Corporate Governance Mechanisms: Their Strengths, Weaknesses and Complementarity

Institute of Technology and Business in České Budějovice, Faculty of Corporate Strategy, Okružní 517/10, 37001 České Budějovice, Czech Republic

^* Corresponding author: urban@mail.vstecb.cz

Abstract

By corporate governance mechanisms we understand both market and non-market processes, including corporate rules and measures that tackle, internally and externally, two corporate governance problems, i.e. the vertical governance problem that arises between shareholders and managers, and the horizontal governance problem occurring between shareholders themselves. Efficient corporate governance mechanisms, aligning various stakeholder’s interests, help to put the right managers in the right place, providing them at the same time with the right set of incentives and constraints. While some corporate governance mechanisms serving these goals, both internal and external from the corporation perspective, are more efficient in dealing with vertical corporate governance, other solve better horizontal governance issues. The main emphasis of the article is laid on the relative role and limits of market and non-market corporate governance mechanisms solving vertical governance problems as well their complementarity and substitution possibilities. Its method is mainly based on secondary analysis of case studies in corporate governance.