Firms Behaving Nicely : Incentives and Commitment
Ever since the rise of large firms in the 18th century, debate has been raging about how to combine economic efficiency and productivity with socially desirable behavior of firms. This paper reviews the debate starting with the classic corporate go...
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Format: | Working Paper |
Language: | English en_US |
Published: |
International Finance Corporation, Washington, DC
2014
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Online Access: | http://documents.worldbank.org/curated/en/2013/09/19541781/firms-behaving-nicely-incentives-commitment http://hdl.handle.net/10986/19037 |
Summary: | Ever since the rise of large firms in
the 18th century, debate has been raging about how to
combine economic efficiency and productivity with socially
desirable behavior of firms. This paper reviews the debate
starting with the classic corporate governance argument
about shareholder rights. It discusses the potential
incentives to exploit other stakeholders unduly and examines
some mechanisms, beyond contracts and regulation, to cope
with this exploitation. In this light it considers
reputational mechanisms, using the example of corporate
social responsibility, and changes to the constitution of
firms, with emphasis on the nonprofit form of enterprise.
Based on evidence so far, the for-profit firm with
mechanisms assuring sound shareholder rights remains
preferable to the alternatives. However, scope for
experimentation with mechanisms such as different classes of
shareholders with differing voting rights may be socially
useful, which suggests that global corporate governance
principles thus should not be prescriptive in detail. |
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