Justice and Corporate Governance: New Insights from Rawlsian Social Contract and Sen's Capabilities Approach
26 Pages Posted: 3 Jul 2018
Date Written: May 23, 2017
By considering what we identify as a problem inherent in the ‘nature of the firm’ – the risk of abuse of authority – we propound the conception of a Social Contract Theory of the Firm which is truly Rawlsian in its inspiration. Hence, we link the Social Contract Theory of the Firm (justice at firm’s level) with the general theory of justice (justice at society’s level). Through this path, we enter the debate about whether firms can be part of Rawlsian Theory of Justice showing that corporate governance principles enter the “basic structure”. Finally, we concur with Sen’s aim to broaden the realm of social justice beyond what he calls the ‘transcendental institutional perfectionism’ of Rawls’ theory. We maintain the contractarian approach to justice but introduce Sen’s capability concept as an element of the constitutional and post-constitutional contract model of institutions with special reference to corporate governance. Accordingly, rights over primary goods and capabilities are (constitutionally) granted by the basic institutions of society, but many capabilities have to be turned into the functionings of many stakeholders through the operation of firms understood as post-constitutional institutional domains. The constitutional contract on the distribution of primary goods and capabilities should then shape the principles of corporate governance so that at post-constitutional level anyone may achieve her/his functionings in the corporate domain by exercising such capabilities. In the absence of such a condition, post-constitutional contracts would distort the process that descends from constitutional rights and capabilities toward social outcomes.
Keywords: Basic Structure, Capabilities Approach, Corporate Social Responsibility, Corporate Governance, Legal Rights and Entitlements, Nash Bargaining Solution, NIE, Theory of the Firm, Rawlsian Theory of Justice, Sen, Social Contract
JEL Classification: D02, D23, D63, K11, L21, M14
Suggested Citation: Suggested Citation