ID 7645
Saraev, Oleg: Corporate Governance - National and foreign concepts of development of
groups of the enterprises
Hamburg: Diplomica GmbH, 2004
Zugl.: Donetsk National Technical University, Universität, Magisterarbeit, 2003
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TABLE OF CONTENTS
TABLE OF CONTENTS ...III
INTRODUCTION ...IV
1 THEORETICAL BASIS OF CORPORATE STRUCTURES DEVELOPMENT... VII
1.1
T
HE
E
SSENCE
,
KINDS AND ADVANTAGES OF CORPORATE STRUCTURES UNDER MODERN MANAGEMENT
CONDITIONS
...
VII
1.2
T
HE
C
ONTENTS AND THE
P
URPOSES OF
C
ORPORATE
G
OVERNANCE
...
XV
1.3
R
OLE OF
D
EVELOPMENT OF
C
ORPORATE
S
TRUCTURES FOR
S
OCIAL AND
E
CONOMIC
G
ROWTH OF
D
ONETSK
R
EGION
...
XXII
2 THE ANALYSIS OF FUNCTIONING CORPORATE STRUCTURES IN DOMESTIC AND FOREIGN
PRACTICE ... XXIX
2.1
F
EATURES OF
F
ORMATION AND
D
EVELOPMENT OF THE
U
KRAINIAN
M
ODEL OF
C
ORPORATE
G
OVERNMENT
...
XXIX
2.2
F
OREIGN
E
XPERIENCE OF
C
REATION AND
F
UNCTIONING OF
C
ORPORATE
S
TRUCTURES
...
XXXVII
2.3
L
IMITS AND
E
XPEDIENCY OF
U
SE OF
F
OREIGN
E
XPERIENCE OF
C
ORPORATE
G
OVERNANCE IN
D
OMESTIC
P
RACTICE
...
XLI
3 WAYS OF IMPROVEMENT OF THE GOVERNMENT MANAGEMENT AND INTEGRATED
ESTIMATION OF DEVELOPMENT OF CORPORATE ACTIVITY ... XLIX
3.1
M
ECHANISM OF
G
OVERNMENT
M
ANAGEMENT IN
D
EVELOPMENT OF
C
ORPORATE
S
TRUCTURES IN
P
RESENT
C
ONDITIONS
...
XLIX
3.2
N
ECESSITY AND
F
OREIGN
E
XPERIENCE OF AN
I
NTEGRATED
E
STIMATION OF
D
EVELOPMENT OF THE
E
NTERPRISES
...
LVI
3.3
P
ERFECTION OF A
T
ECHNIQUE OF AN
I
NTEGRATED
E
STIMATION OF
D
EVELOPMENT OF
D
OMESTIC
C
ORPORATIONS
...
LIX
CONCLUSIONS... LXXXIII
LIST OF NOTES ...LXXXVIII
INTRODUCTION
Market reforms, in which basis cardinal changes of patterns of ownership underlie, have
transformed a microlevel of economy a level of the enterprise. Its purposes have essentially
changed: instead of performance of scheduled tasks profit; instead of guaranteed supply
market mutual relations with suppliers; instead of the state guardianship a competition. The
enterprises have received not only economic will, but also the financial and economic
responsibility equivalent to it. They care of a choice of the form and structure of the organization of
manufacture, a price level and kinds of the goods, suppliers of raw material and consumers of
production, of innovations, ways and methods of conducting businesses in the internal and
external markets. For success it is necessary for enterprises to adapt for conditions of the market
environment, to be flexible, dynamic, to take into account changes of internal and external
economic conditions.
The difficulty of adaptation to dynamically changeable external conditions is concerned
with absence of market economy in pure form. It is usually an economy of the mixed type, which
unites self-management of public sector and influence of the state, regional, local authorities,
dynamic requirements of a society. Therefore formation and development of mixed economy have
caused occurrence of new forms of the enterprises, essentially new forms of management,
associations of divergences in the uniform target stream focused on the market and limited only by
solvent demand, the state legislatively fixed norms and rules of behavior.
