Academic journal article Washington and Lee Law Review

Corporate Governance as Moral Psychology

Academic journal article Washington and Lee Law Review

Corporate Governance as Moral Psychology

Article excerpt

Table of Contents

I. Introduction ................................................................... 1119

II. Moral Psychology ........................................................... 1122

III. The Moral Matrices of David Millon and Lyman Johnson ............................................................. 1128

A. Caring/Harm ............................................................ 1133

B. Fairness (Equal or Proportional)/Cheating ............. 1138

C. Freedom/Coercion .................................................... 1142

D. Loyalty/Betrayal ...................................................... 1147

E. Order and Obedience/Chaos .................................... 1150

F. Sacred/Sacrilege ...................................................... 1155

IV. Conclusion ........................................................................... 1158

I. Introduction

This Essay advances a simple thesis: Corporate governance is best seen not as a subset of economics, or even law, but instead a subset of moral psychology.

Corporate governance-that is, the decision-making and actions that arise from the dynamic relationship of investors and management in corporations-is not the product of rational economic incentives or prescriptive legal norms, but instead the product of moral values. On questions of right and wrong in the corporation, these moral values operate within the almost unbounded discretion afforded to corporate investors (primarily shareholders) and to corporate management (primarily directors and officers). The many decisions that these corporate actors make, like those of other human actors, are essentially emotive and instinctive. The justifications offered by corporate actors for their choices-whether resting on theories of shareholder primacy, team production, board primacy, or even corporate social responsibility-are after-the-fact rationalizations, not reasoned thinking.

That is, those of us who seek to understand corporate governance have largely been co-opted by the Western philosophical belief in human rationality. Beginning with Socrates and Plato, moving through Descartes and the Enlightenment, and culminating in Law and Economics, we have explained human decision-making as constructive thinking leading to rational action. But recent research in the nascent area of moral psychology suggests that we are not rational, particularly when we operate in social and political groups.1 Our decisions (moral judgments) arise in our subconscious, out of rational view. This may be particularly so when we operate in the super-organism that is the corporation, where our specialized roles lead to almost unparalleled human cooperation.

While we have assumed that economic incentives and law play a determinative role in shaping culture and thus the moral matrix of our decision-making, it may be that things are the other way around. Moral decisions arise not from reasoned responses to human situations, but instead are driven by subconscious, emotive, and irrational factors. We rationalize our moral decisions-whether to feel compassion toward another who is harmed, to desire freedom in the face of coercion, or to honor those things we consider sacred-after we have made the decision. We layer on a veneer of rationality, to reassure ourselves of our own moral integrity and to signal our moral values to others in our group who share our moral views. And we choose our groups with great (subconscious) care.

Thus, the moral matrices-which in our political society have become molded into progressive, conservative, and libertarian camps-provide a powerful prism by which to understand decisions in the corporate context. When presented with a question of whether to move operations offshore, at the apparent expense of local workers, what moral vectors guide (if not compel) the board's decision? When presented with a proposal that the company report to shareholders on lobbying and political expenditures, so as to make corporate managers more answerable to shareholders with respect to corporate political activities, what moral vectors guide shareholder votes? …

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