215 Stakeholder governance versus scientific representation.

Compared to the partnership perspective, the institutional and ecosystem perspectives allow for a less contentious and more straightforward identification and representation of social and ecological interests in corporate governance. By relying on a different approach to the nature of corporations, each perspective proposes its own opportunities for stakeholder engagement by corporate boards. In my interpretation, the institutional perspective constitutes the legal corporation in a legal mandate provided by society and all of the stakeholders involved. By starting from such a legal concession, the institutional perspective allows for various avenues to include non-strategic stakeholder interests as well as more general public interests in corporate governance.

For the identification of relevant interests, I argue that the institutional perspective provides two general grounds for inclusion based on (a) the commitment of stakeholders as team members and (b) the normative expectations of society.1 In relation to stakeholders, the institutional perspective distinguishes between strategic partners with an explicit contractual relationship with the corporation and team members which have a long-term, open-ended commitment to the corporation based on firm-specific investments with limited opportunities to exit the corporation.2 In contrast to contractual and strategic partners, team members cannot explicitly negotiate all of the terms of their relationship with the corporation and thus rely on the board to deal with their undefined long-term interests in a reasonable and fair manner.3 For example, treating employees as team members provides a ground for including their non-strategic interests in access to healthcare, education, and social benefits as captured in the SDGs.4 Similarly, treating consumers as team members provides a ground for including their long-term interests in sustainable consumption.5 By thus perceiving stakeholders as team members, the institutional perspective provides a ground for the identification of non-strategic and moral interests of stakeholders in corporate governance.

A second ground for the identification of social and ecological interests is through legal interference based on the normative expectations of society.6 Since the institutional perspective perceives legal corporations to be constituted by society for a public purpose, society has the opportunity to impose binding duties on corporate boards to engage with social and ecological stakeholders. In my assessment, such legal interference could particularly be argued for in order to correct unwanted power imbalances (for example in relation to victims of involuntary harm) or to protect disadvantaged stakeholder groups (such as vulnerable employees of third-party manufacturers).7 Another ground for interference could be to include stakeholders in order to voice unrepresented public interests, such as environmental agencies or representatives of vulnerable societal minorities.8

In relation to the representation of these moral stakeholders in corporate governance, the institutional perspective suggests a variety of approaches ranging from a binding stakeholder policy to formalized forms of stakeholder governance.9 In my assessment, the minimum form of engagement proposed by the institutional perspective would be a binding duty for boards to establish a stakeholder policy, including rules determining what such stakeholder policy should consist of. In general, such stakeholder policy should include an identification of the stakeholders and their interests involved in the corporation, as well as an account of how the board has dealt with those stakeholder interests. Stakeholders, in turn, could be given legal rights to express their interests to the board and potentially challenge the stakeholder policy of the board if it does not comply with these legal rules. A more extensive form of engagement would be through internal representation in an obligatory stakeholder council or forum.10 Such a stakeholder council could receive specific corporate legal rights similar to the works council, such as a right to receive information, to give non-binding advice or even to block certain decisions.11

Although the ultimate form of such stakeholder governance remains open to debate, I would argue that the institutional perspective implies that stakeholder governance should in all instances be oriented towards the interest of the corporation itself (rather than towards partial stakeholder interests). Similar to the recommendation for shareholder stewardship above, stakeholders should be expected to exercise their governance rights in alignment with the duty of the board to encourage the durable success of the corporation.12 By defining durable success as an evidence-based public purpose aligned with the needs of the larger environment, stakeholder interests are considered to be included in the overarching interest of the corporation to achieve durable success.13 Stakeholders may still disagree with the board on the best way to achieve such a public purpose, but the ultimate decision should be evaluated in accordance with the shared aim of encouraging the durable success of the corporation as a whole.

The ecosystem perspective equally allows for the identification of social and ecological interests in corporate governance, particularly those interests which cannot be traced back to human stakeholder groups. By focusing on the factual circumstances in which the corporate enterprise operates, the ecosystem perspective allows for the inclusion of social and ecological aspects such as planetary boundaries or systemic risks without the need to include them as identifiable stakeholders.14 The key standard for stakeholder identification is whether they represent interests related to the resilience of larger ecosystems impacted by the corporation.15

For the purpose of stakeholder engagement, the ecosystem perspective introduces forms of localized and polycentric democracy into corporate governance.16 Building on the best practices identified by Ostrom in the governance of common-resource pools, corporations could be expected to establish local governance structures characterized by principles resembling democratic organization, such as the participation of all individuals affected by an ecosystem in its governance, the distribution of costs in proportion to the benefits received, and local monitoring and sanctioning by the participants themselves.17 These localized centres of authority can be organized around specific natural ecosystems or local communities in which corporations operate, allowing for the inclusion of local stakeholders such as local communities or representatives of specific natural ecosystems including those incorporated as legal persons pursuant to the natural rights movement. Such decentralized stakeholder governance allows for stakeholder engagement without requiring stakeholders to be included in the central governance structure of the corporation.18 Instead, their interests can be voiced in relation to specific parts of the corporate ecosystem. Meanwhile, such decentralized governance allows for the sharing of local insights and opportunities for improving the relationship between the corporation and specific parts of its environment.19

In addition to these localized governance structures, the ecosystem perspective proposes that social and ecological interests may be represented in central corporate governance through scientific research and experimental learning.20 Such scientific representation allows for non-human elements in the corporate ecosystem to be represented in corporate governance. One form of such scientific representation could be through including scientific experts or representatives of civil society on the supervisory board or in specific sub-committees of the supervisory board.21 According to the ecosystem perspective, the spirit of such engagement should be oriented towards collaborative learning and a shared aim of improving the resilience of both the corporate ecosystem and the larger ecosystem in which it is embedded.22 The complexity of the circumstances and problems faced by corporations calls for an open sharing of insights and experiences to find workable pathways for overcoming problems as they are faced by a specific corporation in specific circumstances.

As a result, the focus of stakeholder engagement shifts from expecting corporate boards to solve complex normative issues on their own towards finding workable pathways together.23 Instead of criticizing corporate practice from the sidelines, stakeholders acquire an equal responsibility to construct and formulate new practices based on their unique experiences and insights.24 Boards in turn are called upon to engage with such stakeholders and experts in a spirit of mutual collaboration as equal partners in the same grand project of transitioning their corporations towards a sustainable and equitable trajectory. The ecosystem perspective therefore equally suggests that stakeholder engagement should be guided by the shared aim of achieving durable success for the corporation as a whole aligned with the needs and limits of its environment.