Such new subjects of managing in market economy of the country became joint-stock
companies. Their functioning and management of them has a number of potential advantages in
comparison with other forms of the enterprises: the total amount of the capital of the subject is
increased, putting in action the synergy's laws and effects; improved management on the basis of
the purposeful coordination of interests of hired workers of the enterprise, shareholders and
managers; realizing the collective nature of acceptance of decisions; additional sources for
innovational activity, an opportunity of more scale and deep studying of the market; preconditions
for expansion of commodity markets of production and purchase of resources; increasing
opportunities of scientific researches financing directed on search of industrial and commercial
reserves. The joint-stock form of the enterprise and the methods of management appropriate to it
create organizational bases for proof functioning subjects of managing and maintenance with their
means of innovational activity.
In the modern advanced countries overwhelming majority of an industrial output is made
by the joint-stock enterprises. In Ukraine potential reserves of this form of conducting and
management of an economy are not used in full measure.
The latent opportunities and advantages of joint-stock companies are founded on
corporationism and also may be realized in case of development of effective corporate governance
on the basis of taking into account a level of development of a national economy and its features,
both domestic and foreign experience of corporate governance, maintenance of a mutual
orientation of interests of all participants of joint-stock process on achievement of high
profitableness of managing subjects, growth of citizens well-being.
The problem of formation of effective corporate governance demands the theoretical,
methodical and practical decision. For this reason the chosen theme of research is topical at the
given stage of development of Ukraine economy.
Theoretical questions of management of different forms of managing subjects have
received development in works of following foreign scientists: L.I.Abalkin, A.G.Aganbegan,
R.Akoff, I.Ansoff, M.Aoki, M.Beht, R.Vishni, D.M.Gvishiani, P.Druker, M.Jensen, L.V.Kontorovich,
B.Z. Milner, P. La Port, N.J. Petrakov,
G.H. Popov, F.Lopes de Silanes, A.Shivdasani, A.Shlafer.
An important contribution to perfection of methods of management by the enterprises,
regions and the countries as a whole has been brought by following domestic scientists:
A.I.Amosha, B.N.Andrushkiv, C.C. Aptekar, J.G.Bersuts'ky, I.P.Buleev, B.V.Burkins'ky,
V.A.Gavrilenko, V.M.Geets', V.I.Golikov, G.K.Gubernaja, F.I. Evdokimov, I.S.Zavads'ky,
N.I.Ivanov, A.V.Kozachenko, O.E.Kuz'min, I.I.Lukinov, V.K.Mamutov, A.P.Nalivajko,
V.E.Nejenburg, O.F.Novikova, E.G.Panchenko, M.D.Prokopenko, G.M.Skudar', V.M.Hobta,
L.G.Chervova, M.G.Chumachenko, V.F.Janukovich.
The theme of research has determined its purpose and tasks.
The purpose of the given graduation thesis is research of world national concepts of
development of groups of the enterprises and search of perfection directions of domestic model of
corporate structures development.
For achievement of a defined purpose the following tasks were put and solved:
to consider the essence, kinds and advantages of corporate structures in modern
management conditions;
to analyze the contents and the purposes of corporate governance;
to discover the role of development of corporate structures for social and economic
growth of Donetsk region;
to analyze features of formation and development of the Ukrainian model of corporate
governance;
to consider foreign experience of creation and functioning of corporate structures;
to adduce the limits and expediency of use of foreign experience of corporate governance
in domestic practice;
to analyze and show ways of improvement of the mechanism of the government
management to development of corporate structures in modern conditions;
to prove necessity and to analyze foreign experience of an integrated estimation of
development of the enterprises;
to improve of a technique of an integrated estimation of development of domestic
corporations.
In the research there were used such research techniques as a method of the analysis, an
inductive and deductive method, a method of comparison, methods of the multivariate
statistical analysis, tools of financial management (a matrix of financial strategy of Z.Franshon,
I.Romani etc.).
For the last 10-15 years the problematics of corporate governance takes an important place
in system of economic sciences. Almost all leading foreign business schools have training courses
on corporate governance, and since 1993 in the periodical press even there is a magazine
"Corporate Governance" devoted to corporate governance.
Results of research were approved in analytical work of divisions of industrial-investment
corporation "Ukrpodshipnik" (Donetsk).
