The article “Who’s In Charge Here? How Changes in Corporate Finance Are Shaping Corporate Governance” by M. Blair is an analysis of how the corporate changes of 1980s were shaping corporate governance. The article begins by noting how corporate leaders were being involved in big spending during the 1980s. Most of this spending was directed towards takeovers and other such projects. The result of this development was that by 1990, most companies were already dealing with bad debts. The article continues to note that the only reason the issue of corporate debts began being addressed was because of the recession. Some of the companies that previously had bad debts have since managed to overturn their situation.
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According to the article, this situation has been made worse by the fact that most of those running these companies are not shareholders. In cases where there are disputes between managers and shareholders, the managers are more likely to emerge victorious (Blair 1991). The author of the article also cites the complexities involved in corporate restructuring process. The corporate governance trends of the period before 1980 are also covered. During this period, there was little correlation between corporate governance and corporate finance. This meant that managers encountered little interference from shareholders. In the 1930s, most corporations were run by their founders and this meant that these owners were in charge of their corporations’ governance. The article also explores the current state of corporate debts. It is important to note that corporate governance policies are best tested in bad economic times. Corporate debt in this case is not a solution to wealth generation for corporations. Like everything else, corporate financing by debt acquisition should be rationalized.
The article was authored during a period when the corporate world was grappling with a recession. The article is very informative in the manner that it chronicles the events leading to these developments. For instance, the author tracks the changes in corporate governance from 1900 to 1991. This chronology of events enables the reader to get a glimpse of the shapes corporate governance had earlier assumed. The analysis of corporate governance when Carnegie and J P Morgan were still active was particularly refreshing.
Another strong point of this article is the consideration it gives to both shareholders and corporate managers when adjudicating the addressed issues. The managers are said to be the ones currently wielding corporate power. It is noted that even courts tend to favor managers over shareholders (Blair 1991). This claim is not a castigation of the managers because the article goes on justify them. According to the article, shareholders always end up benefiting from good corporate financial decisions. This balanced outlook adds to the credibility of the article.
The article predicts that the level of corporate debt is likely to decline. This prediction is attributed to the rising costs of credit. This prediction might be inaccurate. This is because the effects of bad debts only surface in tough economic times. Therefore, as soon as the economy stabilizes corporations are likely to revert to their borrowing ways. It is therefore inaccurate for the author to assume that this trend is likely to change in a big way.
The article is a well-researched piece that offers important insight into the circumstances surrounding corporate governance issues in the country. However, the importance of debts to corporate finance seems to have been overlooked by the author. These issues aside, the article manages to accomplish its goal of demystifying the issues surrounding corporate governance and finance.
Blair, M. (2007). Who’s In Charge Here? How Changes in Corporate Finance Are Shaping Corporate Governance. The Brookings Review, 9(4), 8-12.