Sustainable Corporate Governance and New Law & Economics

Lorenzo Sacconi (Università degli Studi di Milano Statale)
Virginia Cecchini Manara (Department of Public National and Supranational Law, University of Milan)


What’s the rationale of the ongoing time of regulatory changes in the domain of corporate governance at the European level? Beyond the quite superficial observation that a change from a soft law to a (partial) hard law approach is taking place, I contend that - even by partly new legal tools but with continuing contents - we are observing the process of emergence of a new institutional equilibrium based on the idea of socially responsible corporation. A process that we may understand as a dynamics of equilibrium selection, triggered by the shared mental model of the social contract of the firm amongst its stakeholders - that however, as in any game with multiple equilibriums, far from being unique is only one of the possible equilibrium paths.
To advance this thesis, a quite self-contained argument first outlines the method of a new Law & Economics. In this new approach the central concepts, rather than the efficiency of norms, are the notions of equilibrium and equilibrium selection, triggered by game frames and shared mental models with a selective cognitive function and normative content. In shaping the equilibrium selection dynamics the Law plays an essential role.
I then propose a comparative analysis of how from two competing models of the firms - aiming at the selection of different institutional models of corporate govenance (by eliciting the new or confirming the old model) - the norms of sustainable corporate governance can be deduced. On the one hand, the “Copernican” model of the socially responsible multi-stakeholder corporation, extending fiduciary duties to the corporate stakeholders beyond the owners. As it is grounded on the social contract of the firm (at micro level, at constitutional level, and as social contract agreed in a state of nature-like situation), it simply allows to reconstruct in its proper terms and consistently with its concepts the current regulatory European developments. Additionally it also permits to predict testable new fact about the endogenous conformity attitudes that an approval of social contract-based norms of corporate governance would activate. On the other hand, the “Ptolemaic” model of “shareholder value” only by means of quite stranger ad hoc hypotheses can force the theory of reputation effects in repeated game – significantly adapted to the context of incomplete contracts and hierarchical firms – to support the idea that the norms of corporate sustainability are simply strategies that uniquely serve as an instrument of profit maximization.

Download the file

©2023 Italian Society of Law and Economics. All rights reserved.