1 THEORETICAL BASIS OF CORPORATE STRUCTURES
DEVELOPMENT
1.1 The Essence, kinds and advantages of corporate structures under modern
management conditions
Formation of corporate relations as a result of overcoming a state ownership monopoly of
by its de-stating and privatizations have already established in Ukraine as a reality. Therefore, the
research in the field of corporate governance are getting special value and cause an increased
interest. The real process of property relations reforming shows that creating a corporation became
in Ukraine the dominant form de-stating and privatizations of the large and average state
enterprises.
Social-economic association in the given research is understood as the association of natural
and/or legal persons created to achieve social and economic targets.
The historical process of forming social and economic associations is characterized by the
presence of several stages distinguished by the reasons for creation and type of associations,
adequate to a condition of a society at the given moment of time [1]. Basing on results of the
historical analysis of its [what?] formation (App. B) it is possible to draw a conclusion that the
variety of its types is caused by various conditions of the environment at present time. The basic
system reasons for forming associations at all historical stages was the necessity to increase
adaptable opportunities of the parts of the society and to decrease an influence of environment
instability on them (tab. 1.1).
Thus, occurrence and development of social and economic associations in the society is a
way of its adaptation to the environment. The basic purpose of creating social and economic
associations is to increase the level of resistability of the society as a system to adverse influences of
the environment.
The word "corporation" takes its origin from the Latin - corporatio (association,
community) and designates an association, the union created on the basis of professional or class
interests [2].
Table 1.1 The reasons for occurrence of types of social and economic associations (SEA)
The reasons of formation
Name SEA
Time
of
occurrence
Historical
System
Merchant guilds
VI-XII ent. Need for self-defense,
conducting competitive
struggle, development of
trade
Increase of adaptable
opportunities
Share companies
XII ent.
Decrease of risk of capital
investments, development of
perspective industries
Decrease of instability of an
environment
The joint-stock
companies
1554 International trade,
development of technical
progress, investment of
perspective industries
Increase of adaptable
opportunities
Joint-stock banks
1694
As an alternative way of use
of the trading capital,
crediting of the governments
and the companies
Increase of adaptable
opportunities
Stock exchanges
1531
As means of attraction of the
external capital and
maintenance of efficiency of
investments
For the companies increase
of adaptable opportunities,
for investors decrease of
instability of an environment
The holding
companies
1870
As the form of economic
integration, decrease strategic
to risk
Decrease of instability of an
environment
Industrial
corporations
1900
As the form of strengthening
of centralization of the
capital, decrease branch risks
Decrease of the astable
external industrial
environment
Conglomerates
1960
As the form of strengthening
of stability of various
branches, decrease
interbranch risks
Decrease of instability of the
external interbranch
environment of various
branches
Transnational
corporations
1967
As the form of strengthening
of stability of concrete
branches in the international
field of activity, decrease
interbranch risks of the
enterprises of the various
Decrease of instability of an
environment of various
branches
states
Global
corporations
60-80-th
cent.
As the form of stability of all
spheres of manufacture,
scientific researches of
management; decrease global
risks
Decrease of global instability
The modern use of the term "corporation" essentially differs in the basic systems of the
law: English (system of the public law, widespread in USA, the Great Britain, Canada, Australia,
India, the republic of South Africa and Israel) and civil (continental system of the right within the
framework of which distinguish German, French and the Scandinavian systems of the law). [or
legal system]
In the English system the concept "corporation" has a rather wide use, by consideration of
the organization as a united whole, and as the participant of the management. In USA, for
example, all corporations can be divided into four groups: public, quasipublic, business and non-
profit [3].
In the countries of continental (civil) legal system the concept "corporation" is much
wider. Corporations comprise various kinds of companies (full, command, joint-stock, limited),
associations (concerns, holdings, syndicates), cooperative companies, the rent, state enterprises,
and also the various uneconomic unions and associations. And, as E.Kibenko emphasizes,
frequently the term of "corporation" designates only the enterprise or commercial organizations
[4].
With the development of international economic relations the necessity of corporations'
division on national and international has appeared. In the legal and economic literature, as
N.Son'kin marks, the international corporations are divided in four groups:
1.
Transnational corporations corporations mainly with the one-nation share capital,
carrying out the business activity in other countries by means of creation of branches and affiliated
companies. These are such American corporations, as "General Motors", "Fiat", "IBM".
