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Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for Self-Directed Learning

(SDL)
Course/Subject: BUS 1 - Good Governance and Social Responsibility
Name of Teacher: J OAN LOUISE CARBONELL
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Bahr 213- good governance and social responsibility
CHAPTER 1
Lesson 1. THEORIES OF CORPORATE GOVERNANCE
1. Introduction
"New economy" called "post-modern", "post-industrial", "post-capitalist", "post-structural", and "post-

traditional" economy reflects the actual transition from industrial society towards a new type of "informational
"or" knowledge" society" being marked by complex and profound changes in all fields, with significant
implications in the economic, social and environmental process.
Human society has gradually shifted focus from manufacturing to automatic production, from individual
knowledge to group one, and the importance of communication is emphasized.
In the new framework for economic development, especially of the organization, the management organization
approaches are changing towards the corporate governance mechanisms. Effective corporate governance
allows shareholders to ensure that companies in which they hold shares are managed following their own
interests.
The globalization of capital markets and competition in providing the funds impose an increase in the adoption
of corporate governance standards and procedures internationally recognized this being particularly important
for emerging economies and those in transition, which usually have regained credibility in the investors' view.
Fundamental Theories of corporate governance are rooted in agency theory with the theory of moral hazard
implications, developing further within stewardship theory and stakeholder theory and evolving into resource
dependence theory, transaction cost theory, and political theory. Later, these theories were added to ethics
theory, information asymmetry theory, and the theory of efficient markets. These theories are separated from
the causes and effects of variables such as the configuration of the board of directors, audit committee,
independent managers, the role of top management, and their social relations beyond the legal, regulatory
framework. These theories are defined based on the causes and effects of variables such as the configuration of
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the board of directors and audit committee, the independence of directors, the role of top management, and
their social relations beyond the legal, regulatory framework.
2. Debating corporate governance theories
2.1 Agent Theory
Fundamental Theories of corporate governance rooted in agency theory were developed in the early 70s
American literature. The theory refers to the relationships established between the owners of a company and its
directors, relationships embodied in a mandate (agent) contract which consists in one first part (the principal)
that engages the other part (the agent) to perform some services on their behalf.
Agency theory has been developed from the theory of the firm, stated by Alchian and Demsetz (1972) and
further developed by Jensen and Meckling (1976). Fundamentals of agent theory can be found even in the
writings of Adam Smith (1976): "You cannot expect those who manage other people's money to be as careful
and caring as it would belong to them. Waste and negligence are present, always, more or less, in the
management of every business."
Although the development of agency theory is found only in the 70s, the idea of separating the control
government has been highlighted since the 30s by Berle and Means (1932). According to studies by these
authors, the divergence between ownership and control is a potential conflict between shareholders and
management.
Under the agency theory, shareholders (the principal) are expecting the directors (the agents) to lead and make
decisions in their interest, and of those who have been mandated. On the other hand, the agent can not only
adopt the decisions that pursue only the interests of the principal. (Padilla, 2000). Such a conflict of interests
between owners and managers was first highlighted by Berle & Means (1932) and Adam Smith (1976)
followed by Ross (1973) and then expanded by Meckling (1976). Specifically, the conflict is highlighted by
Davis, Schoorman & Donaldson (1997).
Agency theory leads to the need for harmonization of the interests of managers with those of shareholders for
the objective of maximizing the company value could not be affected by the competing interests of managers
in different decision-making circumstances.
The agency theory can be represented in graphical form as follow:
2.2 Hazard Moral Theory

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The conflict of interest determined by the separation between power and control (on which agency theory is
founded) can cause opportunistic behavior of the managers (as agents) which is not necessarily converged with
the shareholder's interest (as principals), that of maximizing shareholders wealth. (Demsetz et al., 1985,
Bonazzi et. al.,2007; Lan et al.,2010; Abdullah,2009; Smith,2011)
Thus, managers are prone to moral hazard and opportunistic behavior guided by their own interests.
The theory of moral hazard is central to agency theory and also refers to hidden actions or opportunistic
behavior of managers (Hendrik, 2003). Hidden action arises as a consequence of asymmetric information held
by counterparties. (Arrow,1968), Eisenhardt,1989) and opportunistic actions occur as human inclination.
(Jensen 1994)
Hendrik (2003) and Smith (2011) identify moral hazard as being determined by two issues: the conflict of
interests of the counterparties (principal and agent), hidden actions, and opportunistic behavior as a result of
asymmetric information. The result can only be extremely dramatic such as decreasing performance and even
business failure.
Dinga (2009) considers moral hazard to be a result of a high degree of insurance against risk in the context of
the financial crisis which began in 2007 when banks were launched in loans because they expected the
government to intervene in restoring liquidity (for example, by relaxing the requirements minimal legal
reserve).
Therefore, the hazard moral theory is strongly connected to the remuneration manager policy. The concerns to
define the managers' remuneration policy according to the need to develop a common interest between
manager and shareholders (to mitigate moral hazard) are current and they are the subject of various economic,
financial and management researches.
Regarding the managers remuneration policy, Corporate Governance Code issued by the Bucharest Stock
Exchange in 2008 states that (in art. VI, Recommendation 21): "The board should establish a remuneration
committee among its members to assist in formulating a remuneration policy for directors and managers and it
should define the committee's internal regulations. Until a remuneration committee has been set up, the board
should deal with these tasks and responsibilities at least once a year. The remuneration policy shall be subject
to AGM approval."
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In conclusion, the way of expressing the moral hazard may result in the managers' remuneration policy (the
bonuses system) and the use of various actions such as handling financial communications in order to increase
their prestige and management reputation or adopting the risky decision.
2.3 Stewardship Theory
Stewardship theory describes the role of management leadership in maintaining and developing the
organization's value, although it works temporarily therein.
Stewardship theory has its origins in the psychology and sociology areas and from this perspective, this theory
assumes that managers are faith, responsive and effective people and therefore, they are good administrators of
the resources entrusted.
According to this theory Schoorman & Donaldson (1997) state that "an administrator protects and maximizes
shareholders' wealth, thus, the shareholder's utility functions are maximized. From this perspective, directors
and managers work for shareholders ensuring the growth of shareholders' wealth.
In comparison with agency theory, where the managers are tempted to make decisions for their own advantage,
not for the owners, the steward theory assumes that managers act not in their own interests, but in a given
conflict of interest situation, they put the company's interests in front of the personal ones.
The conceptual foundation of the theory is related to the development of work motivation theories by
McGragor in the '60s and more specifically to the Y Theory that assumes that managers are rational beings, so
there isn't any need to excessively monitor their behavior as the agency theory assumes. (Nicholson & Kiel
2007)
According to Fulop (2011), because steward theory considers an important factor in the board director
structure, it must be composed of company intern members because they know best the company's problems
and can react accordingly. If the board of directors is composed only of external members, they don't react as
promptly to the daily problems of the company.
As Solomon (2007) highlights, the outside directors (outsiders directors) can monitor the maximizing of the
business performance only in the short term because their knowledge about the work activities is less
compared to the directors coming from inside the company (the insiders) who closely know the daily
company's problems.
Steward theory model could be represented in graphical form as follows:

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2.4 Stakeholders Theory
As a development of the agency theory, the stakeholder theory rises up. The term "stakeholders" refers to all
persons, groups, or organizations that have an impact on the company's activity or are influenced by the
company. It's about: the owners, shareholders, investors, employees, customers, suppliers, business partners,
competitors, the government, local government, NGOs, pressure groups, communities, media, and so on. Each
of these parts somehow interacts and influences the business of a company.
In the years 1980 -1990, Stakeholder Theory has changed the shareholders' paradigm of Milton Friedman
(1970) who considers that maximizing the financial results for shareholders is the highest concern of a
company. Stakeholder theory was developed by Freeman (1984) and it is focused on the corporate
responsibility's view related to various categories of stakeholders.
In the graph below, we design the Stakeholder Theory Model as follows:
Stakeholder theory rises from an increasingly acute need for corporate social responsibility in the current
context of transition from an industrial society to a new society called "post-modern", "post-industrial", "post-
capitalist", "post-structural", "post-traditional" society. The new economy is characterized by a complex and
profound change in all fields, with major social and environmental implications in corporate social
responsibility areas.
In the actual context of world economy globalization, the performing company is an "enterprise that creates
added value for its shareholders, customers demand, taking into account the views of employees and protecting
the environment. So, the shareholders are satisfied that the company has achieved the desired return, and
customers have confidence in the future of the company and the quality of its products and services. The
company's employees are proud of where they work, and the social benefits of environmental protection."
(Jianu, 2006) The concept is based on the stakeholder theory and managers act to maximize the company's
value in order to avoid ignoring the interests of their social partners. The harmonization of these interests is
ensured by the corporate governance system. (Robu, 2004)
This theory of corporate governance based on maximizing the interests of all stakeholders has proved to be the
most efficient in history, not only because it conducts to the economic success of the company, but also
because it works to achieve a competitive advantage due to gain people's trust and consequently goodwill on
the market. (European Commission, 2005)
2.5. Transaction Cost Theory

