Corporate Governance Reform and the Sustainability Imperative

Recent years have witnessed a significant upsurge of interest in alternatives to shareholder-centric corporate governance, driven by a growing sustainability imperative – increasingly widespread recognition that business as usual, despite the short-term returns generated, could undermine social and economic stability, and even threaten our long-term survival, if we fail to grapple with associated costs. We remain poorly positioned to assess corporate governance reform options, however, because prevailing theoretical lenses effectively cabin the terms of the debate in ways that obscure many of the most consequential possibilities. According to prevailing frameworks, our options essentially amount to board versus shareholder power, and shareholder versus stakeholder purpose. This narrow perspective obscures more fundamental corporate dynamics and potential reforms that might alter the incentives giving rise to corporate excesses in the first place. This Feature argues that promoting sustainable corporate governance will require reforming fundamental features of the corporation that incentivize excessive risk-taking and externalization of costs, and presents an alternative approach more conducive to meaningful reform. The Feature first reviews prevailing conceptions of the corporation and corporate law to analyze how they collectively frame corporate governance debates (Part I), and then presents a more capacious and flexible framework for understanding the corporate form and evaluating how corporate governance might be reformed (Part II). This includes analysis of the features of the corporate form that strongly incentivize risk-taking and externalization of costs, discussion of the concept of sustainability and its implications for corporate governance, and assessment of how the corporate form and corporate law might be re-envisioned to produce better results. The remainder of the Feature utilizes this framework to evaluate the proposals garnering the most attention today, and to direct attention toward the broader landscape of reforms that become visible through this wider conceptual lens (Part III). Recent reform initiatives typically rely heavily on disclosure, which may be an essential predicate to meaningful reform, yet too often substitutes for it as a practical matter. The Feature then assesses more ambitious reform initiatives that re-envision the board of directors, and re-think underlying incentive structures – including by imposing liability on shareholders themselves, in limited and targeted ways, to curb socially harmful risk-taking while preserving socially valuable efficiencies of the corporate form. There is much to be said for and against such reform initiatives. The Feature concludes that this is the conversation we need to have, however, and proposes a sustainability-oriented conceptual framework to foster it. Until we scrutinize the fundamental attributes of the corporate form and the decision-making incentives they produce by reference to long-term sustainability, effective responses to the interconnected environmental, social, and economic crises we face today will continue to elude us.