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.