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Unlike agency theory, transaction cost theory explicitly uses the concept of corporate governance. (Fulop,
2011) This theory states that the company is a relatively efficient hierarchical structure that serves as a
framework to run the contractual relationships. The main concern in transaction cost theory is "to explain the
transactions conducted in terms of efficiency of governance structures." (Wieland 2005).
The fatherhood of "transaction costs" was attributed to Ronald Coase, who in his famous article The Nature of
the Firm, in 1937, has built the judgment regarding the firm's existence without using, explicitly, the concept
of "transaction costs" but that of "cost of using the price mechanism" (Coase, 1988). Coase substantiates his
argument about the nature of the firm by emphasizing that organizing the production through the market
channels (contracting by market) involves some costs. So, by creating an organization that has the
responsibility for resource allocation, some expenditures can be avoided.
Going forward, transaction cost theory is developed by Kenneth Arrow who defines transaction costs as
"operating costs of the economic system." (Arrow, 1969) Later, Williamson, founder of transaction cost
economics, believes that "the study of governance includes: identifying, explaining and combating all types of
risky contracts" (Williamson, 1996).
Certainly, in addition to transaction costs, agency costs resulting from the divergent relationship between
manager and shareholder's interests and information asymmetry must be taken into consideration, costs which
are based on two sources (Fulop, 2011): the costs inherent due to an agent's use (e.g., the risk that agencies use
the company's resources for their own purpose) and costs involved by protecting against the risks associated
with the use of an agent (e.g., the costs of preparing the financial statements or costs consisting in the use of
Stock-options techniques to align the managers and shareholders' interests.)
Therefore, as Abdoullah & Valentine (2009) notice, Transaction Cost Theory faces a complex theory
incorporating interdisciplinary issues related to organizational economics and legal sciences
2.6 Resource Dependency Theory
Resource dependency is an explanatory model of organizational activities that emphasizes the fact that they are
open systems and the environment in which they operate and the social relations are the basis in decision-
making about resources allocation.
In this context, Pfeffer and Salancik (1978) highlighting the resource dependence perspective on inter-
organizational behavior, argue that: "To understand the organization behavior you must understand the context
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in which that behavior occurs [...] this is understandable from the perspective that organizations' activity is
inevitably linked with the environmental conditions in which they operate."
Hillman, Canella, and Paetzold (2000) argue that the resource dependence theory focuses on the role that
managers play in providing essential resources for the organization in relation to the external environment.
According to studies conducted by Hillman, Canella, and Paetzold (2000), in the decision-making process, the
managers contribute with information resources, skills, and access to key business partners of an organization
such as suppliers, creditors, and government, social groups, etc.
According to Abdoullah & Valentine (2009), the managers responsible for leading a business are classified
into four categories:
a) "insiders", meaning the current and former managers of the company offering expertise in specific areas of
the company and finance law;
b)"business experts", meaning the managers of big companies who provide expertise in business strategy,
decision-making, and solving economic problems facing the company;
c) "support specialists" represented by lawyers, bankers and insurance companies, public relations experts, and
all those experts who provide specialized support in their individual specialization area;
d)"community influential", meaning political leaders, academic leaders, religious leaders, or social and
community organization leaders.
From the point of view of allocated internal resources, the power engaged in the process of allocated resources
can be stronger or weaker and it depends on the extent to which managers belong to one of the four categories
listed above.
The resource dependency theory emphasizes the complex character of the "network" concept underlying the
corporate governance concept.
2.7 Political Theory
There are other areas and theories that could explain corporate governance. One such area would be the law,
based on the idea that many corporate governance practices are based on laws. For these reasons, many
definitions of corporate governance encapsulated the political impact of corporate governance mechanisms.
For example, Cosma (2012) defines corporate governance as the "branch of economics that studies how
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businesses can become more efficient by using the institutional structures such as constituted act,
organizational chart, and legal framework."
Political Theory refers to political influence in the governance structure of companies, evidenced by the
participation of the government in the capital of companies or laws adopted by political structures which have
a significant influence on corporate governance.
The political model emphasizes the governmental favors on corporate decision-making activities related to the
distribution of corporate power, profits, or various benefits. (Abdoullah & Valentine, 2009) Regarding
dividend policy, for example, there may be legal rules that give special importance to dividends as a potential
tool for solving possible agency problems related to holding shares. In this respect, countries such as Brazil,
Chile, Columbia, Greece, and Venezuela make mandatory dividend provisions. In other countries, the role of
the legal environment is more subtle. Thus, in the UK there have been formed several boards that make
recommendations for improving corporate governance practices used by the board of directors. (Ileana, 2008)
The political model of corporate governance can have a huge influence on the development of corporate
governance. We can mention the case of the communist or the former-communist countries which are still
struggling to emerge from political influence. The case of Romania is an illustrative example in this regard.
Although being a former communist country for more than 20 years, it still faces major problems related to
government shareholding in the governance structures of the Romanian companies.
Mark Mobius, executive chairman of Templeton Emerging Markets Group recently stated (September 2012)
that the reason for investors not coming to Romania is the jam in profitability recorded by the companies with
government companies, stressing the need that the government should bring more companies on the market.
Further, Mobius stressed that these companies will become attractive to local and foreign investors only if a
change will be produced in the governance system and new governance models will be imposed.
The political manifestation of corporate governance structures concerned the governments of many countries
towards drawing the framework of the separation between power and control...
In this regard, extensive research conducted by various authors (Roe, 1994; Thomsen, 2008) has shown that
the policies adopted by the countries' governments have had a growing importance in explaining the
development of corporate governance national systems and it is also being closely related to sociological issues
such as culture or religion-specific to that country.
2.8 Ethics Theories

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In addition to fundamental theories of corporate governance such as agency theory, steward theory, hazard
theory, stakeholder theory, resource dependence theory, transaction cost theory and political theory, the
authors have identified the ethical theories that can be closely associated with corporate governance.
These relate to business ethics theory, virtue theory, feminist theory, and discourse ethics theory, or post-
modern ethics theory. (Abdoullah & Valentine, 2009)
2.9 Theory of Information Asymmetry
Information asymmetry theory is based on the study of Akerlof (1970) in which the behavior of buyers and
sellers of used goods is analyzed by abandoning the hypothesis of perfect information on the market and
assuming the contrary, the uncertainty regarding the quality of products purchased." (Raimbourg, 1997)
The arguments of Akerlof result from analyzing the marketplace of some products where the seller has more
information about the quality of products than the buyer. He analyses the second-hand car market which is
called the "lemon" market.
The conclusions of Akerlof show that hypothetical information difficulties can lead either to the collapse of the
entire market or to its transformation by adverse selection, being chosen the poor quality products instead of
the higher quality ones. Initially, the theory of asymmetry information marked the first research in the field of
buyer behavior (Spence, 1977; Leland, 1979, Heinkel, 1981; Allen, 1984) and the advertising one ((Nelson,
1970, 1974, and 1978) but then rapidly expanded in financial theory and considerably affected the classical
theories of the firm. (Robu & Sandu, 2006)
The hypothesis concerning the informational asymmetry is closely related to the agency theory and to the
existence of agency relationships. Dividend or financing policies adopted by directors can be characterized by
different interests between the directors and shareholders
In the context of this theory, an explanation for dividends paid to shareholders is provided, although it is
known that they will pay an additional tax for this additional income. An answer in the "signaling" theory area
is that dividends can be a good sign for future investments, the investor pays more for a share because, on the
market, a big level of dividend is interpreted as a good sign which will mean a higher price for the shares.
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Likewise, "signals" of a strong company can be emitted through debt policy because it is considered that a
strong company is one that can afford a high rate of indebtedness in order to finance ambitious investment
projects. (Stancu, 2006)
In conclusion, effective corporate governance will determine the reduction of the informational asymmetry
effect and prevent the manifestation of unfair actions of the managers to gain prestige and reputation but
affecting the company's growth.
2.10 Theory of Efficient Markets
In connection with the informational asymmetry theory, it is the efficient markets theory that focuses on the
investors, as the main stakeholders.
In the context of corporate governance, its mechanisms will be stronger and more effective, ensuring
transparency of internal processes of governance, as the market will reflect the stock value closer to the real
(economical) value of the company. (Credit Lyonnaise Securities Asia -CLSA, 2001; McKinsey 2001;
Standard & Poor's, 2002; Klapper & Love, 2004; Stiglbauer, 2010).
In summary, related to the efficient markets hypothesis, all information available at a given time is included in
the share price and reflects the real value of the company. The results consist in decreasing risks and
uncertainties for investors.
3. Concluding remarks
History emphasized the development of theories and models of corporate governance and the fact there is no
final, single, or optimal form of effective governance.
Together with the transition to capitalism, companies become stronger while governments have had to give out
the domination and the economic implications
Theories of corporate governance are rooted in agency theory with the theory of moral hazard implications,
developing further within stewardship theory and stakeholder theory and evolving in resource dependence
theory, transaction cost theory, and political theory. Later, to these theories were added the ethics theory,
informational asymmetry theory, and the theory of efficient markets. These theories are separated from the
causes and effects of variables such as the configuration of the board of directors, audit committee,
independent managers, the role of top management, and their social relations beyond the legal regulatory
framework. These theories are defined based on the causes and effects of variables such as the configuration of
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the board of directors and audit committee; the independence of directors; the role of top management and
their social relations beyond the legal regulatory framework.
Effective corporate governance requires the application of a combination of existing corporate governance
theories, rather than the application of an individual theory.
Borlea, Sorin Nicolae, PhD; Achim, Monica-Violeta, PhD.

Studia Universitatis "Vasile Goldis" Arad. Seria stiinte economice; Arad Vol. 23, Iss. 1, (2013): 117-128.
Lesson 2: Introduction to Good Governance
Introduction :
Recently the terms "governance" and "good governance" are being increasingly used in
development literature. Bad governance is being increasingly regarded as one of the root
causes of all evil within our societies. Major donors and international financial institutions are
increasingly basing their aid and loans on the condition that reforms that ensure "good
governance" are undertaken. This article tries to explain, as simply as possible, what
"governance" and "good governance" means.
Governance
The concept of "governance" is not new. It is as old as human civilization. Simply put
"governance" means the process of decision-making and the process by which decisions are
implemented (or not implemented). Governance can be used in several contexts such as
corporate governance, international governance, national governance, and local governance.
Since governance is the process of decision-making and the process by which decisions are
implemented, an analysis of governance focuses on the formal and informal actors involved in
decision-making and implementing the decisions made and the formal and informal structures
that have been set in place to arrive at and implement the decision. Government is one of the
actors in governance. Other actors involved in governance vary depending on the level of
government that is under discussion. In rural areas, for example, other actors may include
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influential land lords, associations of peasant farmers, cooperatives, NGOs, research institutes,
religious leaders, finance institutions political parties, the military, etc. The situation in urban
areas is much more complex. Figure 1 provides the interconnections between actors involved in
urban governance. At the national level, in addition to the above actors, media, lobbyists,
international donors, multi-national corporations, etc. may play a role in decision-making or in
influencing the decision-making process. All actors other than the government and the military
are grouped together as part of the "civil society." In some countries in addition to civil society,
organized crime syndicates also influence decision-making, particularly in urban areas and at
the national level. Similarly, formal government structures are one means by which decisions
are arrived at and implemented. At the national level, informal decision-making structures,
such as "kitchen cabinets" or informal advisors may exist. In urban areas, organized crime
syndicates such as the "land Mafia" may influence decision-making. In some rural areas locally
powerful families may make or influence decision-making. Such, informal decision-making is
often the result of corrupt practices or leads to corrupt practices.
Good Governance
Good governance has 8 major characteristics. It is participatory, consensus oriented,
accountable, transparent, responsive, effective and efficient, equitable and inclusive and
follows the rule of law. It assures that corruption is minimized, the views of minorities are taken
into account and that the voices of the most vulnerable in society are heard in decision-making.
It is also responsive to the present and future needs of society.
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URBAN ACTORS:
Participation
Participation by both men and women is a key cornerstone of good governance. Participation
could be either direct or through legitimate intermediate institutions or representatives. It is
important to point out that representative democracy does not necessarily mean that the
concerns of the most vulnerable in society would be taken into consideration in decision
making. Participation needs to be informed and organized. This means freedom of association
and expression on the one hand and an organized civil society on the other hand.
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Rule of law
Good governance requires fair legal frameworks that are enforced impartially. It also requires
full protection of human rights, particularly those of minorities. Impartial enforcement of laws
requires an independent judiciary and an impartial and incorruptible police force.
Transparency
Transparency means that decisions taken and their enforcement are done in a manner that
follows rules and regulations. It also means that information is freely available and directly
accessible to those who will be affected by such decisions and their enforcement. It also means
that enough information is provided and that it is provided in easily understandable forms and
media.
Responsiveness
Good governance requires that institutions and processes try to serve all stakeholders within a
reasonable timeframe.
CHARACTERISTICS OF GOOD GOVERNANCE

