Corporate Governance - CG

The third thematic research is carried out by the CPDR (UCL), the LENTIC Laboratoire d'Etudes sur les Nouvelles Technologies et le Changement (LENTIC) ULg, a team from the department of company and commercial law-ULG, and the Centre for Business Research (CBR) of the University of Cambridge.

Prof. Alexia Autenne (CPDR - UCL)

Prof. Tristan Boyer (CPDR - UCL)

Prof. John Buchanan (CBR - UCAM)

Prof. Robert Cobbaut (CPDR - UCL)

Prof. Simon Deakin (CBR - UCAM)

Prof. François Pichault (LENTIC - ULg)

Prof. Nicolas Thirion (DRT-Com. - ULg)

Ms  Ariane Alexandre (CPDR - UCL)

Ms  Virginie Xhauflair (LENTIC - ULg)

Mr  Gilles Collard (DRT-Com. - ULg)


The prevailing conception of corporate governance ( CG) is grounded on mainstream economic theory. This background includes both a vision of the firm and a vision of the financial market:

•  The firm seen as a ‘nexus of contracts' dominated, for reasons of efficiency, by the party (the shareholders) who is bearing the residual risks and is therefore entitled to both residual income and residual decision rights. Consequently, the mainstream CG theory is centred on ‘shareholder value' maximization and on the settlement of the conflicts of interests between the shareholders, providers of the indispensable risk capital and the managers, providers of the quite as indispensable managerial skills, by means of adequately calibrated incentive contracts and of ‘codes of governance' ensuring effectiveness of the board of directors and of the executive management, as well as transparency (availability and accuracy of the information that is needed for a sound valuation of the firm.

•  The financial market considered not as a collective tool aimed at providing liquidity of financial investments, but as a social machine apt to produce ‘true' valuation, with the main outcome that the shares of common stock of listed companies could become a quasi-currency used to pay salaries and pensions and to pay for acquisitions of going concerns. Consequently, the elaboration of institutional devices aimed at ensuring the ‘informational efficiency' of the financial market is regarded as a sufficient condition for the preservation of public interest.

These conceptions have been at the source of a number of failures. In view of the requisites of ‘reflexive governance', in terms of both adequacy and ‘effectuability', that have been set forth above, this dominant model of CG reveals ambiguities and insufficiencies in several respects . We have identified three specific fields particularly revealing in this respect. They will constitute the three dimensions (and workpackages) to be developed in this research:

  • First, beyond the already classical reference to the ‘new enterprise' (characterized as intensive in ‘human capital'), the allocation of power within the ‘ network enterprise' (characterized by a growing dissociation of organizational and legal envelopes and an ever increasing direct intervention of outside partners who eventually act as prescribers in the management of individual and collective labour relations) calls for new forms of governance. The most urgent task today is therefore to identify the contours of these new forms of governance, in the light of the deficiencies of the current models of corporate governance.

  • Second, the recent evolution of the conception of fiduciary duties of directors and executives, as well as of (pension) fund managers, that may be characterized as restricted to the consideration of ‘shareholders' interests' and as expressed in a somewhat puzzling (in terms of scope of application and methods) mix of public regulation and self-regulation, should be critically assessed; and multi-stakeholders alternatives should be considered in their strengths and weaknesses.

  • Third, given the central role devoted to supposedly ‘efficient' financial markets in matters of CG (penalization by the financial market as the ultimate, if not unique sanction of non-compliance with CG principles), the conception of CG underlying the main regulatory devices in the EU, namely the action plans for financial services, company law and corporate governance needs to be made explicit. This is a precondition for an adequate evaluation of the specific impact and shortcomings of this regulatory apparatus, focusing especially on the impact of its norm setting procedure on its ‘effectuability'.

