Skip to main content
SpringerLink
Log in

Towards a More ‘Ethically Correct’ Governance for Economic Sustainability

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

In this paper, we propose that economic sustainability is seen in terms of (inter-temporal and inter-national) value creation. We claim that value appropriation (or capture), can become a constraint to economic sustainability. We propose that for sustainable value creation to be fostered, corporate governance needs to be aligned to public and supra-national governance. In order to achieve this, a hierarchically layered set of ‘agencies’, needs to be diagnosed and the issue of incentive alignment addressed. Enlightened self-interest, pluralism and diversity, as well as a representative supra-national organisation for world-wide economic sustainability can serve as a new, more ‘ethically correct’ governance for economic sustainability, but not a panacea.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. If we assume that ‘needs’ remain the same across generations (which is rather heroic), then allowance should be made for projected increases in populations. This should involve the current generations also factoring into their needs and actions, the projected impact of anticipated population changes. This is a challenge.

  2. For example, the Concise Oxford Dictionary defines ‘sustainable’ as “able to be sustained”, “sustain” as “keep (something) going over time or continuously”. This is generic and useful in emphasizing inter-temporal and continuity dimensions. On the other hand, it does not serve the purpose of tractability and operationalisability—two useful properties when conducting scholarly analysis.

  3. Even more complex is the situation that allows for differing objectives by economic agents. For example an agribusiness corporation is interested in expanding its activities, in an area where the inhabitants would rather keep ‘undeveloped’, but more ‘habitable’. In order to avoid making the issue intractable, one would need to at the very least refer to ‘legal’ and/or ‘legitimate’ objectives. This would raise the question of who is to judge this. Limiting one’s focus to ‘legal’ only can helpful, in that in most modern economies, there exists a body of law and a legal system that aims to define and enforce property and other rights. Recent complaints against ‘cleptocratic’ political elites, would point to limitations here too, one, however, needs to draw the line, so as the analysis can proceed. Our line here is to focus ‘legal’ objectives, see Clegg and Haugaard (2009) for more.

  4. Economic sustainability relates to the concept of economic resilience, see Simmie and Martin (2010), for a critical account. Resilience usually focuses on the ability to withstand shocks, usually external ones, and/or rebound. Economic sustainability instead is more interested in the endogenous to an economy factors that can help foster, or hinder, its capability to satisfy its objectives inter-temporally. In this paper we focus on economic sustainability.

  5. Put differently, a genuine firm-level SCA should be defined as one that is taking into account all static and inter-temporal externalities of the firm’s activities. SCA in this definition would be equivalent to a firm’s net value added, or, differently put, the Net Present Value of its value added throughout its existence, calculated to have internalized all potentially negative externalities. This is not easy to calculate not least because the issue of externalities is far too vexed (see Dahlman 1979), and we do not, and cannot possess in advance all requisite knowledge. However, this should not stop us from addressing the problem.

References

  • Alchian, A., & Demsetz, H. (1972). Production, information costs, and economic organization. American Economic Review, 62, 777–795.

    Google Scholar 

  • Amit, R., & Zott, C. (2001). Value creation in E-business. Strategic Management Journal, 22, 493–520.

    Article  Google Scholar 

  • Argitis, G., & Pitelis, C. (2006). Global finance, income distribution and capital accumulation. Contributions to Political Economy, 25(1), 63–81.

    Article  Google Scholar 

  • Augier, M., & Teece, D. J. (2008). Strategy as evolution with design: The foundations of dynamic capabilities and the role of managers in the economic system. Organization Studies, 29(8–9), 1187–1208.

    Article  Google Scholar 

  • Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.

    Article  Google Scholar 

  • Baumol, W. J. (1982). Contestable markets: An uprising in the theory of industry structure. American Economic Review, 72(1), 1–15.

    Google Scholar 

  • Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive, and destructive. Journal of Political Economy, 98, 893–919.

    Article  Google Scholar 

  • Baumol, W. J. (1991). Perfect markets and easy virtue: Business ethics and the invisible hand. Oxford: Basil Blackwell.

    Google Scholar 

  • Becker, B. E., & Huselid, M. A. (2006). Strategic human resources management: Where do we go from here? Journal of Management, 32(6), 898–925.

    Article  Google Scholar 

  • Berle, A. J., & Means, C. G. (1932). The modern corporation and private property. New York: Harcourt Brace.

    Google Scholar 

  • Blair, M., & Stout, L. (1999). A team production theory of corporate law. Virginia Law Review, 85(2), 248–328.

    Article  Google Scholar 

  • Boulouta, I., & Pitelis C. N. (2013). Who needs CSR? The impact of corporate social responsibility on national competitiveness. Journal of Business Ethics (accepted).