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Consensus oriented
There are several actors and as many viewpoints in a given society. Good governance requires
mediation of the different interests in society to reach a broad consensus in society on what is
in the best interest of the whole community and how this can be achieved. It also requires a
broad and long-term perspective on what is needed for sustainable human development and
how to achieve the goals of such development. This can only result from an understanding of
the historical, cultural, and social contexts of a given society or community.
Equity and inclusiveness
A society’s well-being depends on ensuring that all its members feel that they have a stake in it
and do not feel excluded from the mainstream of society. This requires all groups, but
particularly the most vulnerable, to have opportunities to improve or maintain their well-being.
Effectiveness and efficiency
Good governance means that processes and institutions produce results that meet the needs of
society while making the best use of resources at their disposal. The concept of efficiency in the
context of good governance also covers the sustainable use of natural resources and the
protection of the environment.
Accountability
Accountability is a key requirement of good governance. Not only governmental institutions but
also the private sector and civil society organizations must be accountable to the public and to
their
institutional stakeholders. Who is accountable to whom varies depending on whether decisions

or actions taken are internal or external to an organization or institution. In general, an
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organization or an institution is accountable to those who will be affected by its decisions or

actions. Accountability cannot be enforced without transparency and the rule of law.
Conclusion
From the above discussion, it should be clear that good governance is an ideal that is difficult to
achieve in its totality. Very few countries and societies have come close to achieving good
governance in its totality. However, to ensure sustainable human development, actions must be
taken to work towards this ideal with the aim of making it a reality.
https://www.unescap.org/sites/default/files/good-governance.pdf
LESSON 3: SOCIAL RESPONSIBILITY
What Is Social Responsibility?
Social responsibility means that businesses, in addition to

maximizing shareholder value, must act in a manner that benefits society. Social
responsibility has become increasingly important to investors and consumers who seek
investments that are not just profitable but also contribute to the welfare of society and
the environment. However, critics argue that the basic nature of business does not
consider society as a stakeholder.
What is Corporate Social Responsibility?
Understanding Social Responsibility
Social responsibility means that individuals and companies must act in the best
interests of their environment and society as a whole. As it applies to business, social
responsibility is known as corporate social responsibility (CSR) and is becoming a
more prominent area of focus within businesses due to shifting social norms.
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The crux of this theory is to enact policies that promote an ethical balance between the
dual mandates of striving for profitability and benefiting society as a whole. These
policies can be either one of commission (philanthropy: donations of money, time, or
resources) or omission (e.g., "go green" initiatives like reducing greenhouse gases or
abiding by EPA regulations to limit pollution). 1 2
Many companies, such as those with "green" policies, have made social responsibility
an integral part of their business models, and they have done so without compromising
profitability.
In 2019, Forbes named the top 100 socially responsible companies in the world.
Topping the list was the Rolex, followed closely by Ferrari (RACE), then LEGO Group
and Rolls Royce. At the bottom of the list in spot 100 was Proctor and Gamble (PG).3
Additionally, more investors and consumers are factoring in a company's commitment

to socially responsible practices before making an investment or purchase.4 As such,
embracing social responsibility can benefit the prime directive: maximization of
shareholder value.
There is a moral imperative, as well. Actions, or lack thereof, will affect future
generations. Put simply, social responsibility is just good business practice, and a
failure to do so can have a deleterious effect on the balance sheet.
In general, social responsibility is more effective when a company takes it on

voluntarily instead of waiting for the government to require them to do so through
regulation. Social responsibility can boost company morale, especially when a
company can engage employees with its social causes.
Social Responsibility in Practice
The International Organization for Standardization (ISO) emphasizes that a business's

ability to maintain a balance between pursuing economic performance and adhering to
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societal and environmental issues is a critical factor in operating efficiently and

effectively.
Social responsibility takes on different meanings within industries and companies. For
example, Starbucks Corp. (SBUX)and Ben & Jerry's Homemade Holdings Inc. have
integrated social responsibility into the core of their operations. 5 6
Both companies purchase Fair Trade Certified ingredients to manufacture their

products and actively support sustainable farming in the regions where they source
ingredients.7 8 Big-box retailer Target Corp. (TGT), also well known for its social
responsibility programs, has donated money to communities in which the stores
operate, including education grants. 9
The key ways a company embraces social responsibility include philanthropy,

promoting volunteering, and environmental changes. Companies managing their
environmental impact might look to reduce their carbon footprint and limit waste.
There's also the social responsibility of ethical practices for employees, which can
mean offering a fair wage, which arises when there are limited employee protection
laws.
Criticism of Corporate Social Responsibility
Not everyone believes that businesses should have a social conscience.

Economist Milton Friedman stated that "social responsibilities of business are notable
for their analytical looseness and lack of rigor." Friedman believed that only individuals
can have a sense of social responsibility. Businesses, by their very nature, cannot.
Some experts believe that social responsibility defies the very point of being in
business: profit above all else. 1 0
https://www.investopedia.com/terms/s/socialresponsibility.asp
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TYPES OF CORPORATE SOCIAL RESPONSIBILITY
Corporate social responsibility is traditionally broken into four categories: environmental,

philanthropic, ethical, and economic responsibility.
1. Environmental Responsibility
Environmental responsibility refers to the belief that organizations should behave in as

environmentally friendly a way as possible. It’s one of the most common forms of
corporate social responsibility. Some companies use the term “environmental
stewardship” to refer to such initiatives.
Companies that seek to embrace environmental responsibility can do so in several

ways:
 Reducing pollution, greenhouse gas emissions, the use of single-use plastics,

water consumption, and general waste
 Increasing reliance on renewable energy, sustainable resources, and recycled
or partially recycled materials
 Offsetting negative environmental impact; for example, by planting trees,
funding research, and donating to related causes
2. Ethical Responsibility
Ethical responsibility is concerned with ensuring an organization is operating in a fair

and ethical manner. Organizations that embrace ethical responsibility aim to achieve fair
treatment of all stakeholders, including leadership, investors, employees, suppliers, and
customers.
Firms can embrace ethical responsibility in different ways. For example, a business
might set its own, higher minimum wage if the one mandated by the state or federal
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government doesn’t constitute a “livable wage.” Likewise, a business might require that
products, ingredients, materials, or components be sourced according to free trade
standards. In this regard, many firms have processes to ensure they’re not purchasing
products resulting from slavery or child labor.
3. Philanthropic Responsibility
Philanthropic responsibility refers to a business’s aim to actively make the world and
society a better place.
In addition to acting as ethically and environmentally friendly as possible, organizations

are driven by philanthropic responsibility and often dedicate a portion of their earnings.
While many firms donate to charities and nonprofits that align with their guiding
missions, others donate to worthy causes that don’t directly relate to their business.
Others go so far as to create their own charitable trust or organization to give back.
4. Economic Responsibility
Economic responsibility is the practice of a firm backing all of its financial decisions in its
commitment to do good in the areas listed above. The end goal is not to simply
maximize profits, but positively impact the environment, people, and society.
BENEFITS OF CORPORATE SOCIAL RESPONSIBILITY
Most firms are driven to embrace corporate social responsibility due to moral
convictions, and doing so can bring several benefits.
Corporate social responsibility initiatives can, for example, be a powerful marketing tool,
helping a company position itself favorably in the eyes of consumers, investors, and
regulators. CSR initiatives can also improve employee engagement and satisfaction—
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key measures that drive retention. Such initiatives can even attract potential employees
who carry strong personal convictions that match those of the organization.
Finally, corporate social responsibility initiatives, by their nature, force business leaders
to examine practices related to how they hire and manage employees, source products
or components, and deliver value to customers.
This reflection can often lead to innovative and groundbreaking solutions that help a
company act in a more socially responsible way and increase profits. Reconceptualizing
the manufacturing process so that a company consumes less energy and produces less
waste, for example, allows it to become more environmentally friendly while reducing its
energy and materials costs—value that can be reclaimed and shared with both
suppliers and customers.
https://online.hbs.edu/blog/post/types-of-corporate-social-responsibility
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CHAPTER 2
LESSON 4: CORPORATE GOVERNANCE
Introduction
Corporate governance is concerned with holding the balance between economic and social
goals and between individual and communal goals. The corporate governance framework is
there to encourage the efficient use of resources and equally to require accountability for the
stewardship of those resources. This article outlines the relationship between corporate
governance and corporate social responsibility (CSR). It begins by examining the role of
corporate governance in creating value for shareholders. It focuses on the actions of the
corporation and the board toward its shareholders and other stakeholders, i.e., how corporate
governance serves or fails to serve their interests. It covers the assumptions that underlie
theories of corporate governance and the expected outcomes of various board structures and
compositions. It then examines the state of corporate democracy, the issue of accountability,
and key legislation relative to corporate governance.
Good governance is not only crucial for corporations, it's important for society - there's a
growing recognition that there is a close relationship between corporate governance and social
responsibility. Here we explore why this is: why are the two so closely interlinked? What is the
relationship between corporate governance and social responsibility? And what role does
sustainability play; how does that fit into the mix? To begin with, good corporate
governance improves the public's faith and confidence in its corporate leaders. Legislative
processes were designed to protect societies from known threats and to keep problems from
occurring or reoccurring. Recent corporate scandals shed light on the connection between
corporations and social responsibility.
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CORPORATE GOVERNANCE
Corporate Governance is the system by which companies are directed and controlled. The
Board of directors is responsible for the governance of their companies. The share holders’ role
in governance is to appoint the directors and the auditors and to satisfy themselves then an
appropriate governance structure is in place.
The responsibilities of the board include setting the company’s strategic aims, providing the
leadership to put them into effect, supervising the management of the business, and reporting
to shareholders on their stewardship.
Corporate governance is therefore about what the board of a company does and how it sets
the values of the company by full-time executives.
CONCEPT OF CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY
CORPORATE RESPONSIBILITY
 The concept of corporate responsibility is essentially about ensuring a

better conversation between business and society.
 Aside from the symbolic relation and consequent benefits derivable from
the conversation, the dialogue between business and society is
underpinned by the principle of accountability, which purposes need
periodic scrutiny by immediate and remote interests.
CORPORATE GOVERNANCE
 On the other hand, corporate governance seeks to create the context for
advancing this conversation and creating trust, progress, and continuity
therefrom through the setting of the background against which
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judgments are made and decisions are taken in a bid to sharpen the
moral planks of the conversation.
MAJOR DISTINCTION BETWEEN CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY
FROM RELATIONSHIP TO ACCOUNTABILITY
Relationship – While corporate responsibility strives to forge relationships, corporate

governance helps to define the basis of the relationships and sets the rules.
Accountability- Corporate governance, therefore, is a platform for ensuring that rules adopted
in pursuit of the need for an accountable enterprise are applied and made to govern business
and social conversation.
ACCOUNTABLE AS A POINT OF CONVERGENCE
CORPORATE RESPONSIBILITY AS AN ACCOUNTABLE INVESTMENT
 The search for a goodwill platform for social and environmental

investments creating a sustainable enterprise.
CORPORATE GOVERNANCE AS ACCOUNTABLE ACTIONS
 Instances of corporate irresponsibility lead to colossal corporate and/or

national economic value attrition.
CREATING A BASIS FOR A SOUND BUSINESS
 Accountable decision making in the selection of corporate priorities

