• inequality
• poverty
• wage

Corporate governance is one of the leading causes of economic inequality. The concept
of financialization and shareholder value maximization explain how corporate governance
relates to income inequality, productivity, and labor's share of economic growth by
influencing workers' wages, employment, and collective bargaining power. The focus of
corporate governance on maximizing shareholder value increases shareholders' wealth at the
expense of all other stakeholders through dividends and share buybacks. Accordingly,
shareholder value orientation (financialization) as a method of corporate governance
contributed to the erosion of labor market institutions. It includes the rise in earnings
inequality and wage stagnation by increasing the incomes of corporate executives, reducing
union bargaining power, and the decline in the protective effect of laws and regulations
governing labor relationships which are significant drivers of economic disparities.
Simultaneously the theory has a detrimental impact on the future of corporations by reducing
investments in advancing human capital, innovation, and research.
Financialization is another term for a focus on shareholders' value. It imposes pressure
on employees by reducing staff and division, contributing to inequality. The labor
movement's decline minimizes employees' opportunity to profit from the economic value
they generate. The primary goal of shareholders in creating this incentive is to raise the value
of the stock. Neoliberalism, a complementary concept of financialization, also reduces the
bargaining power of labor, ultimately contributing to the rise in income disparity. Greater
union density, the imposition of corporate taxes, and the limitation of financialization
processes are some strategies to combat inequality. Accordingly, the Dodd-Frank Act
mandates that corporations disclose executive compensation and the link between this
compensation and corporate financial performance. China and Sweden try to eliminate
income inequality and build a just society. In Sweden, there is a governance device to ensure
that corporate decisions are monitored and carried out to balance interests and transfer
financial benefits to employees. This device creates a wage pot to calculate wage increases.
The wage pot gives employees a specific wage based on performance-based pay, allowing
high-performing employees to be rewarded more fairly. The MSA sets standards for
economic compensation and labor issues, such as working hours and pension plans. China
applies the efficiency wage method due to its low degree of labor protection. The main
objective is to increase employee productivity and company profitability by giving them extra money. Increase in wage benefits shareholders and the corporation as a whole. Another
critical factor is having a balanced power structure in the corporation because the unlimited
power of shareholders can prevent the fair distribution of increased income. Africa also needs
good corporate governance to attract FDI and lessen poverty. This governance reduces
asymmetric information and risk. As a result, it enhances investor confidence by lowering
fraud and inadequate management.
Gender inequality, the most critical issue in corporate governance and inequalities, is
also a result of shareholder primacy and the financialization of the economy. Women have a
significant role in corporate financial decisions through a lower debt ratio and higher levels of
profitability. Additionally, board diversity encourages creativity and innovation and helps
corporations enter new markets. It promoted gender equality and led to a balanced workplace.
Ultimately, we must rethink capitalism to create a balanced environment by preventing
inequality and promoting equitable economic growth. Thus, it is necessary to enhance worker
power and change company strategy away from shareholder-centered policies.