2.
Multinational corporations trusts, concerns, i.e. production associations of the
enterprises of two or more states. These are such corporations as the French concern "Fiat-Citroen",
the English-Dutch concern "Royal Dutch-Shell".
3.
International corporate unions consortiums, i.e. associations of industrial,
scientific and technical, bank concerns. As an example of such union the West-European
consortium "Erbas Industry" may serve.
4.
Global corporations are the international corporations conducting the business
activity in the framework of all world economic space [5].
Basing on the above-stated legal features of the concept "corporation" use and economic functions
carried out by them, there appears the following classification of corporations (fig. 1.1).
Figure 1.1 Classification of corporations
As to definitions of concept "corporation" in domestic and foreign sources there is a set of
the versions underlining mainly legal difference of corporations from other managing persons.
To such variants it is possible to attribute the following definitions of corporation as legal
person.
1. The corporation a legal person that received a charter from local authorities or the
central government and detached from individuals, whose property it is [6].
2. The corporation is the legal person separate and distinct from owners, having rights,
duties and privileges of the actual person [7].
3. The Corporation is the enterprise organization recognized as the legal person, having
limited liability and the not limited term of existence. The corporation is established on the basis of
the charter approved by the commissioner on affairs of corporations of state. Rights and duties of
transnational
corporations
Multinational
corporations
international
corporate unions
global
corporations
in English system
in continental
public
quasipublic
non-profit
business
companies (full,
command, joint-stock,
limited)
associations (concerns,
holdings, syndicates)
cooperative companies,
the rent, state
enterprises
unthrifty unions and
associations
Corporations
National
International
corporation are regulated by its charter and both by the local and federal legislation. The
corporation is supervised by shareholders having a vote who select directors, and those, in turn,
appoint other managing persons [8].
4. The corporation, according to P.Samuelson and V.Nordhauz, is "the legal person who
independently may sell and buy, borrow money, make the goods and services and enter contract
relations; has the right of limited liability according to which investments of each of the
corporation proprietors are strictly limited to a certain size " [9].
Some definitions of corporation concentrate on distribution of the property rights:
1. Corporation is the most widespread form of a business activity organization. The
property of corporation is divided into the fixed amount of shares. Each share gives its owner the
property right to the certain share of property of the given corporation, reception of a part of the
profit to participate in management [10].
2. Corporations are the legal organizations working independently, and they are
completely separated from the owners. Owners may freely transfer the participation in the capital,
submitted by ordinary shares, to other persons without any direct influence to corporation [11].
3. The corporation is understood as the enterprise or the firm having the form of the legal
person where the responsibility of each proprietor is limited to his contribution to the given
enterprise. Corporation a company based on equal footing. Getting shares of a company,
separate persons become proprietors of corporation. Thus, financial assets of huge number of
people are involved. Holders of shares receive a part of the income as dividends. They risk only
that sum which have paid at purchase of shares. The corporation exists irrespective of its owners
shareholders that allows it to function rather stably [12].
The following definition of corporation puts accent on economic targets of its formation:
corporation is the legal person representing association of investors of the capital (shareholders)
for realization of certain activity: trading, financial, industrial, transport etc. and the joint-stock
company is identical to concept [13].
N.Hvesjuk's definition especially differs from all above-stated as in its attempt to note
social aspects of concept of corporation. In the given understanding, the corporation is represented
as the generality of people constructed on an associated pattern of ownership, principles of
interrelation and interresponsibility of the members of association caused to life by the common
interest (reception of the profit, the income) and caused by the right, traditions, depth of
psychology, economic culture and morals [14].
Thus, despite of a variety of definitions of concept "corporation", the majority of them
concentrates on the legal status of the given managing person and on the property rights following
from it.
However, to stop only on legal aspect of concept "corporation" it is not represented
expedient on two principal causes. First, in Ukraine the legal status of corporation is insufficiently
determined; second, the corporation the phenomenon multidimensional, therefore the
unidirectional legal aspect does not give complete representation about its essence.
