Corporate governance: on the crossroads of meta-regulation and social responsibility
| Published date | 17 July 2020 |
| Date | 17 July 2020 |
| DOI | https://doi.org/10.1108/JFC-01-2020-0011 |
| Pages | 801-820 |
| Author | Tareq Na'el Al-Tawil,Hassan Younies |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Corporate governance: on the
crossroads of meta-regulation
and social responsibility
Tareq Na’el Al-Tawil
Department of Accounting, College of Business,
Zayed University –Abu Dhabi Campus, Abu Dhabi, United Arab Emirates, and
Hassan Younies
School of Management, New York Institute of Technology –Abu Dhabi Campus,
Abu Dhabi, United Arab Emirates
Abstract
Purpose –The purpose of this paper is to discuss incongruities in the corporate entity over the matter of agency.
In lieu of the traditional notion of moral agency theory, the stakeholder model of fers congruent grounding to
corporate governance. Socially irresponsible or unethical corporate activities are percei ved to increase expenses,
diminish shareholder value and tarnish business reputations. In contrast, socially responsible corporate practices
contribute to positive attitudes to the company and contribute to the creation of competitive advantage.
Design/methodology/approach –This paper follows the ongoing evolutionof the regulatory changes
institutedafter the scandalous corporate fiascos of the present century,such as those of Enron and WorldCom
in the USA, Polly Peck in the UK, HIH Insurance and One.Tel in Australia, and Siemensin Germany, inter
alia. The expositionalso touches on the regulatory metamorphosis of corporate governancein its convergence
towards“meta-regulation”with corporate socialresponsibility at the core.
Findings –While meta-regulation has so far worked in many countries, caution is expressed over the
perils of over-reliance on a meta-regulatory approach. Industries or market sectors should also
attempt to operate from the start within the confines of self-regulation and government regulation.
Market sectors and industries need to find the framework of regulation that is best suited to their
operations.
Originality/value –The paper concludes by discussingthe observed challenges and implications of such
convergence, as well as future directions for law practitioners, academics and researchers in the realm of
corporateconduct.
Keywords Corporate social responsibility, Corporate fraud, Board of directors,
Corporate governance, Corporate moral agency, Meta-regulation
Paper type Research paper
Introduction
At the outset, legal incongruities beset the attribution of agency to a corporate entity. To put the
case clearly, this paper should more appropriately term agency in the ethico-legal context moral
agency.AsdefinedinanarticleinthejournalEphemera, moral agency refers to the “ability not
only to take intentional action, but also to be morally responsible for one’sown actions’(Lampert,
2016). Building on this definition, moral agency is a special characteristic of moral persons, this
statement which is not reversible. In its simplest terms, it was argued that “if a corporation is not
a moral person, then it is not a moral agent”(Lampert, 2016).
Some philosophers, particularly de George, French and Werhane, have separately
attempted to explain how a corporation may be conceptualized to possess moral agency.
Corporate
governance
801
Journalof Financial Crime
Vol.27 No. 3, 2020
pp. 801-820
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-01-2020-0011
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
The treatise entitled The Fallacy of Corporate Moral Agency (Ronnegard, 2015)offersa
concise review of the workarounds contrived to resolve the problem of corporate moral
agency. Richard de George attempted to avoid the term itself but even so conceptualized
corporations or organizations as moral actors, reasoning that corporations do not have an
individual person’sinteriority, or conscious self-presence (Williams and Bengtsson, 2018).
Such conscious self-presenceis “central to the meaning of the concept of person [...] [where]
one can say that personalitysignifies interiority to self”(Williams and Bengtsson, 2018).
Meanwhile, Peter French, a prolificadvocate of corporations as moral agents, created the
term corporate internal decision (CID)structure as the intentional element that could justify
predicating intentionalityupon a corporation. In other words, French evaded the attribution
of self-conscious moral agency to a corporationby classifying it as a moral agent, replacing
self-consciousness with CID as the personality of an organization (Ronnegard, 2015,
pp. 17-22). Similarly, Patricia Werhane maintained that corporate moral agency may be
represented as a vicarious relationship between “the corporation as the principal and the
employees as the agents.”Werhane also enunciated the theory of corporate action via
secondary action, where corporate action is deemed correctly attributed so long as it is
grounded on the actionof some other agent (Ronnegard, 2015, p. 48).
However, as further explained in The Fallacy of Corporate Moral Agency, de George, French
and Werhane conferred forms of moral agency on corporations simply as conceptual justification,
but these forms are, unfortunately, deficient in substance. These writers do not consider the
metaphysical foundations that support their individual claims. Given that members of a
corporation are independent free agents, such forms “[preclude] their actions from being
attributable to a corporate principal”. Furthermore, Rönnegard comments that autonomy on its
own erodes the moral agency of a corporation because “it shows the impossibility of establishing
the corporation as the proper bearer of moral responsibility in a manner that is distinct from the
corporate members”(Ronnegard, 2013). Thus, it was already overdue for corporategovernance to
shift its focus from moral agency to accountability, disclosure, ethics and transparency, most
notably just after the Enron scandal in the new millennium (Gill, 2 008).
Essentially, this paper followsthe ongoing evolution of the regulatory changes instituted
after the scandalous corporate fiascos of the present century, such as those of Enron and
WorldCom in the USA, Polly Peck in the UK, HIH Insuranceand One.Tel in Australia, and
Siemens in Germany, inter alia. The exposition also touches on the regulatory
metamorphosis of corporate governancein its convergence towards “meta-regulation”with
corporate social responsibility (CSR) at the core. The article concludes by discussing the
observed challenges and implications of such convergence, as well as future directions for
law practitioners,academics and researchers in the realm of corporateconduct.
Evolution of corporate regulation in the new millennium
In the context of the USA, the auditing of corporate financial statements was traditionally
subject to self-regulation (Hanson, 2012). Corporate governance may, thus, be viewed as
traditionally self-regulated.From a 1985 definition cited in a Berkeley law review article by
Gill (2008, p. 453), corporate governance was described as a “set of norms and laws [...]
[which] served to shape the relations among boards of directors, shareholders, and
managers as well as to resolve agency conflicts”. The above rules specify guidelines for
decision-making as implemented by the internal mechanisms of corporations. The same
article cites a definition of corporate governance written two decades later, where the
concept of social responsibility was introduced to broaden the concept of governance and
balance shareholder goals with environmental, public and social issues that impact other
stakeholders.
JFC
27,3
802
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