Monday, August 31, 2020

The Nature Of The Firm

The journal Ecological Economics has published an article entitled "“Environment-selected directors”: An interactive simulation experiment of environmental representation on corporate boards" written by my colleagues and me. Here is the abstract:
In many legal frameworks, corporate directors are selected by shareholders.  Proposed legislature in the US seeks to enable employee representation on corporate boards as well.  Nevertheless, current approaches to corporate board selection could result in the systematic discounting of the needs of other, unrepresented stakeholder groups beyond shareholders and employees.  To investigate this issue, we envisioned a new kind of corporate director—the environment-selected director—to complement shareholder-selected and employee-selected directors.  We conducted an online simulation experiment where human participants were assigned to act as corporate directors, with some being told they were selected by shareholders, some by employees, and some via a “vote by a committee of scientists who study the local and global environment in question”.  Results found that participants assigned as environment-selected directors exhibited balanced preferences across stakeholder groups, behavior significantly different from both shareholder-selected directors and employee-selected directors.  Further results from 3000 “virtual boards of directors” suggest that boards composed solely of environment-selected directors produce more balanced benefits across all three stakeholder groups studied (shareholders, employees, and the environment) than other configurations of boards.  These results suggest that it may be useful for future legislation to consider including this novel form of director, the environment-selected director, on corporate boards.

Huge credit is due Professor Bill M. Tomlinson (University of California Irvine), who spearheaded this research project.  The full article is available for free here.