It is necessary to stop more in detail on the first statement. There are various sights on
"corporation" in the Ukrainian understanding. In the researches of corporate governance of
E.Kibenko adheres to the following concept: "in Ukraine to corporations such commercial legal
persons as economic societies concern first of all, and as corporate rights understand the rights
following from participation in economic societies" [15].
The same opinion supports also a number of other scientists. So, V.Chinchikeev considers,
that in Ukraine to corporations such commercial persons as economic societies concern. Thus the
following of economic societies defines: "... it is corporation with significant number of
participants, each of which contributed the certain share of the capital, answers on duties of
corporation only in its limits" [16].
Unequivocal legislative definition of concept "corporation" is rather problematic.
In an item 3 Laws of Ukraine "About the enterprises in Ukraine " the corporation is
defined as "the contractual association created on the basis of overlapping of industrial, scientific
and commercial interests with delegation of separate powers of centralized regulation of activity of
each of its participants " [17].
However, as already it was marked earlier, in definition of concept "corporation" it is
obviously not enough one legal aspect. Results of research show, that the analysis of concept
"corporation" is expedient for carrying out in view of such basic aspects (fig. 1.2):
economic which defines a place and a role of corporations in national and international
economic process;
legal, describing questions and activity of corporations in view of national and
international legislations;
social, which determining a role of corporations in development of a society.
Figure 1.2 Aspects of the analysis of concept "corporation"
Concept
"corporation"
Legal aspect
Social aspect
Economic aspect
Each of the given aspects allows to present the appropriate definition of concept
"corporation":
corporation as the participant of economic process, represents the contractual economic
association created on the basis of the common economic interests;
corporation as the subject of legal relations, i.e. legally, represents an economic society
which rights of participants are defined according to the legislation on the appropriate kinds of
economic societies;
corporation as the element, is more exact a part of a society, represents the social and
economic association created by concentration of "immunities" of parts of a society with the
purpose of maintenance of a survival and development both the given parts and the society as the
whole.
The structure of subjects of corporate relations can be presented as follows:
shareholders: physical persons, the state, the investment companies, funds, commercial
banks, the parent company, holding, financial and industrial group, the broker and dealer
companies;
nominal holders of the corporate property rights: deposit-clearing establishments, savings
registrars;
potential investors;
members of labor collective, the administrative personnel, workers, as participants of
production;
state.
Corporate activity is limited to set of standards in which requirements of shareholders are
displayed. Requirements and expectations of workers, clients, competitors, suppliers,
shareholders, the state and local governments, managers, citizens and other legal and physical
persons define "vital space" in which borders corporation may conduct the affairs [18].
All these expectations form as if perimeter of a polygon in which the vital space is closed,
and the amount of the sides is equal to amount of standards of activity.
Corporations are one of the basic objects of corporate relations, make corporate sector in
which borders the reference, distribution and reproduction of the corporate capital are realized.
Proceeding from our researches, it is necessary to note, that in Ukraine formation of corporate
structures is at the initial stage.
There are associations in the form of the unions, associations, holdings, financial and
industrial groups, concerns more often. Corporations share behind branch attributes on financial,
industrial, transport, communicative and information.
Researches of essence and the economic contents of concept "corporation" will be not full
without consideration of a place and a role of the given category in a modern economic science. A
basis and destructive force of evolution of the majority of forms of enterprise activity are
disagreements, which inherent in a private property.
One of such disagreements is a disagreement between the tendency to boundless growth
of monetary resources and the limited opportunities of the privately-owned proprietor which is in
part overcome due to occurrence of the corporate property.
In the majority of the countries with transitive economy the system of corporate relations
has specific features as concerning formation and the reference of the corporate capital, and is the
result of transformational changes of economic system.
In this case it means, that becoming of corporation as new form of the organization of
groups of the enterprises occurs within the limits of the common process of transformation of
economic relations at transition from economy where as a basis of formation of corporate sector
processes of privatization and a privatization act.
On the basis of generalization of foreign and domestic experience it is possible to
determine advantages and lacks of corporation, as one of forms of an initial link of economy,
which shown in table 1.2.
