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Preserving the corporate superego in a time of stress: an essay on ethics and economics

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  • John C. Coffee Jr

Abstract

This essay focuses on the impact of recent changes in corporate governance on ethical behaviour within the public corporation. It argues that a style of corporate behaviour—one characterized by a risk tolerant, even reckless, pursuit of short-term profits and a disregard for the interests of non-shareholder constituencies—is attributable in significant part to recent changes in corporate governance, including the rise of hedge fund activism, greater use of incentive compensation, and the appearance of blockholder directors. This trend will only be accelerated by the election of Donald Trump as President of the United States, because the consensus view is that ‘tone at the top’ is a critical factor in shaping law compliance and business ethics within corporations. This essay then surveys feasible responses intended to strengthen the role of the board as the corporation’s conscience and superego. Given the difficulty of reform, it predicts that the problems identified are likely to get worse before they get better.

Suggested Citation

  • John C. Coffee Jr, 2017. "Preserving the corporate superego in a time of stress: an essay on ethics and economics," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(2), pages 221-256.
    • Handle: RePEc:oup:oxford:v:33:y:2017:i:2:p:221-256.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grx029
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    Citations

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    Cited by:

    1. Colin Mayer, 2021. "The Future of the Corporation and the Economics of Purpose," Journal of Management Studies, Wiley Blackwell, vol. 58(3), pages 887-901, May.
    2. Emel Kahya, Sungsoo Kim, 2018. "Aristotle on Economics and Ethics," Applied Economics and Finance, Redfame publishing, vol. 5(6), pages 23-32, November.

    More about this item

    Keywords

    agency costs; corporate governance; corporate social responsibility; hedge fund activism; incentive compensation;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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