  • This thematic research should formulate a set of proposals for reflexive regulatory schemes in corporate governance that would better fit the specific requirements of ‘multi-stakeholder governance'

    Each of these questions will form a specific workpackage (CG1-3) of the research. The methodological approach will be primarily based on case studies - with a process of exchange of information, experience on theoretical backgrounds, methodology and intermediate results


    Description of the research

    CG 1 Recomposition of labour relations and social responsibility : the governance of network enterprises (ULg-LENTIC)

     The research analyses, in a critical perspective, the concepts of economic and social responsibility; it examines their links with CG; evaluates the effectiveness of management tools, practices and norms established in the field within diverse contexts, from the ‘traditional firm’ to the new organizational forms of business, characterized by a growing dissociation of organizational and legal envelopes and an ever increasing direct intervention of outside partners (principals, end-customers, suppliers, …) in the internal functioning of every involved entity. The expression ‘network-enterprise’ points at intermediary forms of organization, situated between ‘market’ and ‘hierarchy’. Business relations change, some entities acting as ‘pivots’. Modes of coordination are intertwined, sometimes leading to a form of ‘virtualization’ of economic activity. Such an organizational restructuring leads to what we call ‘proximity heterarchy’, which we consider as the major characteristic of firms functioning in the network mode: the essential of day to day management is carried out at the crossing of multiple stakeholders,economically interdependent, and no longer along a hierarchical line. There is an ever wider disjunction of the spheres of economic mastery, held by the principal, and social responsibility, left to the exclusive competence of legal employers. The outcome is a set of unprecedented issues of CG : ‘network governance’ issues.

    The research consists of : - In depth analysis of the links within network-enterprises between coordination mechanisms and distribution of power, and of their stabilization mechanisms; - Identification of heterarchical situations and the problems they raise with respect to traditional labour and social law; - Interdisciplinary examination of new modes of social regulation in emergence as response to heterarchical situations; - Original studies of the relations of the network-enterprise and its environment, in particular the ‘perimeter’ of social responsibility of ‘distributed organizations’; - Critical interdisciplinary analysis of the concepts of the firm’s economic and social responsibility through systematic cross-examination of management tools, actual practices and governance structures used to frame it.


    CG 2 Fiduciary duties and legal structures of the firm (CBR-CPDR-ULg)

    ‘Fiduciary duties' of the board of directors and executive managers, and of mutual funds, above all pension funds managers, have become central to current debates on corporate governance, as to the extension of such duties, and as to the standards with respect to which they have to be evaluated. The evolutions :

    - A growing tension between the mainstream ‘shareholder conception' – with the ‘shareholder value' as the unique benchmark for the determination and evaluation of the fiduciary duties with its variants : the ‘stakeholder approach' or the ‘enlightened shareholder value approach', and the growing recognition that interests other than shareholders' interest have to be taken into account.

    - A growing recourse to self-regulation (in the form of ‘codes of conduct' or other ‘soft law' instruments) supplementing even challenging traditional legal regulation.

    This WP will carry out a critical analysis of the evolution in the light of the changes induced by the codes of CG (both the codes of corporate governance and the codes of conduct on corporate governance issues. It will evaluate the strengths and limitations of both legal regulation and self-regulation and formulate proposals based on the recent advances of the ‘reflexive governance” theory, by the means of four specific researches

    WP-CG 2.1 Rights and fiduciary duties of the board of directors ( ULg-Law School )

    This research focuses on the role and functioning of the board of directors more particularly on the evolution in Belgian law of the fiduciary duties of directors and executives of commercial companies. It will analyse the role of self-regulation as a production of non-state legal norms and the way in which the law takes into consideration both the company as an entity with an interest of its own and the ‘interests' of various groups of stakeholders who either belong to the company or are gravitating around it.

    WP-CG 2.2 The governance of pension funds (UCL-CPDR)

    This research focuses on the definition of the modes of governance of pension funds in Belgian and European Community legislation, in comparison with the regulations in force in the United States to verify the hypothesis that recent evolutions have initiated a shift from a pure ‘shareholding' concept towards a fiduciary governance , a complex and dynamic construct, mostly jurisprudential, in both public and private perspectives, of criteria for the management of the pension funds: their relation with the company they are stemming from; the concept of interest that has to be mobilized (namely, in whose interest the fund has to be managed), and the risk sharing scheme among the various stakeholders. A Law and Economics methodology is applied based on approaches stemming from neo-classical economis and neo-institutionalist theory.