Table 1.2 Advantages and lacks of corporation
Advantages
Lacks
1
2
Attraction of the capital for investments by sale of
shares (for joint-stock company)
Complexity of process of creation and
liquidation
Opportunity of isolation of proprietors from
management which forms a basis of reduction of
risk
Loss of confidentiality concerning the activity
Simplicity of an entrance and exit from
corporation
The opportunity of conflicts of different
groups of participants of corporate relations
Publicity and transparency of production-
economic activities
Restriction of influence of separate
shareholders on activity of corporation
and ignoring by interests of minority of
shareholders at acceptance of administrative
decisions
The opportunity of reduction of risk of investors
due to insertion of the capital in different
Scale of manufacture may be nonflexible and
bureaucratic
corporate associations
Concentration of the capital for realization of a
scale effect of manufacture
The large expenses for maintenance of
controls and concerning the reference of the
corporate capital
Limitlessness of life cycle of corporation
Complex mechanisms of the reporting and
management
In business of USA of one of the newest tendencies is creation by two or more
corporations (probably from the different countries) strategic alliances for achievement of the
purposes [19].
Thus, determining a role of corporation, it is expedient to emphasize that such form of
managing creates conditions for stable development of economy as a whole. It is connected by that
concentration of the capital raises efficiency of regulation by economy with the help of tools of a
fiscal policy, raise innovational activity in economy, strengthen positions in the market of national
manufacturers, expand opportunities of equal in rights inclusion of business in processes of
globalization of world economical processes.
But for today domestic corporate structures, which majority is in financial and economic
difficulty, do not use the potential opportunities. In this connection for Ukraine there is an
immediate need of positive development of problems of corporate governance.
1.2 The Contents and the Purposes of Corporate Governance
In definition of concept "corporate governance" is available set of the points of view which reflect
different approaches of their authors to this economically significant aspect of activity of managing
subjects. The treatments give not only domestic and foreign scientific, but also the international
financial organizations and bodies of state regulation. In domestic and Russian researches it is
accepted to translate the term "corporate governance" as corporate governance (see for example,
[20]) (governance it is literally translated from English as management, authority). The uniform
approach in interpretation of this concept is not present. It is necessary to stop on the most typical
approaches.
According to definition of World bank, corporate governance unites in itself norms of the
legislation, normative positions and practice of managing in a private sector that enables
enterprises to involve financial and manpower resources, effectively to carry out economic
activities and, thus, to continue the functioning, raising long-term economic cost by increase of cost
of shares and supporting thus interests of shareholders and society as a whole [21].
In this definition corporate governance is considered from a position of association of norms
of the legislation and practice of managing in a private sector, another words, from a position of
external regulation of activity of corporations. The basic functional applicability of corporate
governance sees this international financial organization in attraction financial and manpower
resources, effective economic activities and increase of economic cost of firm. Among all groups of
investors in this definition the accent is made on maintenance of interests of shareholders.
The international financial corporation treats corporate governance as system of the elective
and appointed bodies which carry out management of activity of joint-stock companies that reflects
balance of interests of proprietors and is directed on maintenance of the greatest possible profit
from all kinds of activity of joint-stock company within the limits of norms of the current
legislation [22].
In opinion of the Federal Securities Commission of the Russian Federation, under
corporate governance it is necessary to understand system of relations between controls and
officials of emitters, owners of securities of such emitters (shareholders, owners of bonds and other
securities), and also other interested persons anyhow involved in management by the emitter as by
the legal person. In the given definition all subjects of corporate governance are incorporated
practically, but its purposes are not allocated. This definition distributes corporate governance to
enterprises emitters of securities.
Thus, three above-stated definitions concern to "external" as these definitions were given
by the appropriate organizations with the purpose of the external control or regulation of activity
of corporations.
Further it is necessary to consider definitions of corporate governance which concentrate
on its internal essence.
Definitions of one of the most widespread groups treat corporate governance from a
position of protection of rights of investors and the corporate control. To them it is possible to
attribute the following:
1. Shleifer A. and Vishny R. define corporate governance as ways with the help of which
investors of corporations provide to themselves reception of the profit from the investments [23].
2. Demb A. and Neubauer F. treat corporate governance as process by means of which
corporations bear the responsibility before rights and wishes of
shareholders [24].
3. Kose J. and Lemma S.W. mark, that corporate governance assumes mechanisms with
which help shareholders of the company carry out the control above workers of the company and
all administrative personnel in interests of the protection [25].
