In this paper we describe evidence for the increasing salience of intangible assets to the economic performance of firms and we attach special significance to the importance of relationship-based goodwill (social capital) and the effect of corporate governance practices in building and maintaining the confidence of social networks and capital markets. We present evidence from a small study conducted in Canada that good corporate governance practices as currently assessed by expert analysts do not necessarily correlate with stock price performance in the short term. And we postulate that goodwill of stakeholders arises from two socially constructed resources: (i) enhanced social capital and (ii) enhanced reputation, defined here as the perception of legitimacy or prestige of managements and boards. Both are linked to a perception by stakeholders of value creation by the firm. We propose a model for explaining the links between goodwill and value creation and conclude that if we accept the socially constructed nature of key drivers of value, there are significant implications for corporate governance theory and practice. These implications lend further support to the potential value of stakeholder-inclusive approaches to corporate governance.
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