183 Reconsidering the terms of negotiation.

A second central aspect of the partnership perspective relates to the question of which contractual terms are being negotiated by the partners of the corporation. In theory, the contemporary approach to the partnership perspective considers the market price as the single metric for negotiation between partners.1 By participating in a free market environment, all partners of the corporation are able to negotiate the price for which they want to partner with the corporation and are otherwise considered free to exit the partnership. Assuming that all interests involved in the corporation can be translated into an exchangeable market value, the upside of using a market price as the single metric for negotiation is that conflicts of interests are reduced to a simple economic calculation.2 As a result, boards are liberated from difficult negotiations between conflicting and non-exchangeable interests and can be held accountable according to the one-dimensional metric of financial profit maximization. The implicit downside, however, is that any interest which cannot be adequately translated into a specific market value is prone to be excluded from such negotiation.3

Social and ecological interests are particularly vulnerable to being excluded from such market valuation, partly because of the difficulty in pre-identifying their often complex and unforeseeable relationship with the corporation. Additionally, social and ecological interests face the difficulty of being adequately represented in the context of a market environment causing them to be externalized from the market mechanism.4 As a consequence, the negotiation between partners based on a market price often leaves out relevant social and ecological interests. Another intrinsic risk of reducing the terms of contractual negotiation to a market price is the focus on the short-term impact rather than the long-term impact of corporate cooperation.5 By their very nature, long-term effects are much more difficult to measure than short-term effects. Coupled with the suggested market imperative of value maximization, reducing the terms of contractual negotiation to the market price may result in a short-term orientation of corporate governance at the expense of long-term considerations. Again, social and ecological stakeholders are particularly vulnerable to be left out due to the long-term nature of their interests. I therefore argue that the contemporary approach of reducing the terms of contractual negotiation to the one-dimensional metric of market price merits reconsideration.

Similar to the unnecessary reduction of the partnership perspective to shareholder-oriented corporate governance, the theoretical notion that contractual negotiation between partners merely revolves around a one-dimensional market price unnecessarily narrows down the propositions of the partnership perspective. The contractual negotiation that is central to the historic partnership perspective may equally involve other more multi-dimensional terms such as the long-term implications of a corporate decision or its impact on social and ecological interests.6 In my understanding, the partnership perspective fits very well with the trend of requiring corporations to report on their non-financial performance, allowing both financial investors and other stakeholders to take such information into consideration when deciding to partner with the corporation. The growing practice of both shareholders and employees to commit themselves to corporations based on a multi-dimensional assessment of the value that they create for society need not conflict with a partnership approach to corporate governance.

Central to the partnership perspective is the notion that corporations are essentially a nexus of contracts between individual actors. These actors are considered to partner freely with the corporation based on their own willingness to join or exit the corporate partnership. The terms according to which they are willing to join or exit the corporate partnership are for them to decide. Theoretically, therefore, these terms need not be limited to mere financial value maximization but may equally involve other metrics such as the ESG criteria, a Triple Bottom Line (People, Planet, Profit) or the SDGs.7 In practice, for example, the standards according to which a hostile takeover bid is evaluated by both board and shareholders could include relevant metrics related to the expected social and ecological impact of such a takeover. Thus broadening the terms of negotiation between partners would challenge the contemporary approach of the partnership perspective to reduce corporate governance to mere one-dimensional profit maximization without room for inclusion of social and ecological interests.8 Instead, corporate governance would be considered to include relevant social and ecological interests as part of a multi-dimensional negotiation between partners. As a result, the freedom of contractual negotiation at the heart of the partnership perspective would remain relevant for reform towards the inclusion of social and ecological interests in corporate governance.