Corporate Governance as a Source of Competitive Advantage

Abstract

That corporate governance can be a form of competitive advantage is well settled in the Law & Management literature. This chapter reviews the work that helped establish this tie. In addition, it describes how modern movements have used this tie to guide corporations internationally, and what questions are now being raised about the adoption of corporate governance as the “G” in environmental, social, and corporate governance efforts, or ESG. In order to discuss corporate governance and competitive advantage, we must define each term. The chapter explores their connection, the evolution of their tie with environmental and social issues, and what mechanisms may be most responsible for corporate governance’s competitive advantage effects. The primary purpose of this chapter is to survey the existing literature and to suggest trends. Part I defines corporate governance and key sources of laws and norms of governance. Part II defines competitive advantage. Part III acknowledges the logical limits of corporate governance as a source of competitive advantage; Part IV describes the internal and external effects of corporate governance that confer competitive advantage; Part Vdescribes the influence of the United Nations (UN) in tying corporate governance, and its competitive advantages, together with environmental and social issues as ESG. Part V describes the six mechanisms that have emerged in the literature to measure corporate governance effects on competitive advantage, and how they also include ESG. The chapter closes with thoughts on the literature and ways in which it may move forward.