  • Bowman, C., & Ambrosini, V. (2000). Value creation versus value capture: Towards a coherent definition of value in strategy. British Journal of Management, 11(1), 1–15.

    Article  Google Scholar 

  • Brandenburger, A., & Nalebuff, B. (1995). The right game: Use game theory to shape strategy. Harvard Business Review, 73(4), 57–71.

    Google Scholar 

  • Branston, J. R., Cowling, K., & Sugden, R. (2006). Corporate governance and the public interest. International Review of Applied Economics, 20, 189–212.

    Article  Google Scholar 

  • Clarke, T. (Ed.). (2004). Theories of corporate governance. London: Routledge.

    Google Scholar 

  • Clarke, T. (2007). International corporate governance: A comparative approach (Vol. 1). London: Routledge.

    Google Scholar 

  • Clegg, S., & Haugaard, M. (2009). The Sage handbook of power. London: SAGE Publication Ltd.

    Google Scholar 

  • Coase, R. H. (1937). The nature of the firm. Economica, 4, 386–405.

    Article  Google Scholar 

  • Cowling, K. (1982). Monopoly capitalism. London: Macmillan.

    Google Scholar 

  • Cowling, K., & Sugden, R. (1999). The wealth of localities, regions and nations: Developing multinational economics. New Political Economy, 4(3), 361–378.

    Article  Google Scholar 

  • Cowling, K., & Tomlinson, P. (2011). Post the Washington Consensus: Economic governance and industrial strategies for the twentry-first century. Cambridge Journal of Economics, 35(5), 831–852.

    Article  Google Scholar 

  • Cyert, R., & March, J. (1963). A behavioral theory of firm. Oxford: Wiley-Blackwell.

    Google Scholar 

  • Dahlman, C. J. (1979). The problem of externality. Journal of Law and Economics, 22(1), 141–162.

    Article  Google Scholar 

  • Dasgupta, P., & Serageldin, I. (2001). Social capital: A multifaceted perspective. Washington, DC: The World Bank.

    Google Scholar 

  • Dobb, M. (1973). Theories of value and distribution since Adam Smith: Ideology and economic theory. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Epstein, M. J. (2008). Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Sheffield: Berrett-Koehler Publishers.

    Google Scholar 

  • Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88, 288–307.

    Article  Google Scholar 

  • Frynas, J. (2008). Corporate social responsibility and international development: Critical assessment. Corporate Governance: An International Review, 16(4), 274–281.

    Article  Google Scholar 

  • Grossman, S., & Hart, O. (1986). The costs and benefits of ownership: A theory of vertical and lateral integration. Journal of Political Economy, 94(4), 691–719.

    Article  Google Scholar 

  • Hart, O., & Moore, J. (1990). Property rights and the nature of the firm. Journal of Political Economy, 98(6), 1119–1158.

    Article  Google Scholar 

  • Hart, O., & Zingales, L. (2010). Curbing risk on Wall Street. National Affairs, 3, 20–34.

    Google Scholar 

  • Hunt, S. D. (2011). Sustainable marketing, equity, and economic growth: A resource-advantage, economic freedom approach. Journal of the Academy of Marketing Science, 39, 7–20.

    Article  Google Scholar 

  • Jensen, M. C., & Meckling, W. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 304–360.

    Google Scholar 

  • Kaldor, N. (1972). The irrelevance of equilibrium economics. The Economic Journal, 328, 1237–1255.

    Article  Google Scholar 

  • Kay, J. (1995). Foundations of corporate success: How business strategies add value. Oxford: Oxford University Press.

    Book  Google Scholar 

  • Kindleberger, C. (1986). International public goods without international government. American Economic Review, 76(1), 1–13.

    Google Scholar 

  • Klein, P., Mahoney, J., McGahan, A., & Pitelis, C. N. (2012). Who is in charge? A property rights perspective on stakeholder governance. SO! APBOX Special Issue, 10(3), 304–315.

    Google Scholar 

  • Krueger, A. (1974). The political economy of the rent-seeking society. American Economic Review, 64, 291–303.

    Google Scholar 

  • Krugman, P. R. (1986). Strategic trade policy and the new international economies. Cambridge: MIT Press.

    Google Scholar 

  • Krugman, P. R. (1987). Is free trade Passé? Journal of Economic Perspectives, 1(2), 131–144.

    Article  Google Scholar 

  • Krugman, P. R. (1992). Does the new trade theory require a new trade policy? The World Economy, 15(4), 423–442.