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PARTIES SUBJECT TO CORPORATE GOVERNANCE
CREDITORS
 Participation in winding up of a company

 Recovery statutes for public financial institutions
CUSTOMER AND CONSUMERS
 Consumer protection laws
EMPLOYEES
 Labor law
 Contractual mechanisms
ISSUES INVOLVING CORPORATE GOVERNANCE PRINCIPLES
 Internal controls and internal auditors.

 The independence and management risk
 Oversight of the preparation of the entity’s financial statement
 Review of the compensation arrangements for the chief executive offices and other
senior executives.
 The resources are made available to the directors in carrying out their duties.
 The way in which individuals are nominated for positions on the board
UNDERSTANDING CORPORATE GOVERNANCE
Governance refers specifically to the set of rules, controls, policies, and resolutions put
in place to dictate corporate behavior. Proxy advisors and shareholders are important
stakeholders who indirectly affect governance, but these are not examples of
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governance itself. The board of directors is pivotal in governance, and it can have
major ramifications for equity valuation.
A company’s corporate governance is important to investors since it shows a

company's direction and business integrity. Good corporate governance helps
companies build trust with investors and the community. As a result, corporate
governance helps promote financial viability by creating a long-term investment
opportunity for market participants.
Communicating a firm's corporate governance is a key component of community

and investor relations. On Apple Inc.'s investor relations site, for example, the firm
outlines its corporate leadership—its executive team, its board of directors—and its
corporate governance, including its committee charters and governance documents,
such as bylaws, stock ownership guidelines, and articles of incorporation .1
Most companies strive to have a high level of corporate governance. For many
shareholders, it is not enough for a company to merely be profitable; it also needs to
demonstrate good corporate citizenship through environmental awareness, ethical
behavior, and sound corporate governance practices . Good corporate governance
creates a transparent set of rules and controls in which shareholders, directors, and
officers have aligned incentives.
Corporate Governance and the Board of Directors
The board of directors is the primary direct stakeholder influencing corporate

governance. Directors are elected by shareholders or appointed by other board
members, and they represent shareholders of the company.
The board is tasked with making important decisions, such as corporate officer
appointments, executive compensation, and dividend policy. In some instances, board
obligations stretch beyond financial optimization, as when shareholder resolutions call
for certain social or environmental concerns to be prioritized.
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A board of directors should consist of a diverse group of individuals, those that have
skills and knowledge of the business, as well as those who can bring a fresh
perspective from outside of the company and industry.
Boards are often made up of inside and independent members. Insiders are major
shareholders, founders, and executives. Independent directors do not share the ties of
the insiders, but they are chosen because of their experience managing or directing
other large companies. Independents are considered helpful for governance because
they dilute the concentration of power and help align shareholder interests with those
of the insiders.
The board of directors must ensure that the company's corporate governance policies
incorporate corporate strategy, risk management, accountability, transparency, and
ethical business practices.
EXAMPLES OF CORPORATE GOVERNANCE
Volkswagen AG
Bad corporate governance can cast doubt on a company's reliability, integrity, or

obligation to shareholders; all of which can have implications on the firm's financial
health. Tolerance or support of illegal activities can create scandals like the one that
rocked Volkswagen AG starting in September 2015.
The development of the details of "Dieselgate" (as the affair came to be known)
revealed that for years the automaker had deliberately and systematically rigged
engine emission equipment in its cars in order to manipulate pollution test results in
America and Europe. Volkswagen saw its stock shed nearly half its value in the days
following the start of the scandal, and its global sales in the first full month following the
news fell 4.5%.2
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VW's board structure was a reason for how the emissions rigging took place and was
not caught earlier. In contrast to the one-tier board system common in most
companies, VW has a two-tier board system consisting of a management board and a
supervisory board. The supervisory board was meant to monitor management and
approve corporate decisions; however, it lacked the independence and authority to be
able to carry out these roles. 3
The supervisory board comprised a large portion of shareholders. Ninety percent of

shareholder voting rights were controlled by members of the supervisory board. There
was no real independent supervisor; shareholders were in control of the supervisory
board, which canceled out the purpose of the supervisory board, which was to oversee
management and employees and how they operate within the company, which
included rigging emissions. 3
Enron and WorldCom
Public and government concern about corporate governance tends to wax and wane.
Often, however, highly publicized revelations of corporate malfeasance revive interest
in the subject. For example, corporate governance became a pressing issue in the
United States at the turn of the 21st century, after fraudulent practices bankrupted
high-profile companies such as Enron and WorldCom.
The problem with Enron was that its board of directors waived many rules related to
conflicts of interest by allowing the chief financial officer (CFO), Andrew Fastow, to
create independent, private partnerships to do business with Enron. What actually
happened was that these private partnerships were used to hide Enron's debts and
liabilities, which would have reduced the company's profits significantly. 4
What happened at Enron was clearly a lack of corporate governance that should have
prevented the creation of these entities that hid the losses. The company also had a
corporate atmosphere with dishonest people at the top (Fastow) and its traders who
made illegal moves in the markets.
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Both the Enron and Worldcom scandals resulted in the 2002 passage of the Sarbanes-
Oxley Act, which imposed more stringent recordkeeping requirements on companies
and stiff criminal penalties for violating them and other securities laws. The aim was to
restore public confidence in public companies and how they operate.
PepsiCo
It's common to hear of bad corporate governance examples, mainly because it is the
reason some companies blow up and end up in the news. It's rare to hear of
companies with good corporate governance because it is the good corporate
governance that keeps them out of the news as no scandal has occurred.
One company that has consistently practiced good corporate governance and seeks to
update it often is PepsiCo. In drafting its 2020 proxy statement, PepsiCo took input
from investors to focus on six areas:
 Board composition, diversity, and refreshment, and leadership structure

 Long-term strategy, corporate purpose, and sustainability issues
 Good governance practices and ethical corporate culture
 Human capital management
 Compensation discussion and analysis
 Shareholder and stakeholder engagement 5
The company included in its proxy statement a side-by-side graphic that depicted the
current leadership structure, which shows a combined chair and CEO along with an
independent presiding director, and a link between the compensation of the company's
"Winning With Purpose" vision and changes to the executive compensation program. 5
SPECIAL CONSIDERATIONS
As an investor, you want to ensure that the company you are looking to buy shares of
practices good corporate governance, in the hope of avoiding losses in cases such as
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Enron and Worldcom. There are certain areas that an investor can focus on to
determine whether a company is practicing good corporate governance or not.
These areas include disclosure practices, executive compensation structure (is it tied
only to performance or other metrics?), risk management (what are the checks and
balances of making decisions in the company?), policies and procedures on reconciling
conflicts of interest (how does a company approach business decisions that might
conflict with its mission statement?), the members of the board of the directors (do they
have a stake in profits?), contractual and social obligations (how do they approach
areas such as climate change?), relationships with vendors, complaints received from
shareholders and how they were addressed, and audits (how often are internal and
external audits conducted and how have issues been handled?).
Types of bad governance practices include:
 Companies that do not cooperate sufficiently with auditors or do not select

auditors with the appropriate scale, resulting in the publication of spurious or
noncompliant financial documents
 Bad executive compensation packages that fail to create an optimal incentive for
corporate officers
 Poorly structured boards that make it too difficult for shareholders to oust
ineffective incumbents
These are all areas an investor can research before making an investment decision.
More information
1. Mr. Yap Kioe Sheng Chief,

Poverty Reduction Section UNESCAP, UN Building, Rajdamnern Nok Ave. Bangkok
10200, Thailand Tel: 66-2-288-1600 Fax: 66-2-288 1056 E-mail: [email protected] URL:
<www.unescap.org/pdd>
2. https://www.investopedia.com/terms/c/corporategovernance.asp
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LESSON 5: THE ORGANIZATION FOR ECONOMIC CO-OPERATION AND