4. Pishpek S. formulates corporate governance in narrow and wide understanding. In a
narrow sense corporate governance consists in maintenance of activity of managers on operation
of business in interests of proprietors shareholders. In wider treatment corporate governance is a
protection and the account of interests both financial and the not financial investors bringing the
contribution to activity of corporation [26].
The system of corporate governance is considered by a number of scientist as
organizational model with the help of which the company represents and protects interests of the
investors [27; 28; 29].
The generality of the above-stated definitions consists that their authors define corporate
governance and its basic importance from a position of protection of rights of investors. The given
sight is unidirectional and subjective as takes into account interests only one group of participants
of process of corporate governance.
Interests of the second most significant group of participants of corporate governance are
also marked in the appropriate definitions, but the similar sight is not so widespread. So, some
authors, for example, E.Sternberg, state the opposite point of view, approving, that rights and
desires of shareholders do not coincide with concept corporate governance [30].
The following group of researchers accents attention to mutual relation of subjects.
However, its difference from previous is that in definition of concept of corporate governance the
researchers concerning this group, recognize necessity of harmonization of interests of all interested
groups. To the given group it is possible to relate the following approaches and definitions of
corporate governance:
1. The approach known rate agency "Standard and Poor's Corporation" consists that
corporate governance provides interaction between managing companies, its board of directors,
shareholders of the company and other financial intermediaries [31].
2. Sirosh A. also considers corporate governance as system of organizational-legal,
economic and financial mutual relation of all participants of joint-stock company which establishes
mechanisms and ways of interaction of the interested sides with the help of which they represent
the interests in joint-stock company and cooperate with joint-stock company and among
themselves [32].
3. In Bulgaria corporate governance most frequently is understood as management of
relations and the coordination of interests between owners and managers of corporations [33].
4. Corporate governance is considered by separate authors as a set of institutional
mechanisms regulating the relations between several groups of accomplices (stakeholders) in
affairs of corporation (investors shareholders and creditors; managers and workers) with the
purpose of reception of economic gains from such coalition [34].
5. In the concept of corporate governance in which basic principles of the Organization of
economic cooperation and development (OECD) are fixed, the analyzed concept is given from two
sides: normative and behavioral. From the normative side, the concept of corporate governance
concerns the certain norms and rules which determine mutual relation and private behavior. From
the behavioral side, corporate governance includes mutual relation and, proceeding from this,
model of behavior between various participants of corporation with limited liability a way of
interaction between managers (heads) and shareholders, and also workers, creditors, the main
consumers and the public with the purpose of formation of corporate strategy [35].
Thus, presence of similar different interpretations in definition of concept corporate
governance testifies to the conflict of interests of participants of the given process.
In this connection, Oskaya M. and Askari H. see an overall objective of corporate
governance in development of effective monitoring and incentive mechanisms which would
reduce lacks which are connected to branch of possession from management [36]. The given
formulation is accented on search of mechanisms of regulation of the disagreements arising at
management by corporations.
However, the concept of corporate governance is not settled by subjective aspect, i.e.
mutual relation of its participants. Except for it, corporate governance, is, first of all, management
as such. In this connection a number of researchers bypasses subjective aspect of the given concept
and stops on objective managerial process where there is a controlled object corporation.
So, M.Issakson formulates corporate governance as system by means of which business of
corporation [37]. R.Kapeljushnikov considers system of corporate governance as a set of
institutional mechanisms limiting deviations from behavior, providing maximization of market
cost [38].
To last group of researchers it is possible to relate what try in the definitions to unit
subjective and objective aspects of corporate governance.
To such researchers it is possible to relate S.Turnbulla who marks, that corporate
governance describes processes in activity of the organization which are connected as to definition
of the authorized persons under the control and regulation of activity, and with the organization of
manufacture, realization of the goods and services [39].
Thus, during the analysis of existing definitions of corporate governance the following
approaches are allocated (fig. 1.3).
Corporate governance
Figure 1.3 Approaches to concept of corporate governance
The first, subjective approach concentrates on mutual relation and may take into account
both interests of one group of participants and interests of all groups. This approach characterizes
features of a word "corporate".