    Article  Google Scholar 

  • Lazonick, W., & O’Sullivan, M. (2010). Maximizing shareholder value: A new ideology for corporate governance. Economy and Society, 29(1), 13–35.

    Article  Google Scholar 

  • Lepak, D. P., Smith, K. G., & Taylor, M. S. (2007). Value creation and value capture: A multilevel perspective. Academy of Management Review, 32(1), 180–194.

    Article  Google Scholar 

  • Mahoney, J., McGahan, A., & Pitelis, C. N. (2009). The interdependence of private and public interests. Organization Science, 20(6), 1034–1052.

    Article  Google Scholar 

  • Makadok, R., & Coff, R. (2002). The theory of value and the value of theory: Breaking new ground versus reinventing the wheel. Academy of Management Review, 27(1), 10–13.

    Article  Google Scholar 

  • Manne, H. G. (1965). Mergers and the market for corporate control. The Journal of Political Economy, 73(2), 110–120.

    Article  Google Scholar 

  • March, J. G. (1991). Exploration and exploitation in organizational learning. Organization Science, 2(1), 71–87.

    Article  Google Scholar 

  • Marx, K. (1959). Capital: A critique of political economy. New York: International Publishers.

    Google Scholar 

  • Metcalfe, S. (2003). Science, technology and innovation policy. In G. Wignaraja (Ed.), Competitiveness strategy in developing countries: A manual for policy analysis (pp. 95–130). London: Routledge.

    Google Scholar 

  • Mol, J. M., & Wijnberg, N. M. (2011). From resources to value and back: Competition between and within organizations. British Journal of Management, 22, 77–95.

    Article  Google Scholar 

  • Moran, P., & Ghoshal, S. (1999). Markets, firms, and the process of economic development. Academy of Management Review, 24(3), 390–412.

    Google Scholar 

  • Mueller, D. C. (2006). Corporate governance and economic performance. International Review of Applied Economics, 20(5), 623–643.

    Article  Google Scholar 

  • Nelson, R. R., & Winter, S. G. (Eds.). (1982). An evolutionary theory of economic change. Cambridge: Belknap/Harvard University Press.

    Google Scholar 

  • North, D. C. (1981). Structure and change in economic history. Norton: London.

    Google Scholar 

  • North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Olson, M. (1971). The logic of collective action. Cambridge: Harvard University Press.

    Google Scholar 

  • Penrose, E. T. (1959/1995). The theory of the growth of the firm (3rd ed.). Oxford: Oxford University Press.

  • Pfeffer, J. (1998). The human equation: Building profits by putting people first. Watertown: Harvard Business School Press.

    Google Scholar 

  • Pfeffer, J. (2010). Building sustainable organizations: The human factor. The Academy of Management Perspectives, 24, 34–45.

    Article  Google Scholar 

  • Pitelis, C. (1987). Corporate capital: Control, ownership, saving and crisis. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Pitelis, C. (1991). Market and non-market hierarchies: Theory of institutional failure. Oxford: Basil Blackwell.

    Google Scholar 

  • Pitelis, C. (2004). (Corporate) Governance, (shareholder) value and (sustainable) economic Performance. Corporate Governance: An International Review, 12(2), 210–223.

    Article  Google Scholar 

  • Pitelis, C. (2007). A behavioral resource-based view of the firm: the synergy of Cyert and March (1963) and Penrose (1959). Organization Science, 18(3), 478–490.

    Article  Google Scholar 

  • Pitelis, C. N. (2009a). The co-evolution of organizational value capture, value creation and sustainable advantage. Organization Studies, 30(10), 1115–1139.

    Article  Google Scholar 

  • Pitelis, C. (2009b). The sustainable competitive advantage and catching-up of nations: FDI, clusters and the liability (asset) of smallness. Management International Review, 49, 95–120.

    Article  Google Scholar 

  • Pitelis, C. (2012). On PIIGS, GAFFS, and BRICS: An insider–outsider’s perspective on structural and institutional foundations of the Greek crisis. Contributions to Political Economy, 31(1), 77–89.

    Article  Google Scholar 

  • Pitelis, C., & Sugden, R. (1986). The separation of ownership and control in the theory of the firm: A reappraisal. International Journal of Industrial Organization, 4(1), 69–86.

    Article  Google Scholar 

  • Pitelis, C. N., Sugden, R., & Wilson, J. (2006). Introduction: Clusters and globalisation. In C. Pitelis, R. Sugden, & J. Wilson (Eds.), Clusters and globalisation: The development of economies. Cheltenham: Edward Elgar.

    Google Scholar 

  • Pitelis, C., & Teece, J. (2009). The (new) nature and essence of the firm. European Management Review, 6(1), 5–15.