DEVELOPMENT (OECD) PRINCIPLES OF CORPORATE GOVERNANCE
I. Ensuring the basis for an Effective Corporate Governance Framework
The corporate governance framework should promote transparent and efficient markets, be
consistent with the rule of law and clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement authorities.
A. The corporate governance framework should be developed with a view to its impact on
overall economic performance, market integrity, and incentives it creates for market
participants, and the promotion of transparent and efficient markets.
B. The legal and regulatory requirements that affect corporate governance practices in a
jurisdiction should be consistent with the rule of law, transparent, and enforceable.
C. The division of responsibilities among different authorities in a jurisdiction should be
clearly articulated and ensure that the public interest is served.
D. Supervisory, regulatory and enforcement authorities should have the authority, integrity,
and resources to fulfil their duties in a professional and objective manner. Moreover,
their rulings should be timely, transparent, and fully explained.
II. The Rights of Shareholders and Key Ownership Functions
The corporate governance framework should protect and facilitate the exercise of
shareholders’ rights.
A. Basic shareholder rights should include the right to: 1) secure methods of ownership
registration; 2) convey or transfer shares; 3) obtain relevant and material information on
the corporation on a timely and regular basis; 4) participate and vote in general
shareholder meetings; 5) elect and remove members of the board; and 6) share in the
profits of the corporation.
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B. Shareholders should have the right to participate in, and to be sufficiently informed on,
decisions concerning fundamental corporate charges such as: 1) amendments to the
statutes, or articles of corporation or similar governing documents of the company; 2)
the authorization of additional shares; and 3) extraordinary transactions, including the
transfer of all substantially all assets, that in effect result in the sale of the company.
C. Shareholders should have the opportunity to participate effectively and vote in general
shareholders meetings and should be informed of the rules, including voting
procedures, that govern general shareholder meetings:
1. Shareholders should be furnished with sufficient and timely information concerning
the date, location, and agenda of general meetings, as well as full and timely
information regarding the issues to be decided at the meeting.
2. Shareholders should have the opportunity to ask questions to the board, including
questions relating to the annual external audit, to place items on the agenda of
general meetings, and to propose resolutions subject to reasonable limitations.
3. Effective shareholder participation in key corporate governance decisions, such as
the nomination and election of board members, should be facilitated. Shareholders
should be able to make their views known on the remuneration policy for board
members and key executives. The equity component of compensation schemes for
board members and employees should be subject to shareholder approval.
4. Shareholders should be able to vote in person or in absentia, and equal effect should
be given to votes whether cast in person or in absentia.
D. Capital structures and arrangements that enable certain shareholders to obtain a degree
of control disproportionate to their equity ownership should be disclosed.
E. Markets for corporate control should be allowed to function in an efficient and
transparent manner.
1. The rules and procedures governing the acquisition of corporate control in the
capital markets, and extraordinary transactions such as mergers, and sales of
substantial portions of corporate assets, should be clearly articulated and disclosed
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so that investors understand their rights and recourse. Transactions should occur at
transparent prices and under fair conditions that protect the rights of all
shareholders according to their class.
2. Anti-take-over devices should not be used to shield management and the board
from accountability.
F. The exercise of ownership rights by all shareholders, including institutional investors,
should be facilitated.
1. Institutional investors acting in a fiduciary capacity should disclose their overall
corporate governance and voting policies with respect to their investments,
including the procedures that they have in place for deciding on the use of their
voting rights.
2. Institutional investors acting in a fiduciary capacity should disclose how they manage
material conflicts of interest the exercise of key ownership rights regarding the
investments.
G. Shareholders, including institutional shareholders, should be allowed to consult each
other on issues concerning their basic shareholder rights as defined in the principles,
subject to exceptions to prevent abuse.
III. The Equitable Treatment of Shareholders
The corporate governance framework should ensure the equitable treatment of all
shareholders, including minority and foreign shareholders. All shareholders should be able to
obtain efficient redress for violating their rights.
A. All shareholders of the same series of a class should be treated equally.
1. Within any series of a class, all shares should carry the same rights. All investors
should be able to obtain information about the rights attached to all series and
classes of shares before they purchase. Any changes in voting rights should be
subject to approval by those classes of share which are negatively affected.
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2. Minority shareholders should be protected from abusive actions by, or in the

interest of, controlling shareholders acting either directly or indirectly, and should
have effective means of redress.
3. Votes should be cast by custodians and nominees in a manner agreed upon with
beneficial owner of the shares.
4. Impediments to cross border voting should be eliminated.
5. Processes and procedures for general shareholder meetings should allow for
equitable treatment of all shareholders. Company procedures should not make it
unduly difficult or expensive to cast votes.
B. Insider trading and abusive self-dealing should be prohibited.
C. Members of the board and key executives should be required to disclose to the board
whether they, directly, indirectly or on behalf of third parties, have a material interest in
any transaction or matter directly affecting corporation.
IV. The Role of Stakeholders in Corporate Governance
The corporate governance framework should recognize the rights of stakeholders

established by law or through mutual agreements and encourage active co-operation
between corporations and stakeholders in creating wealth, jobs, and sustainability of
financially sound enterprises.
A. The rights of stakeholders that are established by law or through mutual agreements
are to be respected.
B. Where stakeholder interests are protected by law, stakeholders should have the
opportunity to obtain effective redress for violation of their rights.
C. Performance -enhancing mechanisms for employee participants should be permitted
to develop.
D. Where stakeholders participate in the corporate governance process, they should
have access to relevant, sufficient, and reliable information on a timely and regular
basis.
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E. Stakeholders, including individual employees and their representative bodies, should

be able to freely communicate their concerns about illegal or unethical practices to
the board, and their rights should not be compromised for doing this.
F. The corporate governance framework should be complemented by an effective,
efficient insolvency framework and by effective enforcement of creditor rights.
V. Disclosure and Transparency
The corporate governance framework should ensure timely and accurate disclosure on all
matters regarding the corporation, including the situation, performance, ownership, and
governance of the company.
A. Disclosure should include, but not limited to, material information on:
1. The financial and operating results of the company.
2. Company objective.
3. Major share ownership of voting rights.
4. Remuneration policy foe members of the board and key executives, and information
about board members, including their qualifications, the selection process, other
company directorship and whether they are regarded as independent by the board.
5. Related party transactions.
6. Foreseeable risk factors.
7. Issues regarding employees and other stakeholders.
8. Governance structures and policies, in particular the content of any corporate
governance code or policy and the process by which it is implemented.
B. Information should be prepared and disclosed in accordance with high-quality standards
of accounting and financial and non-financial disclosure.
C. An annual audit should be conducted by an independent, competent, and qualified,
auditor in order to provide an external and objective assurance to the board and
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shareholders that the financial statements fairly represent the financial position and
performance d of the company in all material respects.
D. External auditors should be accountable to the shareholders and owe a duty to the
company to exercise due professional care in the conduct of the audit.
E. Channels for disseminating information should provide for equal, timely, and cost-
efficient access to relevant information by users.
F. The corporate governance framework should be complemented by an effective
approach that addresses and promotes the provision of analysis of advice by analysis,
brokers, rating agencies and others, that is relevant to decisions by investors, free from
material conflicts of interests that might compromise the integrity of their analysis or
advice.
VI. The Responsibilities of the Board
The corporate governance framework should ensure the strategic guidance of the company,
the effective monitoring of management by the board, and the board's accountability to the
company and the shareholders.
A. Board members should act on a fully informed basis, in good faith, with due diligence
and care, and in the best interest of the company and the shareholders.
B. Where board decisions may affect different shareholder groups differently, the board
should treat all shareholders fairly.
C. The board should apply high ethical standards. It should take into account the interests
of stakeholders.
D. The board should fulfill certain key functions, including:
1. Reviewing and guiding corporate strategy, major plans of action, risk policy, annual
budgets, and business plans; setting performance; and overseeing major capital
expenditures, acquisitions, and divestitures.
2. Monitoring the effectiveness of the company’s governance practices and making
changes as needed.
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3. Selecting, compensating, monitoring and, when necessary, replacing key executives

and overseeing succession planning.
4. Aligning key executives and board remuneration with the longer-term interests of
the company and its shareholders.
5. Ensuring a formal and transparent board nomination and election process.
6. Monitoring and managing potential conflicts of interest of management, board
members of shareholders, including misuse of corporate assets and abuse in related
party transactions.
7. Ensuring the integrity of the corporation’s accounting and financial reporting
systems, including the independent audit, and that appropriate systems of control
are in place, in particular, systems for risk management, financial and operational
control, and compliance with the law and relevant standards.
8. Overseeing the process of disclosure and communications.
E. The board should be able to exercise objective, independent judgments on corporate
affairs.
1. Boards should consider assigning a sufficient number of non-executive board
members capable of exercising independent judgment to tasks with a potential
conflict of interest. Such key responsibilities include ensuring the integrity of
financial and non-financial reporting, the review of related party transactions, the
nomination of board members and key executives, and board remuneration.
2. When board committees are established, their mandate, composition, and working
procedures should be well-defined and disclosed by the board.
3. Board members should be able to commit themselves effectively to their
responsibilities.
F. In order to fulfill their responsibilities, board members should have access to accurate,
relevant, and timely information.
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Lesson 6: POLITICAL GOOD GOVERNANCE
In Politics
Good governance in the context of countries is a broad term, and in that regard, it is difficult to
find a unique definition. According to Fukuyama (2013),[6] there are two dimensions to qualify
governance as good or bad: the capacity of the state and the bureaucracy's autonomy. They
both complement, in the sense that when the state is more capable, for instance through the
collection of taxes, there should be more autonomy because the bureaucrats are able to
conduct things well without being instructed with a lot of details. In less capable states,
however, less discretion and more rules setting are desirable.
Another way to think about good governance is through outcomes. Since governments carry
out goals like the provision of public goods to their citizens, there is no better way to think
about good governance other than through deliverables, which are precisely the ones
demanded by citizens, like security, health, education, water, the enforcement of contracts,
protection to property, protection to the environment and their ability to vote and get paid fair
wages.[7]
Similarly, good governance might be approximated with the provision of public services in an
efficient manner, higher participation is given to certain groups in the population like the poor
and the minorities, and the guarantee that citizens have the opportunity of checks and balances
on the government, the establishment, and enforcement of norms for the protection of the
citizens and their property and the existence of independent judiciary systems. [8]
Lawson (2011)[9] in his review of Rothstein's book "The quality of government: corruption, social
trust, and inequality in international perspective"[10] mention that the author relates good
governance to the concept of impartiality, which is basically when the bureaucrats perform
their tasks following the public interest rather than their self-interest. Lawson differs from him
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in that this impartial application of law ignores important factors like economic liberalism,
which matters due to its relation to economic growth.
According to Bo Rothstein and Jan Teorell, the key characteristic of good governance is the
impartiality of government institutions.[11]
THE 12 PRINCIPLES OF DEMOCRATIC GOOD GOVERNANCE
1. Fair conduct of elections, representations, and participation
 Local elections are conducted freely and fairly, according to international
standards and national legislation, and without any fraud.
 Citizens are at the center of public activity and they are involved in clearly
defined ways in public life at the local level.
 All men and women can have a voice in decision-making, either directly or
through legitimate intermediate bodies that represent their interests. Such
broad participation is built on the freedoms of expression, assembly, and
association.
 All voices, including those of the less privileged and most vulnerable, are heard
and taken into account in decision-making, including over the allocation of
resources.
 There is always an honest attempt to mediate between various legitimate
interests and to reach a broad consensus on what is in the best interest of the
whole community and how this can be achieved
 Decisions are taken according to the will of the many, while the rights and
legitimate interests of the few are respected.

