©2002 Interfaith Center on Corporate Responsibility. (This article originally appeared in the September issue (Vol. 30, No. 7) of the Corporate Examiner, a publication of the Interfaith Center on Corporate Responsibility.)
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 To say that 2001 and 2002 have been watershed years for corporate governance would be an understatement. The most obvious contemporary example of what can go wrong in corporate governance is Enron. The news that Enron’s board of directors granted waivers from Enron’s code of ethics allowing officers of the company to engage in the transactions that contributed to the company’s demise is one example of many of what can happen when corporate governance serves the interests of managers at the expense of other corporate stakeholders, including not only shareholders but employees.
 But to say that Enron represented a failure in corporate governance leads to a more fundamental question: what is corporate governance?
 Of course, the holy books of religious organizations are silent on a number of issues directly related to corporate governance. The Bible, for example, does not provide guidelines on how many independent directors a corporate board should have. But the principles that have underpinned work on corporate social responsibility are actually quite helpful in thinking through corporate governance-related issues.
 For the first entry point into this debate, I draw from my other profession: teaching strategy to undergraduate students at the University of Northern Iowa’s College of Business Administration.
Corporate Governance: A Definition
 The textbook I use for this course offers an interesting definition: “corporate governance represents the relationship among stakeholders that is used to determine and control the strategic direction and performance of corporations.”1 Corporate governance is often discussed in terms of what’s good for shareholders; here the idea is that boards of directors and corporate managers should serve the interests of shareholders, who own the company.
 The above definition is quite helpful in thinking through how religious institutions might shape the emerging debate about corporate governance. A focus on stakeholders (including but not limited to shareholders) rather than shareholders alone might allow religious institutions — particularly institutional investors — to bring together long-standing concerns about social and financial performance.
 Four issues in particular — risk and reward sharing, participation, consent, and fairness — are particularly helpful in this regard.
Risk Reward and Sharing
 Boards of directors often claim that their goal is to “maximize shareholder value.” Here the line of analysis focuses on the issue of risk: shareholders take a risk in investing in a company; as residual claimants they only get what is left over after all other stakeholders’ contractual claims are satisfied. Proponents of this decision rule often argue that stakeholders like employees are protected by their ability to negotiate the terms of exchange with organizations.
 But it is clear that every stakeholder is taking a risk in helping a corporation achieve its goals. The employees of Enron who “invested” their skills with the company took a risk that ultimately did not pay off. There are other stakeholders who take risks as well, such as communities that host polluting company facilities. And employees who work for companies around the world risk their health when they work in dirty, unsafe plants. In the absence of the contributions of any one stakeholder group, a corporation ceases to be successful.
 Interestingly, contemporary corporate governance mechanisms often reduce risk–for corporate managers. When a company re-prices its senior managers’ stock options that are worthless because the company’s stock price has fallen, it is essentially eliminating any risk associated with executive compensation.
 Yes, shareholders take a risk when they invest in a company and deserve some sort of reward for doing so. But religious institutions have insisted that every stakeholder takes a risk in helping an organization achieve its goals. One goal of corporate governance should therefore be to spread risk and reward equitably.
 Participation Let us consider who specifically participates in corporate governance. The traditional conceptualization of corporate governance starts with shareholders, who vote for members of the board of directors; ideally, the board of directors monitors the officers and managers of the company in place of shareholders.
 It has been clear that boards of directors do not always do a good job of monitoring boards of directors, but this observation is not at all new. Adolf Berle and Gardiner Means, in their classic 1932 study The Modern Corporation and Private Property,2 proposed that when there are many shareholders who are continually buying and selling stock, the ability of individual shareholders (or shareholders as a whole) to meaningfully participate in corporate governance is quite limited.
 One criticism of corporate boards is that they are self-perpetuating. Current board members select future board members and then ask shareholders to elect the slate that has been presented. Indeed, some of the most egregious corporate governance problems of recent years can be ascribed to boards that are not independent because of large insider membership or high rates of board compensation that make board members unwilling to challenge management.
 If shareholders often find it difficult to participate meaningfully in corporate governance, what about other stakeholders? Employees, for example, generally do not participate in corporate governance at all — even though their efforts ultimately make the corporation successful. The case for employee participation in corporate governance is quite strong, both from an ethical and an instrumental standpoint. Here’s what Ram Charan and Jerry Useem wrote on the latter point in the May 27, 2002 issue of Fortune: As the Enron debacle has proven, regular employees — not executives, not directors, not shareholders — have the most to lose when a company fails. With their jobs, pensions, and stock-option wealth on the line, it follows that they have a greater incentive than anyone to act as company watchdogs. Yet few companies tap this built-in alarm system. Too often, front-line employees smell something rotten but do not, or cannot, convey the message upward. That’s why companies need a mechanism to make it happen. Shareholders, employees, and communities — to name but three stakeholder groups — have a stake in a corporation’s success. Corporate governance mechanisms that do not include all three groups as participants are likely to lead to harmful effects, both for the company and its stakeholders.
