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Ethics of Corporate Governance

29 Pages Posted: 31 Jul 2007  

Donald Nordberg

Bournemouth University

Date Written: July 2007

Abstract

How should corporate directors determine what is the right decision? For at least the past 30 years the debate has raged as to whether shareholder value should take precedence over corporate social responsibility when crucial decisions arise. Directors face pressure, not least from ethical investors, to do the good thing when they seek to make the right choice. Corporate governance theory has tended to look to agency theory and the need of boards to curb excessive executive power to guide directors' decisions. While useful for those purposes, agency theory provides only limited guidance. Supplementing it with the alternatives - stakeholder theory and stewardship theory - tends to put directors in conflict with their legal obligations to work in the interests of shareholders. This paper seeks to reframe the discussion about corporate governance in terms of the ethical debate between consequential, teleological approaches to ethics and idealist, deontological ones, suggesting that directors are - for good reason - more inclined toward utilitarian judgments like those underpinning shareholder value. But the problems with shareholder value have become so great that a different framework is needed: strategic value, with an emphasis on long-term value creation judged from a decidedly utilitarian standpoint.

Keywords: Corporate governance, ethics, agency theory, stakeholder theory, stewardship theory, shareholder value, strategic value, non-executive directors, corporate social responsibility

JEL Classification: A10, G10, G34, L10, L20, B10, B14

Suggested Citation

Nordberg, Donald, Ethics of Corporate Governance (July 2007). Available at SSRN: https://ssrn.com/abstract=1004038 or http://dx.doi.org/10.2139/ssrn.1004038

Donald Nordberg (Contact Author)

Bournemouth University ( email )

Executive Business Centre, 89 Holdenhurst Road,
Bournemouth, BH8 8EB
United Kingdom

HOME PAGE: http://staffprofiles.bournemouth.ac.uk/display/dnordberg

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