The Social Dimension of Boards’ Role in Better Corporate Governance

Summary This chapter considers the legitimacy of shareholder (also known as investor) activism as a means of exercising influence in the corporate decision- making process and identifies engaged boards as a superior solution to addressing issues that activists attempt to address. Drawing on ideas from multiple principal agency theory, the board of directors’ wider role is conceptualized as representing the common interests of multiple principals who have both common and divergent interests. When any one principal is able to serve its own interests by influencing corporate decision-making through shareholder/investor activism, other principals’ interests may be compromised. A set of initiatives available to boards is suggested that focuses on the social dimension of their strategic governance role in mediating among multiple stakeholders to address their concerns while at the same time working towards the long-term sustainability of the business. The chapter highlights the application of multiple principal agency theory to the context of corporate governance, along with other concepts relating to the social dimension and the emerging relational perspective on board competence. From these perspectives it is proposed that the board takes a proactive role in leading this type of engagement, while at the same time recognizing that directors will need better relational skills than has traditionally been expected of them in fulfilling their fiduciary responsibilities.