Deliberative Democracy And Corporate Governance Introduction - Corporate Governance and Business Ethics

Since the 1990s there has been a movement within the field of business ethics to develop a political conception of corporate social responsibility (CSR). Relatively new concepts such as “corporate citizenship” (Matten and Crane 2005; Moon et al. 2005; Néron and Norman 2008; Wood and Logsdon 2002) and “stakeholder democracy” (Driver and Thompson 2002; Matten and Crane 2005b) have been introduced to explore the new responsibilities of corporations. Even stronger than older concepts such as corporate social responsibility, these new concepts suggest that corporations have responsibilities that go above and beyond the responsibilities that they have towards their direct stakeholders (i.e., the stakeholders with which they have contractual relations.) Terms such as “corporate citizenship” and “stakeholder democracy” turn corporations in some sense into real members of their communities, where membership has its privileges, but also comes with responsibilities (Néron and Norman 2008). One such civic responsibility is to contribute to the betterment of the community through programs of corporate giving. Another points to the contribution of corporations in solving public problems such as unemployment among minorities, the protection of the human rights of people in countries with a poor record in this respect, and so on. What interests us here, however, is that these new concepts also explicitly suggest that corporations have a political or procedural role to play. They have procedural duties, for example, in relation to the influence corporations may have on elections.

Focusing on the formal or procedural aspect of corporate citizenship, Néron and Norman maintain that a normative theory of corporate citizenship needs “a framework for deciding what sorts of political activities and relations with government regulators are appropriate or inappropriate, permissible or impermissible, obligatory or forbidden for corporations”. Such a normative theory has been the focal point of German discussion on republican business ethics Steinmann and Löhr 1994; several contributions in Ulrich et al. 1999 and Scherer and Palazzo build on this earlier work. They contribute a more explicit discussion of the political dimension of corporations from the perspective of political philosophy (Scherer and Palazzo 2007; Scherer et al. 2006. In particular, they use the Habermasian notion of “deliberative democracy” (Habermas 1996, 1998; Dryzek 2000) to ground the politicized account of CSR (Palazzo and Scherer 2006; Scherer and Palazzo 2007).

In this paper, we explore the implications of a political conception of CSR for corporate governance. We define corporate governance as the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firms´ relation with its stakeholders. Our focus is on the procedural aspect, that is, on the way a corporation can and should participate in political processes that relate to its business activities. We take the normative theory of deliberative democracy as a given, and we elaborate on its implications for corporate governance. Peter Ulrich has worked from the same normative starting point and we take his views on the subject as a stepping stone in working out our own position. Ulrich has described the implications of deliberative democracy for corporate governance in terms of a model, or blueprint, of corporate governance that transforms the current corporate governance system. We reject his radical or “strong” interpretation of the consequences of deliberative democracy for corporate governance, both materially and formally. Materially or substantively speaking we think that a less radical proposal is more in line with the possibilities of latter-day capitalism as well as with crucial normative aspects of thinking on deliberative democracy. We name this moderate proposal “stakeholder capitalism”. This indicates that it does not presuppose a radical transformation of the corporate governance system, at least not in countries which have a coordinated market economy.

Our formal point can best be introduced by first raising and answering a skeptical question: is there practical room at all for corporate governance arrangements imbued by normative theories on deliberative governance? Here we side with Ulrich and others who believe in this possibility. We will substantiate our position with an analysis of recent sociological research in the field of comparative capitalism's. This research has given much attention to the German situation. This is particularly interesting for our purposes since the German model is typically viewed as the archetype of stakeholder capitalism (Morgan et al. 2005) that leaves some room for a political conception of CSR, as compared to the Anglo-American model that leaves very little room or no room at all. We reject the view of authors such as Lane Who argue that due to an expected global convergence to the currently dominant Anglo-American model, the days of stakeholder capitalism are over? Other research shows a more differentiated picture which allows for a hybridization of institutions from the stakeholder and stockholder models. However, the fact of hybridization also implies that Ulrich’s attempt to define a model is, formally speaking, misplaced. An academic discussion of complex systems should show some pragmatic courtesy. It should not offer a model, but simply work out general principles for the development of a more democratized form of capitalism. We will limit our own contribution in exactly this way.

In the section “Habermas on Discourse Ethics and Deliberative Democracy”, Discourse ethics and the model of deliberative democracy as understood by Jürgen Habermas will be examined. In the section “Ulrich’s Account of the Implications of Discourse Ethics for Corporate Governance”, we will discuss Peter Ulrich’s rather radical model of stakeholder democracy. In the section “Stakeholder Democracy and Varieties of Capitalism”, we will consider the feasibility of (a more moderate model of) stakeholder democracy in the light of existing systems of corporate governance. Finally, in the section “Four Principles of Stakeholder Capitalism”, we will spell out the implications of our moderate form of stakeholder capitalism in terms of normative principles of corporate governance.

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