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Bavoso: Sustainable Companies Through Enlightened Boards

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Vincenzo Bavoso (Durham Law School ; University of Manchester – School of Law) has posted “Sustainable Companies Through Enlightened Boards: Combining Private and Public Interest in the Decision-Making of Large Public Firms”. 

The abstract is as follows:

This paper identifies two main corporate governance problems that have persisted for over a decade in the UK (and more generally within Anglo-American corporate law contexts). The first is represented by flawed systems of control (both internal and external) over managerial behaviour. The second problem is reflected in the unresolved dilemma of the corporate objective whose urgency is magnified by the application of shareholder value as the parameter of corporate success. It is also asserted that these problems resulted from fundamental weaknesses in the governance system, namely the lack of necessary competences within board of directors (BoDs) and the effective independence of its members, whose intellectual bias impaired the balancing of different interests.

The paper highlights the need to redesign the structure of the BoDs in large public firms. It posits that structural changes are needed to recalibrate key decision-making processes in order to align them with more socially inclusive and sustainable goals. To achieve this, a new governance structure is advocated, encompassing an “enlightened” participation of the State in BoDs which would provide democratic legitimacy to corporate decision-making.

It is suggested that the inclusion of a public interest component in BoDs should occur via the State, which is identified as ultimate guardian of social interests because of its democratic underpinning. This public element would contribute to legitimising managerial power within society. More practically, it would constitute an ex ante mechanism to determine the firm’s corporate objective and it would provide a gatekeeping function over decisions that have a negative impact on social interests.

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