Faculty of law blogs / UNIVERSITY OF OXFORD

Corporate Governance as Moral Psychology


Alan Palmiter
William T. Wilson, III, Presidential Chair for Business Law, Wake Forest University


Time to read

3 Minutes

My paper propounds a simple thesis: Corporate governance is best seen not as a subset of economics or even law, but, instead, as a subset of moral psychology.

Moral psychology:  Instant, instinctive decision-making

Recent research in the nascent field of moral psychology suggests that we humans are not rational beings, particularly when we act in social and political settings. Our decisions on right and wrong (moral judgments) arise instantly and instinctively in our subconscious, out of conscious view. We rationalize these decisions — whether to feel compassion toward someone who is harmed, to desire freedom in the face of coercion, or to honor those matters we consider sacred — after we have decided. We layer on this veneer of rationality to reassure ourselves of our own moral integrity and to signal our moral values to like-minded others in our group.

Over the past couple of decades, studies and experiments have revealed that our moral judgments and discourse arise from moral matrices that mix and match at least six fundamental moral values, each expressible as opposites along a separate axis (see Jonathan Haidt, The Righteous Mind: Why Good People Are Divided by Politics and Religion (2012)):

  • care / harm
  • fairness / cheating
  • liberty / oppression
  • loyalty / betrayal
  • authority / subversion
  • sacntity / degradation

According to this research, we make moral judgments by weighting these values—often in ways that are closely aligned with our identification with a political group. In the United States, political ‘liberals’ are moved almost exclusively by values of caring/compassion and fairness/equality, with adherents feeling strong (even visceral) reactions against narratives of harm and inequality. Meanwhile, political ‘conservatives’ are moved by additional values of sanctity, authority/order, and loyalty, with adherents experiencing strong reactions against narratives involving desecration, disrespect, and disloyalty. And political ‘libertarians’ are moved primarily by the liberty/freedom value, with strong reactions against government (or other) restrictions on individual liberty and free markets.

Further, as each group self-reinforces its own value matrix, the group’s views are purified and hardened as they ‘bind’ and then become ‘blind’ to the other. 

Corporate governance: Moral decision-making

These insights on moral decision-making have broad implications for corporate governance.  In the capacious realm of business decision-making where human values are weighed by corporate managers (directors and officers) and corporate shareholders — and where corporate law abstains from specifying legally-enforceable norms of behavior — business decisions would appear to happen instantly and instinctively based on moral matrices held by, but unrecognized by, corporate decision-makers.

On questions of right and wrong in the corporation, there is every reason to see the decisions by shareholders and managers, like those of other human actors, as essentially emotive and instinctive. Further, the justifications offered for their choices — whether resting on shareholder primacy, team production, board primacy, or even corporate social responsibility — should be seen as after-the-fact rationalizations, not reasoned analysis. In short, when we operate in the ‘super-organism’ that is the corporation, where specialized roles have led to almost unparalleled human cooperation, our decisions on right and wrong arise from powerful, instinctive and often invisible moral matrices.
What kind of corporatist:  Progressive, libertarian or conservative?

In the spirit of the symposium honoring the work of David Millon and Lyman Johnson, two self-proclaimed ‘progressive corporate legal scholars,’ my essay undertakes to apply these insights to a stylized corporate morality tale – namely, a board decision to move the company’s possibly unhealthful manufacturing to another, lower-cost country.  Using this offshoring story as a sort of Rorsharch test, I speculate on David’s and Lyman’s corporate moral matrix, as gleaned from the ‘motivated reasoning’ of their recent writings on corporate governance.

David Millon’s writings reveal great caring and concern for fair (egalitarian) treatment of those affected by the modern corporation. He doubts that market-driven freedom—given informational limitations, the tendencies of corporate management to cheat, and the corporation’s profit-driven motivations—will be sufficient to move corporations to ‘go as far as CSR advocates might they think should.’ Thus, Millon may well define the corporate progressive!

Lyman Johnson’s writings, on the other hand, reflect a clearer vision of the corporation as a moral institution. He attaches importance to (enforceable) loyalty, a sort of credo within the corporate enterprise. He grounds many of his arguments in historic analysis and constitutional frameworks, revealing the importance he attaches to legal ordering and tradition. He also is much clearer in seeing sanctity in the human ties that bind us together in the corporate ‘super-organism,’ just as bees assiduously and selflessly work to make their hive succeed. In the end, Johnson may well be a model corporate conservative!

Alan Palmiter is Associate Dean of Graduate Programs and Howard L. Oleck Professor of Business Law at the Wake Forest University School of Law.


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