Role of Human Resource Management in Corporate Governance: A Critical Literature Review

Abstract

Corporate Governance (CG) is concerned with the direction and control of the corporation (Supangco, 2006). This paper has reviewed related literature to indicate how modern corporations organize their relations with stakeholders along with issues of ownership and control within the firm. It has revealed the impacts of CG on the effectiveness of Human Resource Management (HRM) practices in achieving the productive objectives to which they have been set. The paper found that the national-level system of finance and CG also have an influence on labor management within the firm because of the relative importance national systems assign to such things as labor interests, time frames, strategy types, financial measures of performance, the use of market- based instruments to secure commitment and the extent of employer co- ordination. It has also discussed the linkage between forms of CG and labor management along with the relative importance of HRM in relation to CG and organizational performance. This paper has recognized how agency theory, stewardship theory, stakeholder theory are dominating the rise of governance in modern corporations in recent times along with institutional theory and resource based theory of the firm. Last but not the least, the paper emphasized on the relationship between CG and HRM after the problems of Enron and recent financial scandals such as “Madoff Affair”. In a nutshell, the present paper argues that the most appropriate strategy in HRM research is to acknowledge the importance of both, internal firm resources and external features of the business environment, thus, drawing on the connection with CG.