Introduction An Ethic for Corporate Governance?

Corporate 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 an 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 of the 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 investments 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 corporation (Kay 1996), where the corporation is conceived, not as a set of ownership rights 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 aligning and balancing a wide variety of potentially competitive interests within the corporation.