188 Internal self-assessment through corporate conscience.

The first general proposal for reform offered by the ecosystem perspective is the development of a capacity for comparable self-assessment through an internal corporate conscience. In my view, this proposal for reform consists of three elements: (i) internalizing the interpretation of factual circumstances, (ii) a capacity for conscientious reflection within the board and (iii) an articulation of science-based objectives and virtuous best practices.

The first important step in adopting an ecosystem perspective is to ascribe normative value to descriptive facts. In my understanding, the ecosystem perspective considers normative direction to follow directly from the factual circumstances in which the corporate enterprise operates.1 Due to the performative nature of corporate activity, modern corporations carry out changes to their environment to such an extent that statements about what a corporation should do ultimately decide what its environment will look like, and statements about what its environment looks like in turn question what a corporation should do.2 This convergence of statements about facts and judgments about value implies an internalization of normative reflection in corporate governance.3 It is increasingly more difficult for public legislators to agree on both the facts and the values involved to determine a general response that corporations should follow.4 The facts are often so complex and circumstantial that prescribing a general response is simply beyond the capacity of rationally constrained, human legislators. Therefore, modern corporations are increasingly expected to determine the factual circumstances of issues in their environment themselves and to decide on the preferred normative response to these issues. The ecosystem perspective therefore establishes a large degree of responsibility for boards to establish the factual circumstances in which their enterprise operates as well as to interpret the legitimate normative direction implied in those circumstances.

Such a large degree of responsibility for boards to internalize the interpretation of facts requires a corporate governance framework capable of guiding corporate boards and holding them accountable. In response to this, I argue that the ecosystem perspective proposes to develop an internal corporate conscience coupled with science-based objectives and virtuous best practices.5 In this context, conscience refers to the reflective capacity of a moral agent to self-assess whether given actions are in accordance with its own moral commitments.6 A conscience is considered to consist of a separation between the executive, action-oriented part of an individual and the reflective, evaluation-oriented part. Due to this two-tier aspect of conscience, a moral subject is able to reflect impartially on its actions and to assess the compliance of its actions with the moral principles that it has adopted. An internal conscience can help a moral agent to gain insight into the normative direction implied in specific factual circumstances.7

Based on this general definition of conscience, I would argue that the development of a corporate conscience would fit well with the two-tier structure of a corporate board, in which the supervisory board is tasked with conscientiously reflecting on the decisions of the executive board. Resembling the reflective nature of a human conscience, the supervisory board would be tasked with asking conscientious questions about corporate activities such as: is this strategy the right thing to do? Does it serve the purpose for which the corporate enterprise has been organized? Does its execution reflect the moral values and commitments implicit in the operation and historic evolution of the corporate enterprise? Is this the best way for the corporation to contribute to the social and ecological objectives established by scientists and civil society? Such a critical evaluation by the supervisory board requires a sufficient distance to be kept from the day-to-day decision-making of the executive board. Introducing a corporate conscience into corporate governance therefore fits the traditional two-tier board structure in Dutch corporate law.8 Furthermore, the pluralist nature of conscientious reflection implies that a corporate conscience should include a wide variety of relevant moral viewpoints. In order to prevent a single value system or worldview from dominating corporate decision-making, the composition of the supervisory board should therefore represent a varied set of moral viewpoints that are relevant for assessing the realities in which a specific corporate enterprise operates. The supervisory board might be expected to consist of a varied team of individual members across various relevant characteristics such as gender, age, cultural background and work experience. By including multiple relevant moral viewpoints in the composition of the supervisory board, it would be able to identify the relevant issues at stake while drawing on a wide variety of experiences in order to find the best solution in moving forward.9

The final element of internal self-assessment involves the moral standards according to which boards should be expected to conduct such an internal conscientious reflection. In principle, conscientious reflection may appeal to any moral standard adopted by the moral agent, due to the inevitable human and internalized nature of conscientious reflection.10 Meanwhile, applying such freedom of conscience to corporations invites the risk of arbitrary moral content to enter corporate governance, leaving both boards and stakeholders without any shared standards to evaluate board decisions. In my assessment, this risk of moral arbitrariness can be overcome by appealing to universal behavioural standards adopted from practice coupled with science-based social and ecological objectives established by society.11

To this end, I argue that the ecosystem perspective may be able to leverage valuable insights from the natural law tradition in legal philosophy.12 The key proposition of the natural law tradition is that there are universal normative principles to be identified in practical reality through reflective reasoning.13 By appealing to practical reasoning, the theory of natural law places normative principles beyond the realm of subjective preference and political disagreement. Instead, these first-order principles are considered to apply universally across time and space. The most prominent contemporary example of the natural law tradition is the Universal Declaration of Human Rights, establishing a set of universal, inalienable principles guiding human relationships.14

In relation to corporate governance, the field of environmental virtue ethics may be particularly able to offer such universal standards.15 Theories of virtue ethics attempt to determine the behaviour of a given moral agent which responds to specific issues in its environment in an excellent or virtuous way.16 In comparison to the more negative language of constraining rights and duties laid down in binding legal rules (“thou shalt not”), virtue ethics provides a more positive, aspirational language (“thou shalt”) encouraging individual actors to engage in excellent actions by responding to the right thing, for the right reason and in the right way.17 Due to its aspirational nature, virtue ethics is able to acknowledge universal values that are intrinsic in the social and ecological environment while allowing for interpretative discretion in relation to the specific factual circumstances in which a corporation operates.18 In general, a particular action is viewed as virtuous (a) when it corresponds to a science-based understanding of the facts in which action is required and (b) when it is grounded on principles of rationality demanding that action contributes to the general flourishing of both human and non-human life.19 More specific environmental virtues may be articulated, such as temperance, care for nature or a commitment to cooperation and transparency. In turn, such virtues may be translated into explicit best practices fitting the approach of the Dutch Corporate Governance Code. On top of the reference to such virtuous best practices, boards may be expected to account for their decisions with reference to social and ecological objectives established in society, such as the planetary boundaries or the SDGs.20 Such general social and ecological objectives may in turn be individualized in a corporate purpose with reference to the needs and integrity of the larger ecosystem in which a corporation operates.21

In sum, I distinguish three complementary sources of moral content for conscientious reflection in corporate governance: (i) an innate sense of what is right in the given circumstances (reflecting the practical reasoning that is central to the natural law tradition), (ii) universal principles of natural ordering derived through rational reflection (such as environmental virtues) and (iii) a science-based consensus of normative principles established in society (such as the SDGs or an individualized corporate purpose).22 By requiring boards to account for their conscientious reflection with reference to these moral sources, both stakeholders and judges can evaluate the legitimacy of their internal self-assessment. The evaluation of such self-assessment could be conducted within the ambit of existing open norms in Dutch corporate law, such as the duty of the board to engage in good governance (behoorlijk bestuur) and to weigh interests in accordance with the principle of reasonableness and fairness (redelijkheid en billijkheid).23 Good governance by the board then includes a conscientious self-assessment of its strategy with reference to virtuous best practices and social and ecological objectives established in society. Simply put, good governance (behoorlijk bestuur) becomes conscientious governance (gewetensvol bestuur).24