It is the central contention of this book that much of what currently passes for the theory of corporate governance and which forms the foundation of regulatory policy is based on a description of forces, relationships and actors that holds very little similarity to the way that the real world operates. Sometimes, the suggestions of the theory will turn out to be supported by the reality of practice; at other times the two will be in disagreement. But because the current explanations of corporate governance used by policy-makers do not correctly explain the real world, much of the practical superstructure of governance is directed towards the wrong purpose or works only partially. There are examples throughout the text of good (and bad) governance practice to support this view.

The traditional/conventional view

In discussing the existing dominant descriptions of the way that corporate governance is supposed to work, the terms traditionalist or conventional approaches to (or sometimes theories of) governance will be used.

The conventional view typically emphasises the primacy of the shareholder; concentrates on the ownership rights of shareholders; and dwells on the consequences of the relationship between shareholders and managers through the legal and economic prism of the principal-and-agent relationship. Occasionally the traditionalist view may admit additional players (stakeholders) to the governance game but usually only grudgingly or by allocating walk-on parts.