Question
What is the relationship between defining the corporation’s purpose and establishing principles of corporate governance? U.S. society is in the middle of a debate over the proper purpose of the corporation. Do we need to settle that debate in order to decide what is good governance?
On this point, recently the NACD did a survey of which practices directors expect to see more of and less of in the years ahead. 40% of respondents say that in the future it will be less acceptable to focus on shareholders at the expense of other stakeholders. About 62% said that boards will widen their definition of success to include the societal impact of operations.
Answer
There’s a lot going on in this question. It’s really about half a dozen questions rolled into one.
I will start by asking whether the ends of corporate governance can be separated from the means of corporate governance. Put another way, why is board centric governance a feature of shareholder capitalism? Would it also be a feature of stakeholder capitalism? I think (emphasis on the word think) the answer is yes.
But even if a board of directors would exist in corporate system premised on stakeholder capitalism, what would be the role of the board in such a system? At present, in our system of shareholder capitalism, the board’s role is primarily monitoring. Its service and managerial roles are of minor importance. Would that change in a stakeholder capitalist system? Margaret Blair and Lynn Stout argue the board should function as mediating hierarchs, which would seem to imply an emphasis on managerial decision making.
By the way, as for the NACD survey, it is a fundamental tenet of my book The Profit Motive: Defending Shareholder Value Maximization that what directors and CEOs say is of far less importance than what they do. Most boardroom and C-suite ESG talk is greenwashing.
