Introduction to Part I

Summary

Corporate governance can be understood as a set of explicit or implicit contracts (or social contracts) that defines the relationships among the three principal actors in the corporation: the sovereign, who in the vast majority of modern legal systems is the shareholder; the governed, namely all stakeholders, including holders of shares; and the governing, who direct and/or control the corporation, that is to say orient its activity. Analogously based on the voluntary contractual triad of sovereign, governed, and governing, and equally embedded in a society of natural law, corporate governance shares with modern political governance a common root in consent by the governed. From political and historical points of view, consent by the governed in corporate governance cannot be assumed or taken for granted. In our analysis, consent by the governed and its obverse, the right to govern, therefore serves as the starting point.

In everyday life, human beings evolve in social structures in which they either govern or are governed: the state, the town, the church, the family, clubs, associations, and also business corporations. Each of these social structures has its own institutions and rules determining, on the one hand, the extent of the power wielded by those who exercise authority, and, on the other hand, the counterweights defining the scope of the power exercised and keeping it in check.