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Jane Collier and John Roberts

C orporate governance is a complex and contested issue, and its ambiguities

become even more problematic when ethical considerations are taken into
account. This introduction attempts to address these complexities, to illuminate
their ethical aspects, and to situate the eight papers presented here within what
we believe to be an integrative heuristic framework.
The dominant theoretical perspective on governance relationships and their
associated problems is to be found within economics, and in particular within
agency theory. With the separation of ownership from control (Berle and Means
1932) a potential problem arises in the context of what is now constituted as a
relationship between the owners (principals) and directors (their agents). How
can the principals ensure that the agents are serving the owners' interests rather
than their own? Against the backdrop of the assumption of au essentially self-
seeking, opportunistic human nature only market discipline, monitoring, and
incentives can be used to align agent behavior with the interests of the distant
and/or absent shareholder understood as the owner.
In recent years there has developed a perspective that runs counter to this
theorization ofthe key governance relationship and its problem. The elaboration
of so-called stakeholder views of the corporation (Freeman 1993, Blair 1995)
argues both empirically and normatively that there is a wider range of relevant
relationships, and thus a greater number of interests at stake in the governance
of the corporation. It is not only shareholders who have made firm-specific in-
vestments in the organization, but also employees, suppliers, and customers,
and their interests must therefore also be taken account of in the constitution and
conduct of corporate governance. Associated with this view is a very different
conception of the director as steward (Davis et al. 1997) or trustee of the corpo-
ration (Kay 1996), where the corporation is conceived, not as a set of ownership
nghts accruing to those who assume the residual risk of a business, but as a social
institution. From this perspective the duties of directors lie in aligmng and balancing
a wide variety of potentially competitive interests within the corporation.
Beyond these conceptions of governance there is yet another set of issues
revolving around the concerns of "indirect'" stakeholders. The focus here is on
the effects of corporate activity on the communities within which a company
operates. The basis of these wider relationships is the tacit "license to operate."

©2001. Business Ethics Quarterly, Volume JL Issue 1 ISSN 1052-150X pp 67-71


the granting of rights and associated obligations to the corporate entity by the
wider society. The state and legal institutions play a key role here in setting the
ground rules within which corporations can be expected to operate, and in en-
forcing sanctions where possible. However, this balance of rights and duties has
been upset by the globalization of product and capital markets, and asymmetries
of power have been introduced by what many see as the weakening ofthe power
ofthe nation-state associated with the growth of transnational corporations (Deetz
1992). Some take the process of globalization as a sign that it is now corpora-
tions who "rule the world" (Korten 1995). Others focus on the resultant market
anarchy with which both corporations and national governments struggle to cope
(Gray 1998, Soros 1998). Globalization creates a borderless world, and at the
same time dissolves the constraints on corporate conduct that operate within
national boundaries.
Each of these different conceptions of corporate governance and its associ-
ated problems suggests a very different approach to defining an ethic that is both
necessary and appropriate to corporate governance (Hasnas 1998). Within the
agency view of governance there is in principle no ethics and hence no ethical
problem. Instead we are confronted with an atomized self-seeking individual,
who must be closely watched and can only be frightened or incentivized into
taking account of the interests of others. The only ethical imperative at work
here is a Friedmanesque dictum to pursue profit maximization.
By contrast, stakeholder theory is explicitly ethical in its orientation and nor-
matively prescriptive in its assertion that not only stockholder returns but also a
wider set of interests should be acknowledged as central to the activities of the
corporation. Of course, stakeholder arguments also appeal to enlightened self-
interest insofar as "taking account" of other interests in the conduct of the firm
will serve to secure the cooperation of those who are essential to wealth cre-
ation, thereby ensuring optimal shareholder returns. Nevertheless, the ethical
weight of stakeholder arguments rests firmly on notions of the responsibility
and accountability implied by society's legitimation of corporate activity.
The wider corporation-society view of governance is arguably even more
moralistic in its claims and assertions. There is a tendency within this view to
demonize the corporation and its agents, atvd there is a sense in which such criti-
cal conceptions share the pessimistic assumptions of agency theory. But in the
name of this view moral claims are made against the corporate body and its
agents, often on behalf of those that are either too weak or too impotent to raise a
voice against global "corporate colonization." These "voiceless" claimants include
the natural environment, the exploited, and future generations (Bauman 1993).
Against the backdrop of these very different conceptions of corporate gover-
nance and its associated ethical problems, we as editors reflected on how this
issue of BEQ might add value to these debates and, more pragmatically, illumi-
nate the place for ethics within corporate governance. Despite the differences of
orientation and interest in the above accounts of corporate goverriance, we maintain

