Addressing the Crisis of the Modern Corporation: The Duty of Societal Responsibility of the Board

18 Pages Posted: 5 May 2020

See all articles by Jaap W. Winter

Jaap W. Winter

Vrije Universiteit Amsterdam; University of Amsterdam; Insead

Date Written: April 13, 2020

Abstract

A core element of most analyses of how capitalism is failing us is the shareholder primacy doctrine that has taken hold of corporate law and corporate governance. The doctrine has been developed in theory (among others through the agency theory) and practice (e.g. executive remuneration and takeover bids) resulting in the corporation becoming amoral. Any moral responsibility for the effects of one’s behaviour on others has to come from the outside, as an externality. Within the corporation only responsibility to create value for shareholders exists. It is striking to see how this corporate reality created by ourselves seems to have become a reality that is over and beyond us, as a matter-of-fact that cannot be contested, it is simply how it is. Insights of Weber and Fromm show how we have succumbed to self-made formal rationalization and alienation so that we no longer have any responsibility for this corporate reality. This human failure can only be conquered by turning to who we are in the corporate context. Proposals have been made to change this corporate reality, by reducing shareholders’ rights, by installing a broader corporate purpose and by involving other stakeholders in the governance of the corporation. In each of these approaches the role of the board is crucial. Without a board, without the people who make up the board, who commit the corporation to being a responsible citizen in society, nothing much will change. In this paper I argue that in order to generate such a commitment corporate law should introduce a duty of societal responsibility of the board. This involves being responsible for the impact the corporation has on human, social and natural capital, besides financial capital. Corporate law and corporate governance arrangements should elaborate on this duty, by applying principles of fair decision-making and by transforming board decision-making, board composition, organizational governance, executive remuneration and transparency. Such elaborations anchored in the duty of societal responsibility will bring to life a veritable and human commitment from within the corporation to conduct itself as a responsible corporate citizen in society.

Keywords: corporate law, corporate governance, purpose, societal responsibility, board duty

JEL Classification: D21, D23, K22

Suggested Citation

Winter, Jaap W., Addressing the Crisis of the Modern Corporation: The Duty of Societal Responsibility of the Board (April 13, 2020). Available at SSRN: https://ssrn.com/abstract=3574681 or http://dx.doi.org/10.2139/ssrn.3574681

Jaap W. Winter (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam
Netherlands
+31653978419 (Phone)

University of Amsterdam ( email )

Oude Manhuispoort
Amsterdam
Netherlands

Insead ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
822
Abstract Views
2,515
rank
35,885
PlumX Metrics