Stakeholder Board Representation as a Means of Governance
This chapter begins with the reforms that have taken place during the last 10 years and points out that although these reforms may be necessary for a system of appropriate corporate governance, they will not be sufficient. I then briefly review stakeholde
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Stakeholder Board Representation as a Means of Governance
After over 10 years of unending financial scandals, scandals that have continued well beyond the passage of Sarbanes-Oxley (SOX) and Dodd-Frank, perhaps it is time to look at some out of the box proposals to improve corporate governance. My suggestion which rests on the theoretical work of R Edward Freeman and more recently of Patricia Werhane is to suggest that many governance problems could be resolved if the corporate boards of publicly held companies were composed of representatives of the most important stakeholders of that corporation. This chapter consists of four parts. In “Section One: Proposals for Reform” I mention some of the reforms that have taken place and point out that although these reforms may be necessary for a system of appropriate corporate governance, they will not be sufficient. In “Section Two: Stakeholder Theory” I briefly review stakeholder theory with a special emphasis on Freeman’s suggestion that corporate boards consist of stakeholder groups. In “Section Three: Stakeholder Governance”, I explain my model of stakeholder governance. In the final section, “Section Four: Objections and Replies”, I will consider some objections to stakeholder governance and provide some suggestions as to how these criticisms can be answered.
Section One: Proposals for Reform Regulatory Reform Certainly the most ambitious reforms in response to the wave of corporate scandals were changed laws and expanded regulations. The first in response to the scandals of 2001 was the Sarbanes-Oxley Act, now known affectionately as SOX. Among
This chapter is a greatly revised version of a paper I read at the Transatlantic Business Ethics Conference, Wharton, University of Pennsylvania, April 6, 2006. 165 N.E. Bowie, Business Ethics in the 21st Century, Issues in Business Ethics 39, DOI 10.1007/978-94-007-6223-7_10, © Springer Science+Business Media Dordrecht 2013
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Stakeholder Board Representation as a Means of Governance
the reforms of that time SOX was the most comprehensive. However, in addition during this time the Securities and Exchange Commission created a new set of regulations as did the New York Stock Exchange. Finally, the influence of New York State Attorney General Eliot Spitzer’s aggressive enforcement of existing law cannot be underestimated. The second response in response to the financial crisis of 2008–2009 was the Frank-Dodd act that is still being implemented.1 I am not one to quarrel with these new laws, regulations, and more vigorous enforcement of current law. I am not overly concerned about the alleged increased costs they impose on business since business has brought this on itself. For decades I have reminded my students that one of the advantages of ethical conduct on the part of corporations is less regulation. Bad apples create more regulation and much of the regulation that is enacted ignores unintended consequences and overreaches. I think Dodd-Frank is a perfect example of this phenomenon of overly complicated and onero
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