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2. Responsiveness
 Objectives, rules, structures, and procedures are adapted to the legitimate
expectations and needs of citizens.
 Public services are delivered, and requests and complaints are responded to
within a reasonable timeframe.
3. Efficiency and effectiveness
 Results meet the agreed objectives.
 The best possible use is made of the resources available.
 Performance management systems make it possible to evaluate and enhance
the efficiency and effectiveness of services.
 Audits are carried out at regular intervals to assess and improve performance.
4. Openness and transparency
 Decisions are taken and enforced in accordance with rules and regulations.
 There is public access to all information that is not classified for well-specified
reasons as provided for by law (such as the protection of privacy or ensuring the
fairness of procurement procedures).
 Information on decisions, implementation of policies and results is made
available to the public in such a way as to enable it to effectively follow and
contribute to the work of the local authority.
5. Rule of law
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 The local authorities abide by the law and judicial decisions.
 Rules and regulations are adopted in accordance with procedures provided for
by law and are enforced impartially.
6. Ethical conduct
 The public good is placed before individual interests.
 There are effective measures to prevent and combat all forms of corruption.
 Conflicts of interest are declared in a timely manner and persons involved must
abstain from taking part in relevant decisions.
7. Competence and capacity
 The professional skills of those who deliver governance are continuously
maintained and strengthened in order to improve their output and impact.
 Public officials are motivated to continuously improve their performance.
 Practical methods and procedures are created and used in order to transform
skills into capacity and to produce better results.
8. Innovation and openness to change
 New and efficient solutions to problems are sought and advantage is taken of
modern methods of service provision.

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 There is a readiness to pilot and experiment with new programs and to learn
from the experience of others.
 A climate favorable to change is created in the interest of achieving better
results.
9. Sustainability and Long-term Orientation
 The needs of future generations are taken into account in current policies.
 The sustainability of the community is constantly taken into account.
 Decisions strive to internalize all costs and not to transfer problems and tensions,
be they environmental, structural, financial, economic, or social, to future
generations.
 There is a broad and long-term perspective on the future of the local community
along with a sense of what is needed for such development.
 There is an understanding of the historical, cultural, and social complexities in
which this perspective is grounded.
10. Sound Financial Management
 Charges do not exceed the cost of services provided and do not reduce demand
excessively, particularly in the case of important public services.
 Prudence is observed in financial management, including in the contracting and
use of loans, in the estimation of resources, revenues, and reserves, and in the
use of exceptional revenue.
 Multi-annual budget plans are prepared, with the consultation of the public.
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 Risks are properly estimated and managed, including by the publication of
consolidated accounts and, in the case of public-private partnerships, by sharing
the risks realistically.
 The local authority takes part in arrangements for inter-municipal solidarity, fair
sharing of burdens and benefits, and reduction of risks (equalization systems,
inter-municipal cooperation, mutualization of risks…).
11. Human Rights, Cultural Diversity, and Social Cohesion
 Within the local authority’s sphere of influence, human rights are respected,
protected and implemented, and discrimination on any grounds is combated.
 Cultural diversity is treated as an asset, and continuous efforts are made to
ensure that all have a stake in the local community, identify with it and do not
feel excluded.
 Social cohesion and the integration of disadvantaged areas are promoted.
 Access to essential services is preserved, in particular for the most disadvantaged
sections of the population.
12. Accountability
 All decision-makers, collective and individual, take responsibility for their
decisions.
 Decisions are reported on, explained, and can be sanctioned.
 There are effective remedies against maladministration and against local
authorities' actions that infringe on civil rights.

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LESSON 7: ECONOMIC GOOD GOVERNANCE
Economic governance consists of the processes that support economic activity and economic
transactions by protecting property rights, enforcing contracts, and taking collective action to
provide appropriate physical and organizational infrastructure. These processes are carried out
within institutions, formal and informal. The field of economic governance studies and
compares the performance of different institutions under different conditions, the evolution of
these institutions, and the transitions from one set of institutions to another.
One of the major problems before the developing countries and the transitional economies is
to create a conducive economic environment for economic growth and social progress. Each
country must ascertain and evaluate its stock of natural, physical, and financial resources and
formulate its strategy for economic growth on the basis of its ability for capacity building,
resource mobilization, strengthening of the institutional framework, and administrative
capability. There should be positive steps taken to promote private sector development by
creating a conducive atmosphere for its nurture and healthy growth. Wherever possible,
attempts should be made to encourage and foster private-public sector partnership and
establish adequate legal and regulatory framework to provide a level-playing field to both
public and private sectors of the economy. Economic governance consists of the entire
institutional framework of the government engaged in the evolution and implementation of the
general economic policy in all its manifestations affecting its internal and international
economic relations. Economic governance would also necessitate evolving on a permanent
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basis harmonious fiscal, monetary, and trade policies and the establishment of a monitoring
authority for effective coordination between different economic activities. In the interest of
decentralization of functions, the central bank of the country should be endowed with a great
deal of autonomy and authority to implement monetary policy as recent experiences in the
developed countries have shown. Wherever there is an independent planning authority
entrusted with medium and long-term planning of the national resources, there is a further
necessity for close coordination with such planning authority.
Good Governance resides on principles such as the rule of law, transparency, accountability,
non-discrimination, and participation. Economic Governance is one specific aspect of Good
Governance and refers to all rules constituting the general framework for economic activities.
Implementing these rules in a transparent, predictable, and reliable way contributes to a
resilient and stable economy that fosters inclusive growth, investment as well as job creation
and ultimately helps alleviate poverty. Good Economic Governance is crucial for the functioning
of both the public and the private sector. First, only well-functioning, transparent economic,
financial, and fiscal policies can contribute to economic growth and sustainable development.
And only strong, well-governed, and transparent public institutions can deliver their services to
the population effectively. Second, only a transparent, efficient and ethical private enterprise
will fully merit its stakeholders’ and customers’ trust.
THE IMPORTANCE OF ECONOMIC DEVELOPMENT
In order for any community to survive, its citizens must have employment opportunities, and its
government must be able to generate revenue to provide services. Economic development, if
done effectively, works to retain and grow jobs and investment within a community. The tax
base that is created through this growth and investment is used by our local governments to
provide services such as police, fire department, plowing, senior services, parks/recreation,
library services, etc.
Types of Economic Systems

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There are many types of economies around the world. Each has its own distinguishing
characteristics, although they all share some basic features. Each economy functions based on a
unique set of conditions and assumptions. Economic systems can be categorized into four main
types: traditional economies, command economies, mixed economies, and market economies.
1. Traditional economic system
The traditional economic system is based on goods, services, and work, all of which follow
certain established trends. It relies a lot on people, and there is very little division of labor or
specialization. In essence, the traditional economy is very basic and the most ancient of the four
types.
Some parts of the world still function with a traditional economic system. It is commonly found
in rural settings in second and third world nations, where economic activities are predominantly
farming or other traditional income-generating activities.
There are usually very few resources to share in communities with traditional economic
systems. Either few resources occur naturally in the region or access to them is restricted in
some way. Thus, the traditional system, unlike the other three, lacks the potential to generate
a surplus. Nevertheless, precisely because of its primitive nature, the traditional economic
system is highly sustainable. In addition, due to its small output, there is very little wastage
compared to the other three systems.
2. Command economic system
In a command system, there is a dominant centralized authority – usually the government –

that controls a significant portion of the economic structure. Also known as a planned system,
the command economic system is common in communist societies since production decisions
are the preserve of the government.
If an economy enjoys access to many resources, chances are that it may lean towards a
command economic structure. In such a case, the government comes in and exercises control
over the resources. Ideally, centralized control covers valuable resources such as gold or oil. The
people regulate other less important sectors of the economy, such as agriculture.
In theory, the command system works very well as long as the central authority exercises
control with the general population’s best interests in mind. However, that rarely seems to be
the case. Command economies are rigid compared to other systems. They react slowly to
change because power is centralized. That makes them vulnerable to economic crises or
emergencies, as they cannot quickly adjust to changing conditions.
3. Market economic system

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Market economic systems are based on the concept of free markets. In other words, there is
very little government interference. The government exercises little control over resources, and
it does not interfere with important segments of the economy. Instead, regulation comes from
the people and the relationship between supply and demand.
The market economic system is mostly theoretical. That is to say, a pure market system doesn’t
really exist. Why? Well, all economic systems are subject to some kind of interference from a
central authority. For instance, most governments enact laws that regulate fair trade
and monopolies.
From a theoretical point of view, a market economy facilitates substantial growth. Arguably,
growth is highest under a market economic system.
A market economy’s greatest downside is that it allows private entities to amass a lot of
economic power, particularly those who own resources of great value. The distribution of
resources is not equitable because those who succeed economically control most of them.
4. Mixed system
Mixed systems combine the characteristics of the market and command economic systems. For
this reason, mixed systems are also known as dual systems. Sometimes the term is used to
describe a market system under strict regulatory control.
Many countries in the developed western hemisphere follow a mixed system. Most industries
are private, while the rest, composed primarily of public services, are under the control of the
government.
Mixed systems are the norm globally. Supposedly, a mixed system combines the best features
of market and command systems. However, practically speaking, mixed economies face the
challenge of finding the right balance between free markets and government control.
Governments tend to exert much more control than is necessary.
Final Word
Economic systems are grouped into traditional, command, market, and mixed systems.
Traditional systems focus on the basics of goods, services, and work, and they are influenced by
traditions and beliefs. A centralized authority influences command systems, while a market
system is under the control of forces of demand and supply. Lastly, mixed economies are a
combination of command and market systems.
Economic System - Overview, Types, and Examples - Corporate Finance ...

