Essays on political corporate governance and governance reforms : consequences from sociological perspectives

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School of Business | Doctoral thesis (article-based) | Defence date: 2011-03-17
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198 s.
Aalto University publication series. DOCTORAL DISSERTATIONS, 18/2011
This doctoral dissertation seeks to understand the existing political remuneration governance arrangements in Finnish state-owned enterprises and study how the governance processes and their outcomes are influenced by interest group politics, and how interest group politics can impede governance reforms. It engages in the current debate on tightening corporate governance and the desire for political remuneration reforms: why are reforms designed and with what consequences? The dissertation consists of three essays. The first essay analyses the meaning of remuneration reform in Finnish state-owned enterprises (SOEs) and the outcomes that result. The second essay explores the remuneration consultant-client relationship, focusing on what consultant and clients actually do under strong political remuneration guidelines. The final essay, inspired by the findings of essays one and two, introduces a multitheoretical and cross-disciplinary sociological approach, a balanced framework with which to explore governance mechanisms of overlapping structures. The empirical analysis indicates that political experimentation with remuneration guidelines does not come without costs and may lead to inefficient governance. The guidelines may decrease management’s motivation to take risk and create shareholder value, put pressure on the board of directors to raise fixed salaries and bonuses, and legitimize the same bonus levels for all SOEs regardless of their size, thereby benefitting small companies. Furthermore, loopholes can be found in the guidelines that serve to encourage opportunistic behavior by management. The unintended consequences of this process extend into remuneration consultant-client relationships, as empirical evidence indicates that remuneration consultants are not independent and may serve management regardless of remuneration guidelines. The mechanism of the consultant market also play a significant role in the remuneration design process because the competition between consultancies influences the forms, levels, and structures of remuneration designs, thereby explaining ever-increasing levels of executive pay. In addition, the research questions the independence of CEO directors in remuneration committees because, as CEOs, they are possible former, current, and future clients of consultants, and therefore not necessarily independent in their decision-making. This research contributes to management accounting and corporate governance in at least three ways. First, it highlights the importance of human factors in political reforms, and shows that reforms are unable to protect against unintended consequences and opportunistic behavior. Second, the study provides important understanding of the ways routine practices can bypass rules as well as rich analysis of the types of consequences caused by forced change. Third, it provides a balanced sociological framework with which to explore the governance mechanisms of overlapping structures that neither under-socialize nor over-socialize human action.
Supervising professor
Ikäheimo, Seppo, professor
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