220 Limits to extreme board autonomy.

While hostile takeovers may pose a threat to social and ecological strategies, the global market for corporate control in general provides an important mechanism to discipline corporate boards and prevent extreme forms of board autonomy. The logic behind allowing (hostile) takeovers through the global market for corporate control is that board members may become lazy, self-interested, or otherwise cause (financial) inefficiency in their governance, leading corporations to achieve a lower degree of performance than might be possible.1 The threat of a takeover keeps board members on their toes, thereby ensuring that they limit inefficiencies and allow shareholders to voice their opinion about the strategy of the board by exiting the corporation. The global market for corporate control allows shareholders to signal to the board and to other shareholders that they disagree with the strategy being pursued and to suggest that a more successful strategy may be possible.

Having considered the downside of hostile takeovers in relation to social and ecological strategies, I argue that a further consideration of the upside of the global market for corporate control is equally merited. In my view, the market for corporate control points to a more fundamental aspect of corporate governance involving the freedom of stakeholders to leave the corporation if they disagree with the strategy being pursued by the board.2 In contrast to public governments from which citizens can hardly escape, corporations are in principle constituted as private actors from which stakeholders are free to leave if they think that their interests are better served elsewhere. Employees are free to leave their employment and to move on to a better employer, while customers are equally free to buy their products or services from another corporation. Such a freedom to exit the corporation therefore provides stakeholders with a powerful remedy to act in accordance with their impression of the way in which the corporation is being governed by the board. In addition to the capacity to voice their interests through their engagement rights, stakeholders also have the opportunity to exit the corporation altogether.3 This combination of voice and exit provides stakeholders with strong instruments to provide feedback to the board about its strategy and to limit the potential of despotic or tyrannical corporate governance with no opportunity for escape.

The transition towards a more social and ecological corporate governance involves the allocation of responsibilities to the board concerning a broad range of interests, increasing its autonomy to make decisions which have a large impact on stakeholders as well as society and the natural environment. As a consequence, the reform towards social and ecological corporate governance invites the prospect of establishing autonomous corporate boards with limited opportunities for stakeholders to escape from potential mismanagement.4 Such a prospect of inescapable board autonomy is further enhanced by the fact that social and ecological stakeholders often cannot exit the influence of the corporation, for example because their livelihood depends on the corporation or simply because a rainforest cannot move to another location.

In response to this general concern for unlimited board autonomy, I think that the perspectives in Dutch corporate legal theory provide valuable opportunities for conditioning board autonomy by providing checks and balances. To that end I have articulated several recommendations above and also below.5 In my view, boards should be guided by a clear definition of durable success involving an evidence-based public purpose in alignment with the needs of profitability and of their environment.6 Their weighing of interests should be guided and evaluated by clear principles of fairness, including the preservation of the integrity of the environment and virtuous best practices to achieve this.7 Additionally, the duties of systemic risk management, supply chain due diligence and extensive reporting provide opportunities for holding the board accountable for its impact on social and ecological interests.8 By adopting stewardship responsibilities for shareholders, boards remain subject to critical feedback from the general meeting of shareholders, which equally limits their autonomy.9 Such accountability can be further improved by a binding stakeholder policy and by providing engagement rights to other stakeholders.10 Finally, the allocation of specific responsibilities in relation to social and ecological interests to the supervisory board may add a final set of checks to the autonomy of the board.11 All in all, these recommendations provide a variety of avenues to prevent a general situation of corporate despotism with no instruments to hold boards to account.

For the purpose of this discussion, I want to focus on the extreme situation in which a board pursues a strategy which is considered detrimental to stakeholders, society or the natural environment and in which the suggested general avenues for conditioning board autonomy fail. Which ultimate remedies should social and ecological stakeholders have for interfering with such extreme cases of corporate mismanagement? What if stakeholders cannot escape from severe corporate mismanagement by exiting the corporation altogether, for example in the case of a neighbouring natural ecosystem? In order to overcome this risk of corporate mismanagement in which general checks and balances fail, I have identified an eighth issue for further research.12