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LESSON 8: THE COMMON GOOD
The Common Good
First published Mon Feb 26, 2018

In ordinary political discourse, the “common good” refers to those facilities—whether material,
cultural or institutional—that the members of a community provide to all members in order to
fulfill a relational obligation they all have to care for certain interests that they have in
common. Some canonical examples of the common good in a modern liberal democracy
include: the road system; public parks; police protection and public safety; courts and the
judicial system; public schools; museums and cultural institutions; public transportation; civil
liberties, such as the freedom of speech and the freedom of association; the system of
property; clean air and clean water; and national defense. The term itself may refer either to
the interests that members have in common or to the facilities that serve common interests.
For example, people may say, “the new public library will serve the common good” or “the
public library is part of the common good”.
As a philosophical concept, the common good is best understood as part of an encompassing

model for practical reasoning among the members of a political community. The model takes
for granted that citizens stand in a “political” or “civic” relationship with one another and that
this relationship requires them to create and maintain certain facilities on the grounds that
these facilities serve certain common interests. The relevant facilities and interests together
constitute the common good and serve as a shared standpoint for political deliberation. [1] When
citizens face various questions about legislation, public policy or social responsibility, they
resolve these questions by appeal to a conception of the relevant facilities and the relevant
interests. That is, they argue about what facilities have a special claim on their attention, how
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they should expand, contract or maintain existing facilities, and what facilities they should
design and build in the future.
The common good is an important concept in political philosophy because it plays a central role
in philosophical reflection about the public and private dimensions of social life. Let’s say that
“public life” in a political community consists of a shared effort among members to maintain
certain facilities for the sake of common interests. “Private life” consists of each member’s
pursuit of a distinct set of personal projects. As members of a political community, we are each
involved in our community’s public life and in our own private lives, and this raises an array of
questions about the nature and scope of each of these enterprises. For example, when are we
supposed to make decisions based on the common good? Most of us would agree that we are
required to do so when we act as legislators or civil servants. But what about as journalists,
corporate executives or consumers? More fundamentally, why should we care about the
common good? What would be wrong with a community whose members withdraw from
public life and focus exclusively on their own private lives? These are some of the questions
that motivate philosophical discussions of the common good.
This article reviews the philosophical literature, covering various points of agreement among
traditional conceptions of the common good, such as those favored by Plato, Aristotle, John
Locke, J.J. Rousseau, Adam Smith, G.W.F. Hegel, John Rawls and Michael Walzer. It also covers
some important disagreements, especially the disagreement between “communal” and
“distributive” views. It concludes by considering three important topics in the literature:
democracy, communal sharing, and competitive markets. In order to understand the issues, it is
helpful to start by distinguishing the common good from various notions of the good that play a
prominent role in welfare economics and welfare consequentialist accounts of political.
1. First Contrast: Welfare Consequentialism
The common good belongs to a family of concepts that relate to goodness rather than rightness
(Sidgwick 1874). What makes the common good different from other concepts in this family is
that it is a notion of the good that is understood to be internal to the requirements of a social
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relationship. In any community, the common good consists of the facilities and interests that
members have a special obligation to care about in virtue of the fact that they stand in a certain
relationship with one another. In a family, for instance, the family home is part of the common
good because the familial bond requires members to take care of the home as part of a shared
effort to care for one another’s interests in shelter and safety. In a university, the climate of
academic freedom on campus is part of the common good because the special relationship
among members of the university community requires them to care for this climate as part of a
shared effort to care for one another’s interests in teaching, learning and inquiring.
The common good differs from the various notions of the good that play a foundational role in
welfare consequentialist accounts of political morality. Among the notions in the latter
category, we can include: the sum of pleasure over pain, total satisfaction of rational desire,
aggregate welfare adjusted for distributive considerations, welfare prioritarianism, equality of
welfare (in certain formulations), Pareto optimality, and so on. Unlike the common good, these
notions make no essential reference to the requirements of a social relationship. They set out
fully independent standards for the goodness of actions, motivations and states of affairs, and
the independent character of these standards allows them to serve as foundational elements in
a normative theory that has a consequentialist structure.[2]
According to classical utilitarianism, for example, the correct course of action is the optimal
course of action as judged from the standpoint of an impartial concern for the pleasures and
pains of all sentient creatures (Sidgwick 1874). Suppose that a relationship consists of a set of
requirements for how people who stand in the relationship should act towards one another—
e.g., parents should feed their children, parents should clothe their children, children should
defer to their parents’ judgment, etc. According to classical utilitarianism, an agent should
perform the action that satisfies the requirements of a relationship only when her doing so
would result in the greatest sum of pleasure over pain. The notion of the good here—i.e., the
sum of pleasure over pain—is defined independently of the requirements of any relationship,
so it sets out a criterion for goodness that can tell us, among other things, when it would be
good for people to comply with any particular relational requirements.
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Some welfare consequentialist notions of the good incorporate a distributive element—e.g.,

welfare prioritarianism—and this feature may make it more plausible to see these notions as
internal to the requirements of a relationship. For example, some may think that welfare
prioritarianism could be internal to the family relationship, where the relationship is
understood to require family members to perform the action that is optimal from the
standpoint of the worst off member of the group. But keep in mind that even more
distributionally sensitive notions of the good, such as welfare prioritarianism, retain other
features of a consequentialist understanding of goodness that make it difficult to see how these
notions could be internal to a relationship in the relevant sense.
Take agent neutrality. Insofar as welfare prioritarianism is a genuinely consequentialist notion,

it says that the correct course of action is the course of action that is optimal as judged from a
standpoint that does not change with the position of the agent or the relationships that the
agent happens to stand in (Williams 1973; Nagel 1986; cf. Sen 1993). Understood in this way,
welfare prioritarianism does not require an agent to perform the action that is optimal from the
standpoint of the worst off member of her own family. Instead, it requires an agent to perform
the action that is optimal from the agent neutral standpoint of, say, the welfare of the worst off
person in the world or the average welfare of all those in the class of people who are worst off
in their respective families. If people have reason to pay special attention to the worst off
member of their own families, on this view, it is because a pattern of reasoning along these
lines leads to the highest level of welfare for the worst off person in the world or the highest
average welfare for those in the relevant class.
Because it is an agent neutral notion, welfare prioritarianism may require parents to harm their
own children if circumstances arise such that doing so would bring about the best result from
the standpoint of the welfare of the worst off person in the world or the average welfare of
those in the relevant class. A parent might be required to act this way, even when lowering the
welfare of her own child would lead to only a slightly higher level of welfare for the other
people affected. These implications are clearly at odds with our ordinary understanding of the
agent relative character of relational requirements.
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The upshot is that welfare consequentialist accounts of political morality are not based, at the
most fundamental level, on conceptions of the common good. They are based instead on
notions of the good that are understood to be prior to and independent of any social
relationship. Nonetheless, it is worth stressing that a welfare consequentialist account of
political morality may incorporate a conception of the common good as part of a more specific
account of the ethical obligations of citizens in public life. After all, a certain pattern of agent
relative motivation among citizens may be the optimal pattern as judged from the standpoint of
aggregate welfare (or some other suitably agent neutral perspective). John Stuart Mill sets out
a theory along these lines in Considerations on Representative Government (1862). On his view,
citizens should take an active interest in the public affairs of their community and social
institutions should be designed to generate this pattern of motivation among citizens. The
reason for this is that an orientation among citizens towards the common affairs of their
community is part of the best political arrangement overall, as judged from the standpoint of
the principle of utility.[3]
2. Second Contrast: Public Goods
Another important contrast to draw is between the common good and public good. In
economic theory, a public good is a particular type of good that members of a community
would not possess if they were each motivated only by their own self-interest. [4] Here is an
example. Imagine that the residents in a town could enjoy a mosquito-free summer if most
every resident treats her lawn with a bug spray. The spray costs money, but every resident
would be better off having paid for the spray and enjoying life without mosquitoes. If most
every resident sprays her lawn, everyone in the town will enjoy the benefit, even those
residents who do not spray their lawns. But there is no feasible way to exclude the nonpayers
from enjoying the benefit.
The problem posed by a public good is that the optimal course of action for each individual,
from the standpoint of her egoistic rationality, is for her not to contribute to the provision of
the good, even though everyone would be better off if they all did so (see Olson 1965). Take
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any resident in the town I just described. From the standpoint of her own self-interest, she
should not spray her lawn: If the other residents spray their lawns, she would get the benefit
without paying the cost. And if the other residents do not spray their lawns, she would save
herself the cost of spraying her lawn. It follows that as long as residents are moved only by their
own self-interest, they will not produce the good of a mosquito-free summer.
In both academic and nonacademic discussions, people often confuse the common good with a
public good or a set of public goods. But it is important to keep the two ideas distinct. The
facilities that make up the common good resemble public goods because they are often
facilities that are supposed to be open and available to everyone (e.g., a public library). This
means that it is not possible to exclude those who do not contribute from enjoying the benefits.
Nonetheless, the facilities that make up the common good are conceptually different from
public goods because these facilities may not be a net benefit for each member of the
community. The facilities that make up the common good serve a special class of interests that
all citizens have in common, i.e., the interests that are the object of the civic relationship. But
each citizen will have various private interests in addition to these common interests, so for any
particular citizen, the private interests affected by some facility may be more important from
the standpoint of her egoistic rationality than the interests that belong to the special class of
common interests. As such, the facility may not be a net benefit to her.
Consider the case of a public library. Suppose that a certain library is part of the common good
in a political community because it serves an interest in the privileged class of common
interests. Suppose the relevant interest is an interest in guaranteed access to the storehouse of
human knowledge. Some individual X owns a bakery. Her bakery is profitable, but it would be
even more profitable if people were not able to read certain cookbooks at the library and so
could not make her carrot muffins at home. X has an interest in guaranteed access to the
storehouse of human knowledge, but she also has an interest in her bakery’s profitability. If her
private interest in a muffin monopoly is more important from her egoistic perspective than her
interest in guaranteed access to the storehouse of human knowledge, then she is actually
worse off because of the public library.[5] In this case, the public library is part of the common
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good, but it is not a public good because there is someone in the community who is worse off in
virtue of the library’s existence.
Before moving on, note that people sometimes use “the public good” to refer to something
other than the technical notion of a public good in economic theory. In academic and
nonacademic discussions, people sometimes use “the public good” in a way that is more or less
synonymous with “the common good”. This use of the term was especially prevalent among
political philosophers, roughly from the 16th century to the 19th century. For example, in
the Second Treatise of Government (1698), John Locke defines political power as the right to
make binding laws and the right to mobilize the community in defense of these laws, where
both of these powers are
to be directed to no other end, but the Peace, Safety, and publick good of the People. (1698
[1988: 353]).
Here Locke uses the term “public good” to refer to interests that are common to all members of
a political community (e.g., the interest in bodily security and property), where members have a
relational obligation to care for these common interests. The “public good” in this sense
basically refers to the common good, though philosophers who use the term “public good”
typically favor a thinner conception of the political relationship and a more limited view of the
powers of government.
3. Why Does Political Philosophy Need This Concept? Defects in a “Private Society”
Why does political philosophy need the concept of the common good? What’s the rationale for
having this concept in addition to other concepts, such as welfare, justice, or human rights? To
understand the importance of the common good, it is helpful to think about the moral defects
in a private society.
A private society is a society whose members care only about their lives as private individuals
(Tocqueville 1835–1840; Hegel 1821; Rawls 1971; see also Dewey 1927). Members are not
necessarily rational egoists—they may care about their family and friends. What is central is
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that their motivational horizons do not extend beyond the people and projects that are the
focus of their personal lives.[6] As an individual in a private society, I might be interested in
acquiring a better home for my family or improving the local school for my children and the
other children in my neighborhood. I might even vote in national elections insofar as the results
could affect my home or my local school. But I take no interest in national elections insofar as
the results affect citizens I don’t know, those in other states or provinces. And I take no interest
in national elections insofar as the results affect the basic fairness of my society’s laws and
institutions. Having withdrawn into private life, I care about the common affairs of the
community only insofar as these touch my private world.
Many philosophers believe that there is something morally defective about a private society.
One type of defect bears especially on the case of a private society that consists of rational
egoists. As I noted in the last section, a community of rational egoists will not perform the
actions necessary to generate public goods. Since these goods are desirable, the absence of
public goods may be suboptimal, both from the standpoint of aggregate welfare and from the
standpoint of each member’s egoistic rationality.[7] So there are good instrumental reasons for
people to create a public agency—i.e., a state—that can use taxes, subsidies, and coercive
threats to draw people into mutually beneficial patterns of cooperation. [8]
The common good, however, points to a different kind of defect in a private society. The defect,
in this case, extends to all forms of private society, not just to a society of rational egoists, and
the defect is non-instrumental. The defect, in this case, is that the members of a political
community have a relational obligation to care about their common affairs, so the fact that
they are exclusively concerned with their private lives is itself a moral defect in the community,
whether or not this pattern of concern leads to a suboptimal outcome.
To appreciate the point, think about the various public roles that people may occupy in a liberal
democracy (see Hegel 1821; Dewey 1927; J. Cohen 2010: 54–58). Most obviously, citizens act in
a public capacity when they occupy positions as legislators, civil servants, judges, prosecutors,
jurors, police officers, soldiers, school teachers, and so on. They also act in a public capacity
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when they participate in the political process, voting in elections and taking part in policy
discussions in the public sphere (Habermas 1992; Mill 1862; Rawls 1993 [2005]). And many
philosophers argue that citizens act in a public capacity—or at least in a partly public capacity—
when they act as executives in large business enterprises (McMahon 2013; Christiano 2010); as
high-ranking officials in colleges and universities (Scanlon 2003); as journalists, lawyers, and
academics (Habermas 1992, e.g., [1996: 373–9]); as protesters engaged in civil disobedience
(Rawls 1971); and as socially conscious consumers (Hussain 2012).
When citizens occupy public roles, political morality requires them to think and act differently
than they would if they were acting as private individuals. If you are a judge in a criminal trial,
you might stand to benefit personally if the defendant were found guilty. But political morality
does not allow you to decide cases as if you were a private individual, looking to advance your
own private objectives. As a judge, you are required to make decisions based on the evidence
presented at trial and the standards set out in the law. These legal standards themselves are
supposed to answer to common interests. So, in effect, political morality directs you to think
and act from the standpoint of a shared concern for common interests.
Citizens who occupy public roles may also be required to make personal sacrifices. Consider an
historical example. During the Watergate scandal, President Richard Nixon ordered the
Attorney General of the United States, Elliot Richardson, to fire the Watergate special
prosecutor in order to stop an investigation into Nixon’s abuses of power. Rather than carry out
Nixon’s order, Richardson resigned his position. Many would argue that Richardson did the
right thing, and that, in fact, he had an obligation to refuse Nixon’s order, even if this resulted in
a significant setback to his career. As Attorney General, Richardson had an obligation to uphold
the rule of law in the United States, a practice that serves common interests, even if this meant
significant sacrifices in terms of his career aspirations.
Now consider the following possibility. Imagine that we are living in a liberal democracy with a
full array of social roles in which people act in a public capacity. But imagine that our society is a
private society: citizens care only about their own private affairs. In order to ensure that various
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public roles are filled, our institutions create private incentives for people to take on these
responsibilities. High salaries draw people into positions as judges and legislators, and mutual
surveillance gives these people private incentives to carry out their duties. Suppose that our
institutions are well structured and private incentives are adequate to fill all of the important
public positions. Is there anything missing in our society? Does our society suffer from a moral
defect of some kind?
Philosophers in the common good tradition believe that the answer is yes: there is something
morally significant that is missing from our society. What is missing is a genuine concern for the
common good. No one in our society actually cares about shared facilities, such as the rule of
law, or the common interests that these facilities serve. Citizens fill various public roles simply
for the sake of the private benefits that they get from doing so. According to a common good
conception of political morality, this lack of concern for the common good is itself a moral
defect in a political community, even if private incentives lead people to fill all of the relevant
positions.
A central challenge for theorists in the common good tradition is to explain why a genuine
commitment to the common good matters. Why should it matter whether citizens actually care
about the common good? Some philosophers in the tradition cite a practical problem. Even in a
well-designed arrangement, circumstances are likely to arise where social institutions do not
provide people with an adequate private incentive to act in a publicly oriented way. For
example, political morality may require public officials to stand up for the rule of law, even in
situations where this will damage their careers. Or political morality may require citizens to
protest against an unjust law, even if this means a private risk of being jailed or blacklisted.
Political morality may even require citizens to run the risk of losing their lives in order to defend
the constitutional order against a foreign threat (see Walzer 1970; Rousseau 1762b [1997: 63–
4]). In each of these cases, no matter how well designed institutions are, citizens may not have
an adequate private incentive to do what political morality requires, so a genuine concern for
the common good may be essential.
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A different explanation—perhaps the most important one in the common good tradition—
stresses the idea of a social relationship. Think of the relationship between parents and their
children. This relationship requires not only that the people involved act in certain ways
towards one another, but also that they care about one another in certain ways. For instance,
parents are required not only to feed and clothe their children, perhaps to avoid getting fined
by the Department of Child and Family Services. Parents are also required to care about their
children: they must give their children’s interests a certain status in their practical reasoning.
Many philosophers argue that our relation to our fellow citizens has similar features. The
political bond requires not only that we act in certain ways, but also that we give the interests
of our fellow citizens a certain status in our practical reasoning. It would be unacceptable, on
this view, for citizens to fulfill certain public roles purely for the sake of private incentives. A
Supreme Court justice, for example, must care about the rule of law and the common interests
that this practice serves. If she were making consistent rulings just to cash her paycheck every
two weeks, she would not be responding in the right way to her fellow citizens, who act for the
sake of common interests in doing things such as voting, following the law, and standing ready
to defend the constitutional order.[9]
Many philosophers believe that there is something morally defective about a private society,
even one in which private incentives move people to fill all of the important public roles. A
conception of the common good provides us with an account of what is missing from the
practical reasoning of citizens in a private society, and it connects this with a wider view about
the relational obligations that require citizens to reason in these ways.
4. Central Features of the Common Good
According to a common good conception of political morality, members of a political

