A Rawlsian Rule for Corporate Governance

Abstract

AbstractBusiness ethics can be regarded as a field dealing with corporate self-regulation as it relates to the treatment of stakeholders. However, a concern for corporate stakeholders need not take a corporate-centric perspective, as shown by recent efforts (especially Singer in Bus Ethics Q 25(1):65–92, 2015) to situate corporate conduct within Rawls’ political theory. Although Rawls was largely mute on the subject himself, his theory has implications for business ethics and corporate governance more specifically. Given an understanding of a “Rawlsian society” as a whole—where corporations as associations are a part—this paper addresses how a Rawlsian perspective would safeguard against corporate harms in society. We argue that a Rawlsian society would primarily regulate corporate conduct through exogenous constraints in the form of legislation. To the extent that business ethics is concerned with endogenous constraints in the form of corporate-centric self-regulation regarding stakeholders, to adopt a Rawlsian perspective is to assume instead a society-centric perspective and to impose exogenous constraints on corporate conduct in the form of legislation for the benefit of citizens. In the context of Rawls’ political liberalism, normative concerns in business are accounted for through legislation and the system of background justice. In a clear departure from Singer (Bus Ethics Q 25(1):65–92, 2015, Bus Ethics J Rev 6(3):11–17, 2018a), we further develop our argument to propose that Rawls' theory can be interpreted as providing a rule for corporate governance. The rule—which is imposed exogenously for the good of society—states: After choosing the corporate constraint mechanism (exogenous vs. endogenous) that best promotes the Liberty Principle, choose the corporate control regime (shareholder vs. stakeholder) that maximizes economic efficiency.