Politicized Corporations and Legitimacy Gaps: Challenges for Corporate Governance

Corporate governance practice is mainly centered on the protection of investors’ rights. However, this view neglects the fundamental changes in the operating conditions of business due to globalization and the weakening of regulatory frameworks. Weak or absent enforcement of contracts, increasingly unfettered negative externalities of corporate action, and involvement of private actors in the provision of public goods change the role of business in a fundamental way, rendering it a political actor. Resulting in the extension of corporate power these developments challenge the very assumptions of efficiency based corporate governance theory. Recurrent misuse of power poses a threat to organizational legitimacy as well as to the legitimacy of the capitalist system. Drawing on suggestions to restore organizational legitimacy by means of discursive processes, we argue that opening corporate governance to such processes is a suitable means to safeguard organizational legitimacy in a globalized world. Based on these considerations, basic requirements as well as limits for modification of current corporate governance practice are introduced.