Key Ideas Leading to the Corporate Governance Concept

• Corporate governance emerged from centuries of thought about how to control delegated authority—evolving from ownership oversight to a comprehensive system ensuring accountability, transparency, and legitimacy in corporate decision-making.
• Its foundations lie in five key ideas: agency and control, accountability through information, institutional legitimacy, stakeholder responsibility, and sustainability as purpose.
• The OECD and G20 Principles of Corporate Governance (2023) consolidate these ideas into six pillars: a sound legal framework, shareholder rights, responsible investors, disclosure and transparency, board accountability, and sustainability and resilience.
• Governance now extends beyond protecting shareholders to balancing the interests of all stakeholders and ensuring the long-term viability and ethical conduct of corporations.
• The next evolution—decision governance—applies these same principles to how organizations make and justify decisions, turning corporate governance from a structural framework into a living system of disciplined decision-making.

Corporate governance, in its current form, is a synthesis of older ideas about how authority should be exercised when it affects others. It draws from law, economics, philosophy, and management theory. Before it became a label for codes and regulations, it was a set of intuitions about legitimacy—about the right to decide and the obligation to explain.

The OECD and G20 Principles of Corporate Governance describe it as “the system of rules, relationships, and processes by which authority in a corporation is exercised and controlled, balancing the interests of shareholders and other stakeholders, and ensuring accountability, fairness, transparency, and responsibility in corporate decision-making.”

This definition captures a long intellectual trajectory. The modern concept of governance emerged through five key ideas: agency and control, accountability through information, institutional legitimacy, stakeholder responsibility, and sustainability as purpose. Each reframed the relationship between power, trust, and performance in organizations.

Agency and Control

The first idea is that ownership and control are distinct, and that their separation creates the need for governance.

When ownership was personal—held by families or partners—oversight was simple: the owners managed, and the managers owned. The corporation disrupted that symmetry. With thousands of investors and professional managers, the question became: who ensures that those who manage do so for those who own?

Adolf Berle and Gardiner Means (1932) turned this into a principle. They showed that in large corporations, power shifted from shareholders to managers who did not bear full responsibility for their decisions. The problem was not competence but incentive: control without ownership risks self-interest over stewardship.

Agency theory (Jensen and Meckling, 1976) restated this as a model of contracts and costs. Managers are agents; shareholders are principals. The costs of monitoring, enforcing, and aligning their goals are agency costs. Corporate governance became the system that minimizes these costs.

The implication was profound. Governance was no longer about trust but about design—about institutionalizing incentives and controls that make trust unnecessary.

Accountability Through Information

The second idea is that accountability requires transparency. Without information, there can be no judgment; without judgment, no governance.

The financial crashes of the early twentieth century made this explicit. Investors discovered that their main protection was not ownership but disclosure. The U.S. Securities Acts of 1933 and 1934 embedded this principle in law: firms must provide accurate, timely, and verifiable information to those who finance and regulate them.

Disclosure transformed corporate governance. It turned the flow of information into a public good. Auditors, accounting standards, and later internal control systems became instruments of governance because they made power visible.

Transparency replaced trust as the currency of legitimacy. A well-governed firm was no longer one led by honourable men but one whose numbers could be checked.

Institutional Legitimacy

The third idea is that governance is the mechanism through which corporate power remains legitimate.

A corporation exists because the law allows it to. It is an artificial person, endowed with rights and protected by limited liability. Because the state grants these privileges, it also claims the right to supervise their use. Corporate governance therefore sits between private authority and public accountability.

Over time, this became less about direct state control and more about frameworks of oversight: company law, securities regulation, listing rules, and enforcement agencies. The OECD Principles begin with this foundation—an effective governance framework requires the rule of law, clear division of responsibilities among regulators, and predictable enforcement.

Legitimacy, in this sense, is structural: it depends on the clarity of roles and the credibility of enforcement. The system must make it obvious who is responsible when things go wrong.

Stakeholder Responsibility

The fourth idea is that governance cannot be reduced to the protection of shareholders.

