate governance in corporate practice. Design/methodology/approach The paper opens with a brief illustration of the Deepwater Horizon case by relating BP's corporate governance rules to its actual decision making in the context of offshore drilling in the Gulf of Mexico. The insights gained through this analysis are used to identify a basic precondition for the realization of good corporate governance in corporate practice. Findings This paper finds a link connecting the conflicts in the relationship between short‐ and long‐term interests of corporations and good corporate governance. Occasionally, deficits in the institutional environment foster the pursuit of quick wins through violations of corporate governance rules. To resolve the tension between short‐ and long‐term objectives, good institutions are required that provide incentives for sustainable behavior without endangering corporations' short‐term competitiveness. This is the starting point for global governance efforts. Practical implications On the basis of the analysis in the paper, new implications for business are derived with respect to the relationship between corporate and global governance. Originality/value The paper derives a theoretical framework that captures the relationship between corporate governance and global governance. This framework identifies an interplay between corporate and global governance that allows corporations to bring good corporate governance to life and thereby to invest in the conditions of their sustainable success.

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References

1991Institutions, Institutional Change and Economic Performance 1983Separation of Ownership and Control 1992Governing the Commons: The Evolution of Institutions for Collective Action 1997A Survey of Corporate Governance 1965The Logic of Collective Action 1966The Logic of Collective Action: Public Goods and the Theory of Groups.1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1990Performance Pay and Top-Management Incentives

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