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A core element of most analyses of how capitalism is failing us is the shareholder primacy doctrine that has taken hold of corporate law and corporate governance. The doctrine has been developed in theory (among others through the agency theory) and practice (e.g. executive remuneration and takeover bids) resulting in the corporation becoming amoral. Any moral responsibility for the effects of one’s behaviour on others has to come from the outside, as an externality. Within the corporation only responsibility to create value for shareholders exists. It is striking to see how this corporate reality created by ourselves seems to have become a reality that is over and beyond us, as a matter-of-fact that cannot be contested, it is simply how it is. Insights of Weber and Fromm show how we have succumbed to self-made formal rationalization and alienation so that we no longer have any responsibility for this corporate reality. This human failure can only be conquered by turning to who we are in the corporate context. Proposals have been made to change this corporate reality, by reducing shareholders’ rights, by installing a broader corporate purpose and by involving other stakeholders in the governance of the corporation. In each of these approaches the role of the board is crucial. Without a board, without the people who make up the board, who commit the corporation to being a responsible citizen in society, nothing much will change. In this paper I argue that in order to generate such a commitment corporate law should introduce a duty of societal responsibility of the board. This involves being responsible for the impact the corporation has on human, social and natural capital, besides financial capital. Corporate law and corporate governance arrangements should elaborate on this duty, by applying principles of fair decision-making and by transforming board decision-making, board composition, organizational governance, executive remuneration and transparency. Such elaborations anchored in the duty of societal responsibility will bring to life a veritable and human commitment from within the corporation to conduct itself as a responsible corporate citizen in society.

Corporate Governance research so far practically ignores the human experience of being-in-the-board as a source of understanding board practices, board performance and its strengths and weaknesses. This article takes a phenomenological approach to describe key, structural features of boards that inform members of the board on how to behave. Board members make sense of the complexity of these features in different ways, determined by their personal characters, drives, values, virtues, experiences and world views. Boards would benefit hugely from developing a reflective practice of uncovering, sharing and discussing their mutual experiences of being-in-the-board. Academically, becoming aware of the crucial role of human experience of being-in-the-board for the performance of the board should lead to very different types of research.

The personal liability of executive and non-executive directors receives perhaps surprisingly little attention in the international literature and research into the functioning of corporate governance. Although liability is a recognised enforcement mechanism for dealing with misconduct, no systematic research has as yet been conducted into the effects of personal liability (or the threat of it) on the conduct of executive and non-executive directors. The central point of this paper is that the core risk of liability for directors is that they are being judged by others (the court and public opinion) and will find that it becomes harder to maintain self-serving rationalisations for their behaviour that help them deal with their cognitive dissonance. This threat does not depend on actual out-of-pocket payments of damages. In fact, the ongoing formalisation and juridification of corporate and board conduct constantly increases the risk of making mistakes that trigger this threat. This may lead to boards being distracted from taking the best possible decision in order to take a decision that can be best justified in light of the rules and procedures that need to be complied with.

This chapter examines corporate law and governance from a behavioral perspective. It begins with an overview of the growing body of behavioral knowledge and its impact on the core assumptions of the agency theory. It then goes on to consider a number of specific areas of corporate law and governance where behavioral perspectives are particularly relevant, with particular emphasis on rule making. The chapter also explores how the board of directors performs, along with modern executive compensation systems, often in the form of performance-based pay. Finally, the chapter turns to the interaction between executives, non-executives, and (institutional) investors in corporate governance.

The European Commission launched, in April 2014, a new initiative to amend the shareholder rights directive as regards to the encouragement of long-term shareholder engagement. Under this heading, the Commission proposal intends to grant rights to shareholders concerning director remuneration (say on pay) and related party transactions. Moreover, it also imposes duties concerning an engagement policy on institutional investors and asset managers and gives rights to the management concerning shareholder identification. This paper deals with shareholder engagement and identification by referring to the initial Commission proposal. Both instruments are motivated by referring to the support shareholders have allegedly given to managers’ excessive risk taking before the financial crisis. The current level of “monitoring” of investee companies and engagement by institutional investors and asset managers is considered inadequate, leading to suboptimal governance of listed companies (see preamble 2). It is questionable whether the financial crisis revealed weak governance in listed companies and whether the rules proposed are likely to meet the objectives as stated in the directive.

