Corporate Governance in a Risk Society

Abstract

Under conditions of growing interconnected-ness of the global economy, more and more stakeholders are exposed to risks and costs resulting from business activities that are neither regulated nor compensated for by means of national governance. The changing distribution of risks poses a threat to the legitimacy of business firms that normally derive their legitimacy from operating in com-pliance with the legal rules of democratic nation states. However, during the process of globalization, the regula-tory power of nation states has been weakened and many production processes have been shifted to states with weak regulatory frameworks where businesses operate outside the reach of the democratic nation state. As a result, business firms have to address the various legitimacy challenges of their operations directly and cannot rely upon the legitimacy of their regulatory environment. These developments challenge the dominant approach to corpo-rate governance that regards shareholders as the only stakeholder group in need of special protection due to risks not covered by contracts and legal regulations. On the basis of these considerations, we argue for a democratization of corporate governance structures in order to compensate for the governance deficits in their regulatory environment and to cope with the changing allocation of risks and costs. By way of democratic involvement of various stakeholders, business firms may be able to mitigate the redistribution of individual risk and address the resulting legitimacy deficits even when operating under conditions of regulatory gaps and governance failure. Corporate governance in a risk society AbstractUnder conditions of growing interconnectedness of the global economy more and more stakeholders are exposed to risks and costs resulting from business activities that are neither regulated nor compensated for by means of national governance. The changing distribution of risks poses a threat to the legitimacy of business firms that normally derive their legitimacy from operating in compliance with the legal rules of democratic nation states. However, during the process of globalization the regulatory power of nation states has been weakened and many production processes have been shifted to states with weak regulatory frameworks where businesses operate outside the reach of the democratic nation state. As a result, business firms have to address the various legitimacy challenges of their operations directly and cannot rely upon the legitimacy of their regulatory environment. These developments challenge the dominant approach to corporate governance that regards shareholders as the only stakeholder group in need of special protection due to risks not covered by contracts and legal regulations. On the basis of these considerations, we argue for a democratization of corporate governance structures in order to compensate for the governance deficits in their regulatory environment and to cope with the changing allocation of risks and costs. By way of democratic involve...

Understanding political responsibility in corporate citizenship: towards a shared responsibility for the common good

“…In more recent articles, it is proposed to extend deliberative democracy to the level of the company itself (Scherer, Baumann-Pauly, and Schneider 2013;Schneider and Scherer 2015). In order to compensate for the democratic deficit in corporate engagement with the public good and public policy, it is argued that corporate actors should internalize democracy.…”

“…Creating a deliberative stakeholder democracy ensures that stakeholders are no longer merely consulted, but are integrated in the organizational decision-making process. Through this inclusive procedure, corporate decision-making will no longer be dominated by managers and shareholders, resulting in more fair and legitimate decision-making (Scherer, Baumann-Pauly, and Schneider 2013;Schneider and Scherer 2015).…”

“…And, does this refer solely to negative impacts -say, that infringe upon human rights -or does it also include positive impacts such as the provision of global public goods, such as education or public health? Scherer and Schneider argue that legitimacy issues arise when individuals might suffer a loss in individual welfare (Schneider and Scherer 2015). Whether this is also the case when corporate actors engage in activities that aim to contribute to the common good remains an open question.…”

“…Therefore, it is argued that these actions should be democratically legitimated. A large part of the current debate on political CSR zooms in on how these activities can be legitimized, for instance by incorporating deliberative democratic practices in corporate governance (Scherer and Palazzo 2011;Scherer, Baumann-Pauly, and Schneider 2013;Schneider and Scherer 2015).…”

Responsible Corporate Governance in Europe

“…In the main, these guidelines outlined the duties, responsibilities and rights of different stakeholders. In the pre-globalisation era, non-shareholding stakeholders of business firms were in many cases sufficiently protected by law and regulation (Schneider & Scherer, 2015). In the past, the corporate decisions were normally taken in the highest echelons of the organisation.…”