Democracy and the Evolution of Corporate Governance

Under what conditions do stakeholders consent to a regime of corporate governance? We propose that consent by the governed in corporate governance cannot be satisfactorily explained without reference to the collective value of procedural fairness that underlies markets. Drawing on the social psychology of justice and the political economy of social choice, we highlight the critical role played by democratic procedures in achieving consent by the governed in modern society. This line of reasoning leads us to suggest that the evolution of corporate governance, too, can be understood in terms of Tocqueville's well‐known hypothesis that democracy eventually prevails in all spheres of organised activity. Examining the historical record of institutional reform in France, Germany, the United Kingdom and the United  States,  we  find  that  corporate  governance  has  indeed  evolved  to  make  increasing  use of democratic procedures. Viewed over the long‐term of two centuries of capitalist development, corporate governance is seen to have successively incorporated enfranchisement, separation of powers and representation. In conclusion, we consider the implications of basing the study of corporate governance on the question of stakeholder consent and the practice of corporate governance on the procedures of democracy.