that there is value in each approach, and the selection of articles in the special
issue of BEQ reflects this perspective. The paper that is possibly most firmly
rooted m the assumptions of agency theory is that of Maitland, who by arguing
for the essentially voluntary nature of contracts, insists that legal reform of the
"corporate rules of the game"' would fail to realize real change in the balance of
interests. From within a similar set of assumptions Wieland seeks to add to the
standard efficiency-based transaction-cost framework a consideration of gover-
nance ethics as the moral resources and behavioral constraints that underpin
economic transactions in a firm context. In a similar vein Ryan presents a model
of shareholder decision making in which assumptions of self-interested
oppportunism are augmented by what is argued to be an essential and deci-
sive component of trust in shareholder/company relationships. What these
papers have in common is the fact that they seek to argue for the importance
of ethics within the morally bleak horizon of the economic assumption of
self-interested opportunism.
Dalton's empirically grounded review of the adoption of stock options by
directors in the USA presents an argument that moves between the assumptions
of agency and stakeholder theory. Agency theory's assumptions of self-interest
define both the problem and the necessary form of the solution: only self-mter-
est can be used to align the interests of directors and shareholders. From the
perspective of stakeholder theory however, the widespread adoption of stock
options as a performance-related element of director compensation can only serve
to compromise director independence and the ethical capacities that come with
that independence. In a similar vein McCall explores the relative weight of ar-
guments that insist on the importance of the property rights of shareholders as
against the rights of employees, and uses this analysis in order to develop what
he calls a strong case for employee participation.
In a more critical set of reflections Hendry argues that stakeholder theory has
failed to explore the space that exists between impossible idealism and mundane
realism, and it therefore runs the risk of presenting a weakened challenge to the
primacy of stockholder interests and an inadequate basis for policy discussions.
The relevance and usefulness of stakeholder theory would be greatly served, he
argues, by a pragmatic examination of the potential for institutional reform on
the one hand, and by the differentiation and mundane empirical understanding
of different stakeholder interests on the other, A similar pragmatism informs
Driscoll's review of recent reforms in the governance of mutual funds. The pa-
per explores the combined impact of legislation, director independence, peer
review, training, and regulation on the ethical conduct on individual directors,
and draws optimistic conclusions as to the potential for the ethical self-regula-
tion of independent directors acting as guardians of customer interests.
One conclusion that emerges here is that the different theonzations of the
problem of corporate governance, whether they be grounded in managerial op-
portunism or in the neglect of direct or indirect stakeholder interests, inadvertently

serve as a potent stimulus of moral claims and arguments. One result of this
development is that it allows us to regard the claims that are made on behalf of
shareholders in relation to directors as providing a model of the potential for
effective corporate accountability in relation to other stakeholder interests.
Roberts's paper extends this perspective by exploring the development of new
forms of "ethical" accountability in relation to the social and environmental
impact of corporate activity. The paper looks to bodily sensibility as the ground
for understanding ethics within business, and seeks to give an account of the
systematic marginalization of ethical sensibility by an organizationally induced
narcissistic preoccupation with the defense or elaboration of the corporate or
individual self-interest.
In conclusion, the view we want to present here is that of a systemic and
relational view of the nature of corporate governance and ethics. Rather than
argue for the supremacy of any particular group of stakeholders, we want in-
stead to conceive of interests as a moral property of relatedness. In this sense
corporate governance is about the way in which we seek to manage the interde-
pendencies in which we are all immersed. Though we assign the role of
governance to particular groups, notably boards of directors within and the state
and judiciary beyond the firm, governance in practice is comprised of an almost
infinite series of responsibilities distributed among the various stakeholders, and
possibly falling between them. The conduct of directors, ministers, lawyers has
to be understood in the context of the choices and actions of employees, con-
sumers, citizens, shareholders. One ofthe potential dangers of stakeholder theory,
at least in its populist manifestations, lies in the apparent failure to notice that its
categories are not distinct, that the role of director, shareholder, employee, con-
sumer, parent are often no more than different facets of an individual's experience.
From this perspective the problems of governance cannot be resolved at a single
site, by boards of directors, but only in a change of conduct across these mul-
tiple chains of interdependent relationships. At every point there is both a space
and a necessity for ethical concern and ethical conduct. Nor are good intentions
enough, for effects ramify all too easily beyond these intentions in the poorly
understood or unanticipated consequences of well-intentioned actions. The very
breadth and range of issues that can be related back to governance; the effects of
corporate activity, whether economic, environmental, or social; and the degree
to which these are and are not acknowledged in current governance mechanisms—
all these suggest the need for a broad and possibly different conception both of
responsibility and the mechanisms that are established to reflect on these.


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