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What Corporate Governance Can Learn from Catholic Social Teaching

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Abstract

This reflection focuses on what insights Catholic Social Teaching (CST) can provide for corporate governance. I argue that the ‘standard’ agency theory is overly reductionist and insufficiently incorporates important economic limitations (such as asymmetric information, incomplete contracts, and the need for coordination) as well as human frailty. As a result, such agency theory insufficiently distinguishes firms from markets, which can easily relativize how we treat others and facilitate rationalization of unethical behavior. I then explore how three pillars of CST—human dignity, solidarity, and subsidiarity—can help overcome these limitations. CST proposes a vision of the business corporation as a community of persons, working together in cooperative business relationships toward the shared purpose of contributing to human flourishing.

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Notes

  1. See also Easterbrook and Fischel (1991) and Macey (1991), who combine these assumptions with the argument that shareholders as residual claimants have most at stake (and thus have the appropriate incentives to make corporate decisions on behalf of all stakeholders) to argue for shareholder control of the firm.

  2. See Cremers and Sepe 2016, especially Sect. 3.

  3. See e.g., the Compendium of the Social Doctrine of the Church by the Pontifical Council for Justice and Peace (2004), especially chapter 3 on ‘The Human Person and Human Rights.’

  4. See also John Paul II (1991, p. 31): “The original source of all that is good is the very act of God, who created both the earth and man, and who gave the earth to man so that he might have dominion over it by his work and enjoy its fruits (Gen 1:28). God gave the earth to the whole human race for the sustenance of all its members, without excluding or favoring anyone.”

  5. The first part is from Williamson (1988) on page 569, the second from footnote 3 at the bottom of page 569.

  6. (Centesimus Annus #46) “Nor does the Church close her eyes to the danger of fanaticism or fundamentalism who, in the name of an ideology which purports to be scientific or religious, claim the right to impose on others their own concept of what is true and good. Christian truth is not of this kind. [I]t is not an ideology… the Christian faith does not presume to imprison changing socio-political realities in a rigid schema, and it recognizes that human life is realized in history in conditions that are diverse and imperfect. … [I]n constantly reaffirming the transcendent dignity of the person, the Church's method is always that of respect for freedom.”

  7. See http://w2.vatican.va/content/francesco/en/speeches/2013/march/documents/papa-francesco_20130322_corpo-diplomatico.html.

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Acknowledgment

I am indebted to many people for insightful conversations, feedback, and helpful reading recommendations, especially to two anonymous reviewers, David Lutz, Domènec Mele (the editor), Lloyd Sandelands, Martin Schlag, and seminar participants at IESE Business School, the University of Notre Dame, Ave Maria University, Arizona State, Villanova, and Northwestern University School of Law. I remain solely responsible for any errors.

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  1. 264 Mendoza College of Business, University of Notre Dame, Notre Dame, IN, 46556, USA

    Martijn Cremers

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Cremers, M. What Corporate Governance Can Learn from Catholic Social Teaching. J Bus Ethics 145, 711–724 (2017). https://doi.org/10.1007/s10551-016-3127-5

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