For most of the twentieth century, the shareholder value model dominated. The purpose of governance was to align management with investors’ financial interests. Yet as corporations grew global, their actions affected far more than their owners. Environmental damage, labour conditions, and financial contagion revealed that firms create externalities that cannot be priced or ignored.

Governance began to absorb ethical content. The idea of the stakeholder—anyone with a legitimate interest in the firm’s actions—expanded the field. Boards were now expected to consider employees, customers, suppliers, and communities. Corporate Social Responsibility and later ESG reporting turned this moral expectation into measurable practice.

The OECD Principles reflect this shift. Boards must act “in the best interests of the company and its shareholders, taking into account the interests of stakeholders.” The phrase is carefully balanced: stakeholders matter not as moral add-ons but as conditions for corporate continuity.

Stakeholder responsibility transformed governance from control to dialogue—from policing managers to mediating among claims.

Sustainability as Purpose

The fifth and newest idea is that governance must ensure long-term viability, not only short-term compliance.

The 2023 update of the OECD Principles introduces sustainability and resilience as a distinct pillar of good governance. The rationale is simple: the legitimacy and survival of firms depend on their capacity to adapt to environmental, social, and technological change.

Boards are therefore expected to integrate sustainability into strategy, risk management, and disclosure. Governance shifts from preserving order to managing evolution—from preventing failure to enabling adaptation.

Sustainability redefines success: a well-governed firm is not only profitable and transparent but also durable and responsive. The value of governance lies in its ability to translate uncertainty into informed, responsible decisions.

The Current Concept

The OECD and G20 Principles now summarize these five intellectual currents in six interdependent components:

1. A clear governance framework—a legal and regulatory foundation that promotes market efficiency and integrity.
2. Rights and equitable treatment of shareholders—protection against expropriation and fair participation in control.
3. Stewardship by institutional investors and intermediaries—aligning the behaviour of capital providers with governance objectives.
4. Disclosure and transparency—ensuring that all material information is available and verifiable.
5. Responsibilities of the board—strategic oversight, risk management, and accountability for performance.
6. Sustainability and resilience—embedding long-term orientation and risk awareness into governance systems.

These pillars rest on shared values: accountability, transparency, fairness, responsibility, integrity, and sustainability. Together, they form what the OECD calls a functional equivalence model: the exact mechanisms may differ by country or firm, but the outcomes—trustworthy, responsible, and sustainable corporate behaviour—should be the same.

Implications

Corporate governance, viewed through this lens, is not a compliance regime but a design for decision-making under delegation. Its purpose is to ensure that those who decide on behalf of others do so with justification and foresight.

The same logic applies inside organizations. As decisions become more distributed and data-driven, governance must extend beyond the boardroom. Decision governance is the natural next step: the system of principles and practices that ensure that individual and collective decisions are informed, explainable, and consistent with corporate purpose.

Corporate governance defines who has authority and values to uphold when exercising it. Decision governance defines means to realize these values.

Conclusion

The contemporary concept of corporate governance condenses centuries of reasoning about power and responsibility. From the separation of ownership and control came the need for oversight. From oversight came the demand for information. From information came legitimacy. From legitimacy emerged responsibility toward stakeholders. And from responsibility arises today’s imperative of sustainability.

Governance, in the OECD’s sense, is not a static structure but a living system—a way of organizing decision rights, information, and accountability so that corporations remain trustworthy instruments of collective purpose.

The lesson of history is that as organizations grow more powerful, their legitimacy depends increasingly on how they govern their decisions.

References

• Berle, Adolf A., and Gardiner C. Means. The Modern Corporation and Private Property. Macmillan, 1932.
• Jensen, Michael C., and William H. Meckling. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics, 1976.
• Cadbury, Adrian. The Financial Aspects of Corporate Governance. Gee Publishing, 1992.
• OECD. G20/OECD Principles of Corporate Governance: 2023 Edition. OECD Publishing, 2023.
• Mallin, Christine A. Corporate Governance. 6th ed., Oxford University Press, 2019.