199 Efficiency, fairness or resilience?

The three perspectives in Dutch corporate legal theory provide different approaches to determine the ethical standards according to which boards are legitimized to interfere with social and ecological interests. In my view, these three approaches resemble the distinction in ethics between consequentialist ethics, rule-based ethics and virtue ethics.1 First of all, I argue that the partnership perspective relies on consequentialist ethics legitimizing board interference in its environment based on the positive market value that it creates for its partners and ultimately society at large.2 As a result of the consequentialist approach, social and ecological interests become relevant for corporate governance either as opportunities for further value creation or as strategic problems to be solved in the process of value creation. The scope of interests involved therefore becomes determined by the principle of efficiency, considering social and ecological interests as instrumental resources or strategic stakeholders in the process of value creation.3 The main risk of this instrumental approach is that corporate boards may be encouraged to solve social and ecological problems in the pursuit of value creation, while such problems were created by their instrumental use in the process of value creation in the first place.4 As an extreme example, polluted rivers may become relevant for corporations first as providers of water for industrial production and then, after being polluted by such production, as a business opportunity for the production of purified water. Overcoming social and ecological problems with the instrumental approach which originally created them therefore has its limits, thereby requiring complementary ethical standards capable of respecting the intrinsic value of the social and ecological environment.

By contrast, the institutional perspective proposes a rule-based approach in which board interference in its environment is legitimized by compliance with binding legal standards.5 As a result of this rule-based approach, I argue that corporate governance becomes an endeavour governed by principles of fairness instead of efficiency.6 Such a fairness-oriented approach allows for the inclusion of a broader range of social and ecological interests without commodifying them as instruments in the process of value creation. For example, the consideration of social and ecological interests by the board may be extended to non-strategic stakeholders such as low-income labourers in their supply chain based on moral grounds.7 Meanwhile, a rule-based approach equally has its limits due to the difficulty of establishing a general response to social and ecological problems given the complex and widely varying circumstances in which modern enterprises operate. Some board discretion in deciding on the best normative response seems to be inevitable, again requiring complementary ethical standards to guide board interference.8

In my view, the ecosystem perspective offers a valuable third approach to guide board interference, thereby overcoming the limits posed by the consequentialist and rule-based approach of the other perspectives. The ecosystem perspective views corporations as legally constituted by the factual reality of their enterprise, implying that the governance of corporate ecosystems should be oriented towards serving its environment.9 Accordingly, the grounds justifying boards to interfere in the environment of their corporation should be directly derived from the needs and integrity of the social and ecological environment itself, rather than being indirectly justified by the creation of market value or by legal rules (as the partnership and institutional perspectives propose).10 Based on complex systems theory, the social and ecological environment is perceived as having its own dynamic equilibrium and integrity into which the operations of the corporate enterprise should fit harmoniously and with due diligence concerning its needs and limits.11 Most social and ecological problems are considered to follow from a disharmonious relationship between the corporation and the dynamic of its environment, which threaten the resilience of larger ecosystems to continue providing the ecosystem services on which the corporate enterprise depends.12 Standards for weighing the various interests involved should therefore be derived from the integrity and resilience of the larger social and ecological environment.13

By drawing upon the field of virtue ethics, particularly environmental virtue ethics, I argue that the ecosystem perspective offers practical standards for achieving such harmonious board interference oriented towards the ecological integrity of its environment.14 The contemporary environmental debate often refers to the language of virtues since they provide a powerful set of evaluative concepts enhancing our capacity to respond to environmental issues.15 In comparison to the more negative language of constraining rights and duties laid down in binding rules (“thou shalt not”), virtue ethics provides a more positive, aspirational language (“thou shalt”), thereby encouraging individual actors to engage in excellent actions by responding to the right thing, for the right reason and in the right way.16 In general, a particular action is viewed as virtuous when (i) it corresponds to a science-based understanding of the facts in which action is required and (ii) it is grounded on principles of rationality demanding that action contributes to the general flourishing of both human and non-human life.17 In the field of environmental ethics, Sandler provides various examples of a virtuous disposition in relation to social and ecological problems such as temperance, attunement, ecological sensitivity, truthfulness and diligence.18

The rich variety of virtues may help to provide nuanced and appropriate guidelines for boards in response to the complex circumstances in which they have to determine the best course of action. Due to its aspirational nature, the language of environmental virtue ethics allows for a more subtle evaluation of corporate decision-making, in contrast to the one-dimensional metric of market value and the more black and white approach of binding legal rules.19 In practice, more specific standards of virtuous behaviour may be formulated as best practices, building on the approach of the Dutch Corporate Governance Code.20 In the scientific spirit of the ecosystem perspective, such virtuous best practices could best be formulated in broad collaboration with stakeholders, scientists and representatives of civil society.21 Through such collaborative dialogue, the emphasis would be on learning and finding the most legitimate pathway for overcoming social and ecological problems as they are faced by a specific corporation in its specific circumstances.