    Article  Google Scholar 

  • Pitelis, C. N., & Teece, D. J. (2010). Cross-border market co-creation, dynamic capabilities and the entrepreneurial theory of the multinational enterprise. Industrial and Corporate Change, 19(4), 1247–1270.

    Article  Google Scholar 

  • Porter, M. E. (1980). Competitive strategy. New York: The Free Press.

    Google Scholar 

  • Porter, M. E. (1990). The competitive advantage of nations. New York: The Free Press.

    Google Scholar 

  • Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89, 62–77.

    Google Scholar 

  • Putnam, R. D. (1993). Making democracy work—Civic traditions in modern Italy. Princeton: Princeton University Press.

    Google Scholar 

  • Rajan, R., & Zingales, L. (1998). Power in the theory of the firm. The Quarterly Journal of Economics, 113(2), 387–432.

    Article  Google Scholar 

  • Ramirez, R. (1999). Value co-production: Intellectual origins and implications for practice and research. Strategic Management Journal, 20, 49–65.

    Article  Google Scholar 

  • Robbins, L. (1935). An essay on the nature and significance of economic science (2nd ed.). London: Macmillan.

    Google Scholar 

  • Rodrik, D. (2009). One economics, many recipes: globalisation, institutions and economic growth. Princeton: Princeton University Press.

    Google Scholar 

  • Savitz, A. W., & Weber, K. (2006). The Triple Bottom Line: How today’s best-run companies are achieving economic, social and environmental success and how you can too. New York: Wiley.

    Google Scholar 

  • Scherer, F. M., & Ross, D. (Eds.). (1990). Industrial market structure and economic performance (3rd ed.). Boston: Houghton Mufflin.

    Google Scholar 

  • Schumpeter, J. (1942/1987). Capitalism, socialism and democracy (5th ed.). London: Unwin Hyman.

  • Scott, J. (1986). Capitalist property and financial power. Brighton: Wheatsheaf.

    Google Scholar 

  • Simmie, J., & Martin, R. (2010). The economic resilience of regions: Towards an evolutionary approach. Cambridge Journal of Regions, Economy and Society, 3(1), 27–43.

    Article  Google Scholar 

  • Smith, A. (1776/1937). An inquiry into the nature and causes of the wealth of nations. New York: Random House.

  • Stigler, G. J. (1971). The theory of economic regulation. Bell Journal of Economics and Management Science, 3(2), 3–21.

    Article  Google Scholar 

  • Stiglitz, J. (2007). Financial hypocrisy. The Economists’ Voice, 4(6), 1–3.

    Google Scholar 

  • Stiglitz, J. (2011). Rethinking development economics. The World Bank Research Observer, 26(2), 230–236.

    Article  Google Scholar 

  • Stiglitz, J. (2012). The price of inequality: The Avoidable causes and invisible costs of inequality. New York: W.W.Norton & Company.

    Google Scholar 

  • Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.

    Article  Google Scholar 

  • Tirole, J. (1988). The theory of industrial organization. Cambridge: MIT Press.

    Google Scholar 

  • Todaro, M. P., & Smith, S. C. (2009). Economic development (10th ed.). Harlow: Pearson Education Limited.

    Google Scholar 

  • United Nations World Commission on Environment and Development: (1987). Our common future. Oxford: Oxford University Press.

    Google Scholar 

  • Varian, H. (1992). Microeconomics analysis. New York: W. W. Norton & Company.

    Google Scholar 

  • Williamson, O. E. (1975). Markets and hierarchies: Analysis and antitrust implications. New York: The Free Press.

    Google Scholar 

  • Williamson, O. E. (1985). The economic institutions of capitalism. New York: Free Press.

    Google Scholar 

  • Williamson, O. E. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36(2), 269–296.

    Article  Google Scholar 

Download references

Acknowledgments

For comments and suggestions on earlier drafts we are grateful to the Section Editor and two anonymous reviewers of this journal, and to Peter Klein, Jim Love, Joe Mahoney, Anita McGahan, and participants at numerous conferences, notably the Annual Meeting of the Academy of Management on ‘Knowledge, Action and the Public Concern’.

Author information

Authors and Affiliations

  1. Judge Business School and Queens’ College, University of Cambridge, Trumpington Street, Cambridge, CB2 1AG, UK

    Christos N. Pitelis

Authors
  1. Christos N. Pitelis
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Christos N. Pitelis.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Pitelis, C.N. Towards a More ‘Ethically Correct’ Governance for Economic Sustainability. J Bus Ethics 118, 655–665 (2013). https://doi.org/10.1007/s10551-012-1616-8

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-012-1616-8

Keywords

Search

Navigation