The second approach characterizes features of a word "management" and assumes the
objective characteristic of managerial process by corporation as the system realizing given
economic targets.
The third approach takes into account subjective and objective features of the given
concept. Therefore it reflects concept "corporate governance" more adequately.
Hence, the concept "corporate governance" is integration of two equivalent approaches:
the subjective relations of participants of process of corporate governance based on settlement and
having frequently the various purposes, and objective, describing managerial process by
corporation as industrial
system (fig. 1.4).
Figure 1.4 Components of process of corporate governance
Thus, one of the basic problems arising during corporate governance is the coordination
of the purposes of various groups of participants of the given process.
Therefore there will be pertinent a consideration of interaction of the purposes of various
subjective
approach
objective
approach
integral
approach
Taking into account
interests of one of
groups of
participants
Taking into account
interests of all groups
of participants
Accent on
managerial process
Integration of
two previous
Corporate
governance
Management of
the coordination
of interests of
groups-
participants
Management of
corporation as the
organization
=
+
groups of participants of corporate governance in more detail.
The direction and dynamics of development of corporation are determined by the basic
purpose of its existence. Being well defined, the purposes become the powerful tool of increase of a
production efficiency, the control, coordination, and also are used at all stages of decision-making
process. Consideration of the purposes of corporate governance has special sense that will be
determined by presence of significant number of participants of the given process having various
sights on the same problems.
According to I.Ansoff's understanding [40], the purposes are rules of acceptance of the
decisions, giving to management an opportunity to direct activity of firm and to trace its results.
He counts also, that the purposes of the majority of firms including corporations, include:
1.
Economic targets directed on optimization of all process of use of resources of firm.
2.
Maintenance of a sufficient level of return of investments in the long-term period. This
purpose will be present at many companies as it is extremely important for a survival: if feedback
of capital investments is small, investors will turn away from firm, if return is chronically negative,
the company inevitably will go bankrupt. In the majority of the companies economic targets
render the greatest influence on behavior of firm and form a basis of its well defined purposes
used for management and the control.
3.
Social, or the non-economic purposes adequate to needs and personal aspirations of
workers of firm.
4.
Purposes adequate to expectations of influential external representatives (somehow:
separate holders of shares or the companies owning a part of shares of firm) [41].
The purposes getting under items 3 and 4, on I.Ansoff, render secondary influence on
behavior of management (fig. 1.5).
Purposes of
corporation
Primary purposes
(management purposes)
Secondary
purposes
Economic targets
(optimization of all process of
use of resources)
Maintenance of a sufficient
level of return of investments
in the long-term period
Non-economic purposes
Purposes adequate to
expectations of influential
external representatives
Figure 1.5 The purposes of corporation (on I.Ansoff)
From the offered list of the purposes it is seen, that there are primary purposes of existence
of corporation to which efficient control resources and achievement of long-term profitableness of
shares, and the secondary purposes, i.e. the purposes of workers and the external interested groups,
including shareholders concern.
Proceeding from definition of process of corporate governance which is considered in
objective and the subjective aspects, the given figure is necessary for modifying, having allocated
two types of the purposes of corporation:
the objective purposes which determine process of evolution of corporation as industrial
system;
the subjective purposes, i.e. the purposes of participants of process of corporate
governance which may render significant influence on the objective purposes and correct their
direction (fig. 1.6).
Figure 1.6 The purposes of corporation (the modified variant)
The real purpose of corporation or direction of its development represents the complex of
its objective purposes updated in view of an orientation of the subjective purposes of groups participants of
process of corporate governance. And, process of definition of the basic purpose of corporation should
be organized so that at the coordination of the purposes of participating groups achievement of the
objective purposes of corporation remained dominant, and the accepted mechanisms of
achievement of the subjective purposes did not contradict achievement of the purposes objective.
Thus the subjective purposes of the interested groups may be achieved only by the
maximal observance of the objective purposes of corporation provided that the subjective
Purposes of
corporation
objective purposes
subjective purposes
Purposes of
survival
Purposes of
development
Non-economic
purposes of workers
of corporation
Non-economic purposes
of outsiders
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- , 2003, Corporate Governance, Hamburg, Bedey Media GmbH, https://www.diplom.de/document/222919
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