Corporate Governance as Moral Psychology

• Published in: Washington and Lee law review 2017-04, Vol.74 (2), p.1119-1164
• Main Author: Palmiter, Alan R
• Format: Article
• Language: English
• Subjects: Boards of directors; Camps; Commercial law; Companies; Compassion; Corporate governance; Decision making; Free markets; Governance; Interest groups; Investors; Libertarianism; Moral judgment; Morality; Oppression; Psychology; Rationality; Shareholder voting; Social responsibility; Stockholders; Subconscious; Values
• ISSN: 0043-0463; 1942-6658

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). My purpose in this essay is twofold. First, I sketch the recent research in the field of moral psychology that seeks to answer the great philosophical question: When we make moral judgments, are we rational or emotional? The emerging answer is at once disturbing and liberating. Second, in the spirit of the symposium honoring the work of David Millon and Lyman Johnson, I take a shot at applying these insights to corporate governance -- that is, to how moral decisions happen in the corporation.