Ownership and control: Rethinking corporate governance for the twenty-first century

G Financial Economics Ownership and control: Rethinking corporate governance for the twenty-first century. By MARGARET M. BLAIR. Washington, D.C.: Brookings Institution, 1995. Pp. vii, 371. $42.95, cloth; $18.95, paper. ISBN 0-81570948-X, cloth; 0-8157-0947-1, pbk. JEL 96-0126

The finance view of the firm in which the goal of the corporation is to maximize shareholder value appears to be dominating the current corporate governance debate at least in the U.S. Pay for performance, with performance measured by share price and pay often in stock options, is becoming commonplace for corporate executives. Boards of directors and institutional investors are becoming more active in ensuring that managers focus on shareholder value. U.S. productivity is leading most industrialized nations with much of the credit being given to the flexibility U.S. managers have to reorganize their corporations. Hostile takeovers, a controversial aspect of the finance view in the 1980s, are now being legitimatized by major corporations who use them to achieve their strategic vision.

When a paradigm begins to dominate, flaws in the paradigm begin to surface. In this sense, Blair's book, which begins to raise new questions about the finance view, is timely. The author focuses on two key assumptions of the finance view-that the stock market is efficient and that maximizing shareholder value is the key to total wealth creation for society. One prominent critique of stock market efficiency is that the stock market is myopic. Blair spends a chapter reviewing this argument and cautiously rejects its conclusion. (She does indicate that legal and accounting rules constrain...