Principles, Process and Responsibility: Exploring Ethics as a Meta-Regulatory Framework for Evolving Governance Discourse by Alison Louise Dempsey A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in The Faculty of Graduate Studies (Law) THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver) April 2012 © Alison Louise Dempsey, 2012 Abstract This thesis proposes a new paradigm for understanding, developing and maintaining standards of corporate governance and conduct based on ethics as a meta-regulatory framework for governance discourse. It explores the possibility that, within such a framework, the explicit recognition of fundamental norms of ethical conduct and decision making such as honesty, fairness, consideration of others, responsibility and trustworthiness would precede and inform policy decisions relating to the objectives, structure and regulatory approaches of particular governance systems and practical considerations of how to implement and operationalize governance practices. It suggests that, despite the complex legal, institutional, normative and social dimensions of corporate governance standards and practice, these ethical norms are already implicit, and more recently explicit, in the formal systems of laws, rules and standards that seek to regulate corporate conduct. Alongside these traditional governance regulatory mechanisms, informal and soft law governance standards − codes, guidelines, international and multi-partite commitments − have emerged as an influential source of explicitly ethical, values based beliefs and expectations of what constitutes responsible business. There is an opportunity to use these ethical norms as a common point of departure for future governance discourse that is broad enough to support multiple approaches to governance yet flexible enough to accommodate complexity, diversity and change. Such discourse has the potential to alleviate some of the inherent interpretive and practical challenges to reconciling culturally diverse and pluralistic regulatory approaches in the pursuit of effective global corporate governance standards. ii Table of Contents Abstract ............................................................................................................................... ii Table of Contents ............................................................................................................... iii List of Figures .................................................................................................................... vi Acknowledgements ........................................................................................................... vii Dedication ........................................................................................................................ viii 1. Introduction ................................................................................................................. 1 1.1 A Framework for Understanding Governance .................................................. 1 1.2 Shared Core Values: A Foundation for Good Governance .............................. 4 1.3 Discourse and the Governance of Business ...................................................... 7 2. Approach ................................................................................................................... 17 2.1 Research Objective ......................................................................................... 17 2.2 Structure .......................................................................................................... 18 2.2 Objective ......................................................................................................... 25 2.3 Method ............................................................................................................ 27 2.4 Sample............................................................................................................. 29 2.4.1 Codes originated by public corporations ...................................................... 29 2.4.2 Codes originated by NGOs and civil society organizations ......................... 32 2.4.3 Codes originated by institutional investors and investor coalitions.............. 33 2.4.4 Codes originated by or on behalf of corporations and business coalitions ... 34 2.4.5 Codes originated by or on behalf of state or multi-state entities .................. 35 Part One − Systems Failures ............................................................................................. 36 3. Governance in the Spotlight, Again .......................................................................... 37 3.1 The Latest in a Long History of Crises ........................................................... 37 3.2 A New Ingredient in the Old Formula ............................................................ 42 3.3 Unintended Consequences .............................................................................. 48 4. The Expectations Gap ............................................................................................... 52 4.1 A Failure of Governance, Responsibility or Both? Diagnosing the Problem . 52 4.2 Prescription Without Diagnosis: Incomplete Remedies ................................. 54 4.3 Different Approaches: Alternative Perspectives on Governance ................... 59 Part Two ─ Corporate Governance Frameworks: An Overview of the United Kingdom, United States and Europe .................................................................................................. 67 5. Common Language, Distinct Paths: Corporate Governance in the United Kingdom, the United States and Europe ............................................................................................ 68 5.1 Form and Function .......................................................................................... 68 5.2 The ‘United Kingdom Approach’ ................................................................... 70 5.3 The ‘United States Approach’ ........................................................................ 86 5.4 Corporate Governance in Western Europe ..................................................... 99 5.5 Beyond the ‘Either/Or’ Paradigm of Corporate Governance ....................... 112 Part Three − The Corporate Structure: Challenging Conventional Boundaries ............. 114 6. Legal Limits and Moral Boundaries: the Corporate Challenge to Formal and Normative Conventions .................................................................................................. 115 6.1 The Root of the Problem ............................................................................... 115 6.2 Corporate Responsibility − A Misnomer? .................................................... 124 6.3 Geographically Unbounded .......................................................................... 131 Part Four − Re-framing Regulatory Discourse ............................................................... 139 iii 7. From Debate to Innovation ..................................................................................... 140 7.1 Reconstructing the Regulatory Debate ......................................................... 140 7.2 Power Shifts .................................................................................................. 147 7.3 Achieving Regulatory Purpose in a Changing World................................... 155 7.4 The Limits of Regulatory Responsibility ...................................................... 158 8. A Matter of Form and Substance ............................................................................ 164 8.1 Formal Boundaries ........................................................................................ 164 8.2 Regulating with Hindsight ............................................................................ 169 8.3 The Importance of Informal or Normative Constraints ................................ 173 Part Five − The Changing Governance Landscape ........................................................ 180 9. Re-Framing Corporate Governance ........................................................................ 181 9.1 Reconstructing the Relationship Between Business and Society ................. 181 9.2 The Significance of Stakeholders ................................................................. 189 9.3 Legitimacy and the Stakeholder Relationship .............................................. 193 9.4 Ethics and Stakeholder Engagement ............................................................. 196 10. Different Voices: Evolving Governance Discourse ............................................ 198 10.1 Multiple Regulatory Paths ............................................................................ 198 10.2 Market Forces for Change ............................................................................ 202 10.3 Enabling Change Through Governance Disclosure ...................................... 209 11. Governance: Setting New Standards .................................................................. 222 11.1 The Problem of Definition ............................................................................ 222 11.2 Values Based Standards of Conduct ............................................................. 224 12. Global Institutionalization of Meaning ............................................................... 244 12.1 Language and Transformation in Governance Discourse ............................