Preserving the corporate superego in a time of stress: an essay on ethics and economics

This essay focuses on the impact of recent changes in corporate governance on ethical behaviour within the public corporation. It argues that a style of corporate behaviour—one characterized by a risk tolerant, even reckless, pursuit of short-term profits and a disregard for the interests of non-shareholder constituencies—is attributable in significant part to recent changes in corporate governance, including the rise of hedge fund activism, greater use of incentive compensation, and the appearance of blockholder directors. This trend will only be accelerated by the election of Donald Trump as President of the United States, because the consensus view is that ‘tone at the top’ is a critical factor in shaping law compliance and business ethics within corporations. This essay then surveys feasible responses intended to strengthen the role of the board as the corporation’s conscience and superego. Given the difficulty of reform, it predicts that the problems identified are likely to get worse before they get better.