Ethics and corporate governance a model for understanding competing ethical frameworks in the boardroom

Abstract

This paper addresses concerns with ethical decision making within corporate boards of directors. Building on extant models for ethical decision making, I use a contractarian approach to highlight how agency theory is flawed as a basis for understanding ethical decision making in the boardroom. Instead, I develop a theoretical framework based on team production theory that highlights the roles of stakeholders, shareholders and corporate transparency in a company’s ethical framework. I present a model containing four propositions and argue that a corporation’s ethical framework is subject to exploitation in two key circumstances: when directors are self-interested and/or when special interest groups can exploit their position in a corporation’s means of production. I conclude with a discussion of the implications of the model for theory and practice.