(General information:) The corporate governance system in the Netherlands has witnessed important changes over the last decade. Following a very public debate about the maintenance of the wide arsenal of defensive measures against takeovers in the first half of the 1990s, a first attempt was made to produce corporate governance recommendations for listed companies. The forty recommendations of the Peters Committee, published in 1997, triggered general awareness of corporate governance questions. The discussions on corporate governance were held against the background of the Dutch corporate law system that imposes a stakeholder rather than shareholder orientation of executive and supervisory boards of companies. The Dutch corporate law system includes distinct elements of employee codetermination: far-reaching works council powers and the Dutch structure regime for large companies, allowing employees to have a say in the appointment of supervisory directors. Dutch corporate law also, in general, allows a wide-ranging set of mechanisms that can be used not only to defend companies against hostile takeovers, but also to reduce substantially shareholders' involvement in corporate affairs under normal circumstances, including non-voting depositary receipts for shares, priority shares with special control rights, and structural delegation of authorities to the executive board.

This paper contains the European Company Law Experts' response to one of the main issues raised in the European Commission’s Action Plan of 12 December 2012, namely how to make corporate governance codes more effective. The concept of “codes’ effectiveness” has two meanings: effectiveness of the comply-explain mechanism (disclosure effectiveness) and level of adoption of the codes’ recommendations themselves (substantive effectiveness). The ECLE believes that it is of crucial importance to keep the advantages of regulation by codes while finding adequate improvements of the quality of the reports and the explanations. The relationship between the content of corporate governance codes and disclosure is discussed. A “culture of departure from code recommendations”, if well explained, is needed. The quality of corporate governance reports and the explanations should primarily be improved by incentives, but non-legal and legal sanctions may help. Improvements may also be possible by mobilizing private actors and/or by charging public or private agents and agencies with inspection and monitoring.

The corporate governance crisis at the start of this third Millennium and the financial crisis only a few years later, have cast doubts on the way boards of directors of companies function. Lawyers and (financial) economists have developed narrow perceptions of boards and their roles that are unable to explain board performance in reality and the factors that determine it. A comprehensive and integrated approach of boards is required to truly understand what drives board performance. Such an integrated approach necessarily includes behavioural aspects. In this paper we focus on a crucial element in the analysis of board performance: what it means for a board to be On Task. On the basis of an Organisational Role Analysis we describe the interaction between executives and non-executives that constitutes board activity. The concept of the Board On Task helps to understand and assess board performance in practice. It also offers a comprehensive conceptual framework for conducting novel research in understanding board performance. We conclude with some policy implications.

Modern perceptions of good corporate governance assume that the general meeting has a meaningful role in the governance of listed companies and that shareholders make responsible use of their voting rights. Assessments after the financial crisis, however, indicate that institutional investors by and large are not engaged in any meaningful way. This paper analyses various factors that may lead institutional investors to be uninterested and unknowledgeable, including standard investment practices based on modern portfolio theory, diversification, prudency and solvency rules, intermediation through asset managers, fiduciary duties and portfolio manager remuneration. The paper distinguishes three types of engagement: Compliance, intervention and stewardship and argues that stewardship by institutional investors requires a radical rethinking and redesigning of institutional investment. Measures suggested by the European Commission in its Green Paper on Governance of Listed Companies may remove some obstacles and provide for some incentives but will not be enough to affect such transformation.

This paper constitutes the European Company Law Experts' response to the European Commission's Green Paper "The EU Corporate Governance Framework". The paper contains responses to the individual questions put forward by the Commission as well as an introductory statement. In this statement we first set out briefly the rationale for having rules on corporate governance, whether those rules are determined at national or EU level and whether they are contained in hard or soft law. We then consider the rationale for taking action at EU level. Thirdly, we make a suggestion as to how the choice between hard and soft law should be made. Fourth, we consider the overall implications of the previous arguments for the division of rule-making between the EU and Member States.

After the governance crisis of 2001-2003 and the regulatory response through the Sarbanes-Oxley Act and the European corporate governance codes, the financial crisis has revealed persistent governance problems in financial institutions relating to executives, non-executives and shareholders. For executives these problems lie in the areas of risk and remuneration. Non-executives may have been insufficiently involved in key decisions and underlying direction of the institutions, despite the strong push to increased monitoring by non-executives through Sarbanes-Oxley and European governance codes. Institutional investors have shown a general lack of engagement with investee companies. The paper continues to critically review the governance provisions for financial institutions set forth in the recent proposals for a European Capital Requirements Directive IV and related Regulation. It concludes that regulation often is not the best way to deal with the persistent governance problems, either because it cannot deal with the intricacies of corporate and human reality, as is the case of board and non-executive director performance, or because it will be ineffective as long as underlying generally held beliefs, world views, assumptions and paradigms remain unaffected, for example in the case of risk culture, remuneration and institutional investor lack of engagement. Regulation may actually worsen the situation in some cases, like remuneration and board performance. It takes courage not to regulate and seek alternative avenues to address such problems.