The Ethical Board: Reconceptualising Corporate Governance as a Moral Practice

Abstract

Scholarly studies of corporate governance have for four decades been dominated by the agency theory paradigm, viewing the board of directors in corporations as a monitoring device whose purpose is to ensure that managers' actions will correspond to shareholders' interests. In this paper, we argue that the agency paradigm, although analytically rich and productive, is normatively bankrupt insofar as it treats governance as a principal-agent control problem, casts directors as agents of capital rather than moral agents in their own right, and fails to address the crucial ethical aspects of board decisions that matter most for the integrity of the corporate institution in the long run. To respond to this limitation, we propose the Moral Practice Framework for Corporate Governance (MPF), which reconceptualizes the board of directors as a moral community, comprising moral agents whose fiduciary, ethical, and civic responsibilities extend beyond the maximization of shareholder value. The MPF makes use of the social practices approach of MacIntyre, Rawlsian political theory, and recent literature on board diversity and stakeholder governance to construct a multidimensional concept of board moral agency consisting of four main dimensions: stewardship, deliberation, accountability, and ethical imagination each of which creates certain design needs for board composition, processes, and culture that differ significantly from agency-theoretical prescriptions. Finally, the paper provides an overview of conditions when the transition from agency-based governance to moral practice governance becomes both possible and necessary.