Ethics Taxonomy Dimension 3: Governance

Abstract

The relationship between investors and managers of corporations is marked by mutual dependency: corporate management requires capital to fund operations, and corporate investment requires management to generate returns. Yet while this dependency is inherent in the nature of business, whose central factors of production are capital and labor, its particular manifestation in the corporate form is a relatively new phenomenon. As Chandler notes in his seminal study, until the middle of the nineteenth century companies were led and controlled by their owners, even as salaried employees began to take on certain administrative and supervisory responsibilities. But when dozens or even hundreds of individual businesses were integrated into corporations owned in some cases by hundreds of thousands of shareholders, employed managers increasingly began to take over the traditional roles of owners, i.e., coordinating, planning, and directing the individual business units as well as the corporation as a whole. Thereby, the much-studied separation between ownership and control of business corporations emerged, and it is this dichotomy that has made the investormanager relationship a key issue of both the business ethics field in general and the corporate governance discourse in particular.