ETHICS, ECONOMIC THEORY AND CORPORATE GOVERNANCE

The paper investigates the foundations of corporate governance. It traces the current practical problems of corporate governance to the epistemological and ethical problems of the current mainstream management theory. Management theory has almost completely succumbed to economism, the ideology of mainstream economics. The paper isolates and discusses the three axioms of economism which are deemed to be especially problematic for management/corporate governance theory. The three axioms are: the assumptions that humans always follow the rational principle, that value-free research and application of management tools is possible, and that theory takes primacy over reality. These axioms plus what has been called the "gloomy vision" create a theory of management which is amoral and which in turns leads to immoral and dysfunctional corporate governance. Thus, the paper takes a very high-level look at the debate about ethics in business and argues for the emancipation of business ethics from mainstream economic theory. Management is viewed as a scientific discipline which derives its value from the contributions it makes to managerial practice while Economics has always been - and has recently become more so - a more theoretical field of thought.