 Consent Related to the issue of participation is consent. In recent years, religious institutions have done much to bring together issues of power and consent into analyses of corporate social responsibility. In my own research, I have discussed how real participation and consent are necessary to ensure that corporations do not use their power to exploit stakeholders.3
 When employees, for example, don’t get to participate in corporate governance or give their consent to the terms of exchange with a corporation, they are likely to be exploited. (This is why religious institutional investors have insisted that freedom of association and the right to seek collective bargaining is so important, especially in countries where there is not strong government regulation of the employment relationship). Similarly, analyses of environmental racism focus on structural issues of power in society: poor communities and communities of color are not consulted in plant sitting decisions, and their consent to have a polluting plant put in their communities is not sought.
 Both Jewish and Christian social thought are sensitive to issues of power and unfairness. One of the points that religious organizations continually bring up with companies is that real consent and participation for a corporation’s stakeholders is normatively good. Corporate governance mechanisms need to ensure that real participation by corporate stakeholders leads to the extension of real consent by them.
 Fairness When real participation and consent are absent, the risks borne by employees, communities, and even shareholders may not be compensated fairly. Consider the case of employees in many countries around the world. Their participation and consent are not sought by corporations. The unhappy result is that these employees often work in horrible conditions for starvation-level wages, even though their labor makes the corporation highly profitable.
 When there is real participation and consent by a particular stakeholder group, that stakeholder group is likely to be treated fairly by the corporate managers who make day-to-day business decisions. In most U.S. corporations, only shareholders have a direct role in corporate governance — and as previously noted, even this role is quite limited and fraught with problems.
 Yet, religious groups have consistently argued that all of a corporation’s stakeholders, not just shareholders, deserve respect from corporate decision makers because every individual is created in the image of God.
 A system of corporate governance that does not provide for real participation and the extension of consent by all of a corporation’s stakeholders will inevitably lead to their unfair treatment. Indeed, corporate governance concerns not only the relationship between shareholders and managers, but rather all of the decisions made by managers about how different stakeholder groups are treated and how different stakeholder groups might participate in decision making to both protect their interests and to help the corporation be successful. Where there are violations of human dignity, a lack of consent and participation almost always exists.
 A new future for corporate governance Properly understood, corporate governance should be a significant concern for religious institutions. This is a teaching moment, I believe: religious institutions have an opportunity to make a broader point about how particular stakeholder groups, particularly employees and communities, are treated by corporations.
 So many of the issues that we have addressed since the early 1970s — whether apartheid or environmental irresponsibility or the sale of military goods to oppressive regimes — can be traced back to a lack of stakeholder participation and consent. Although it may be distressing that corporate governance has come to the fore only when shareholders have suffered losses, companies like Enron illustrate what happens when stakeholders are excluded from governance processes.
 At its root, the corporate governance scandal at Enron involved the corporation’s managers making decisions about the company that benefited them at the expense of shareholders, without informing shareholders or asking for their consent. The ethical analysis of relationships between corporations and employees, for example, in countries where there is little concern for worker safety or freedom of association is essentially the same as the analysis of Enron’s relationships with its shareholders and employees.
 Real stakeholder participation in corporate governance should therefore be understood as an ethical minimum, although the forms that such governance would take still need to be sketched out, stakeholder by stakeholder. But real stakeholder participation in corporate governance might also lead to improved corporate financial performance.
 How much better off would Enron’s shareholders be, for example, if employees at all levels of the company had been able to act as one set of corporate governors? If it is the case that all stakeholders assume risks in the hope of receiving rewards from their participation in a corporation’s activities, then it follows that they should have some role in determining that corporation’s strategic performance and direction. Corporate governance, therefore, properly belongs to all stakeholders and not just shareholders.
 Much more can and should be said about corporate governance and how it should best be structured. Religious institutions have long witnessed to the inherent worth and dignity of every person and community. Taking up the issue of corporate governance is therefore a natural extension of this important work. It would be tragic if the opportunity that religious institutions have to address how corporations are — and ought to be — governed is allowed to pass.
1 Hitt, M.A., Ireland, R.D., and Hoskisson, R.E. 2000. Strategic Management: Competitiveness and Globalization: 402. Cincinnati: South-Western.
2 Berle, A.A. and Means, G.C. 1932/1991. The Modern Corporation and Private Property. New Brunswick, NJ: Transaction Publishers.
3 Van Buren III, H.J. 2001. “If Fairness is the Problem, is Consent the Solution? Integrating ISCT and Stakeholder Theory.” Business Ethics Quarterly, 11, 481-500.