    WP-CG 2.3 Pension funds and ‘Socially Responsible Investment’ (SRI) strategies (CBR, Cambridge)

    There is a significant but highly contentious move towards a broadened conception – named SRI – of fiduciary duties asserting the obligation of pension funds trustees to take into account social, ethical or environmental factors when taking investment decisions. In other words, they would have to take a long-term view instead of a narrow and short-term perspective of ‘shareholder value’. This question will be examined by case studies of how these issues are played out at board level and in the deliberations of pension funds trustees, and an exploration of the case law on this question as it develops.

    WP-CG 2.4 ‘Whistleblowing' and ‘right to alarm' (CPDR-UCL)

    This research compares the French procedure of ‘right to alarm' with the Anglo-American one of whistleblowing . Such procedures entitle the workers either in an individual and anonymous way – in the case of ‘whistleblowing' – or through a collective channel, via their representative body – in the case of the ‘right to alarm – to inform the board of directors of their concern about dealings inside or around the firm that are either illicit or at least unethical, and detrimental to the firm's interest. Such procedures may strongly incite or even force the management to explain to justify some decisions in terms of the firm's interest. Both devices will be critically examined not only from a strictly legal point of view, but also from the point of view of their significance with respect to governance within the corporation.


    WP CG 3 – Evaluation of EU ‘Action Plans' for the regulation of the financial system (CPDR-UCL)

    A commission of international experts, headed by Prof. Lamfalussy, has designed a ‘participative procedure' for the elaboration of EU directives in matters of financial services, company law and CG. The main concept underpinning its recommendations is the so-called “Efficient Market Hypothesis” (EMH), i.e. the property of prices formed on organized financial markets to reflect without bias the economic value of the real assets underlying the financial assets issued by a firm. In such a perspective, the mission's statement of the public regulator is limited to creating the conditions of equal treatment and, above all, of equal access to pertinent information to enable economic actors to fully express their rationality in valuing financial assets. In fact, EMH is increasingly challenged by finance theorists, in their attempts to provide plausible explanation of the chaotic evolution of financial prices during the last two decades. A growing number of their answers does challenge the dominance of the ‘shareholder value' and the inherent belief in the fully rational character of the valuations provided by financial markets, so that the question must be raised whether the primary mission of the public regulator should not consist in preventing the ‘valuation drifts'. By another way, the concern about a gain in ‘contextualisation' of the normative devices has led the commission to advocate a concept of regulation – adopted likewise for many self-regulatory processes – consisting in the enunciation of a limited number of guiding principles rather than in heavy and always by-passable directly prescriptive and/or prohibitive devices. Such an evolution, though still partial and sometimes ambiguous, towards ‘reflexive law' is of utmost interest.

    The research will consist in evaluating, in the light or the ‘reflexive governance' hypothesis, some of the numerous directives issued or in process as part of either the Financial Services Action Plan (FSAP) or the Action Plan for Company Law and Corporate Governance (CLAP), in terms of both positive advances and difficulties encountered. The directive in process about voting rights has been chosen for in depth investigation as an illustrative case study (CS).

    A comparison will be made with research, currently in progress, on the international accounting standards setting process and its impact on the firms' financial policies.




    Prof. Jacques Lenoble

    Director - Coordinator

    Université catholique de Louvain

    Centre de Philosophie du Droit [ CPDR]







    • 26-28-29 April 2011 : "Philosophie du droit et enjeux de la gouvernance" by Prof. G.A. Legault (Sherbrooke University) - Louvain-La-Neuve

    • [Programme - Presentations]



    Anne Liesse

    Administrative Research Coordinator

    Université catholique de Louvain

    Centre de Philosophie du Droit [ CPDR ]

    Place Montesquieu 2

    B - 1348 Louvain-la-Neuve