community stand in a social relationship with one another. This relationship is not as intimate
as the relationship among family members or the members of a church. But it is a genuinely
social relationship nonetheless, and it requires members not only to act in certain ways but also
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to give one another's interests a certain status in their practical reasoning. This basic outlook
leads most conceptions of the common good to share certain features.
4.1 A Shared Standpoint for Practical Reasoning
The first feature that most conceptions share is that they describe a pattern of practical
reasoning that is meant to be realized in the actual thought processes of the members of a
political community. A conception of the common good is not just a criterion for correct action,
such that citizens would satisfy the conception so long as they performed the correct action,
regardless of their subjective reasons for doing so. The point of a conception of the common
good is to define a pattern of practical reasoning, a way of thinking and acting that constitutes
the appropriate form of mutual concern among members. In order to satisfy the conception,
the activities of the members of the community must be organized, at some level, by thought
processes that embody the relevant pattern.[10]
4.2 A Set of Common Facilities
Most conceptions of the common good identify a set of facilities that citizens have a special
obligation to maintain in virtue of the fact that these facilities serve certain common interests.
The relevant facilities may be part of the natural environment (e.g., the atmosphere, a
freshwater aquifer, etc.) or human artifacts (e.g., hospitals, schools, etc.). But the most
important facilities in the literature are social institutions and practices. For example, a scheme
of private property exists when members of a community conform to rules that assign
individuals certain forms of authority over external objects. Private property, as a social
institution, serves a common interest of citizens in being able to assert private control over
their physical environment, and so many conceptions include this institution as part of the
common good.
4.3 A Privileged Class of Common Interests

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A conception of the common good will define a privileged class of abstract interests. Citizens
are understood to have a relational obligation to create and maintain certain facilities because
these facilities serve the relevant interests. The interests in the privileged class are “common”
in the sense that every citizen is understood to have these interests to a similar degree.[11] The
interests are “abstract” in the sense that they may be served by a variety of material, cultural or
institutional facilities. A wide variety of interests figure prominently in the literature, including:
the interest in taking part in the most choiceworthy way of life (Aristotle Pol. 1323a14–
1325b31); the interest in bodily security and property (e.g., Locke 1698; Rousseau 1762b); the
interest in living a responsible and industrious private life (Smith 1776); the interest in a fully
adequate scheme of equal basic liberties (Rawls 1971 and 1993); the interest in a fair
opportunity to reach the more attractive positions in society (Rawls 1971); and the interest in
security and welfare, where these interests are understood as socially recognized needs that
are subject to ongoing political determination (Walzer 1983).
4.4 A Solidaristic Concern
Most conceptions of the common good define a form of practical reasoning that fits the model
of solidarity. Many social relationships require a form of solidarity among those who stand in
the relationship. Solidarity here basically involves one person giving a certain subset of the
interests of another person a status in her reasoning that is analogous to the status that she
gives to her own interests in her reasoning (see, e.g., Aristotle NE 1166a1–33). For example, if
my friend needs a place to sleep tonight, friendship requires that I should offer him my couch. I
have to do this because friendship requires that I reason about events that affect my friend’s
basic interests as if these events were affecting my own basic interests in a similar way. A
conception of the common good typically requires citizens to maintain certain facilities because
these facilities serve certain common interests. So when citizens reason as the conception
requires, they effectively give the interests of their fellow citizens a status in their reasoning
that is analogous to the status that they give to their own interests in their reasoning.
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An example will make the idea more intuitive. According to Rousseau, a properly ordered
political community is “a form of association that will defend and protect the person and goods
of each associate with the full common force” (1762b [1997: 49]). Citizens in this community
are united by a solidaristic form of mutual concern that is focused on (among other things) their
common interests in physical security and property. This form of mutual concern requires each
citizen to respond to an attack on the body or property of a fellow citizen as if this were an
attack on her own body and property. When extended over all members, this form of mutual
concern requires the whole community to respond to an attack on any individual member as if
this were an attack on every member. In this sense, “the full common force” stands behind
each person’s physical security and property. Or, as Rousseau sometimes puts it, “one cannot
injure one of the members without attacking the body, and still less can one injure the body
without the members being affected” (1762b [1997: 52]). [12]
4.5 A Nonaggregative Concern
A closely related feature is that most conceptions of the common good do not take an
aggregative view of individual interests. The aggregative view treats the satisfaction of
individuals’ interests as commensurable values, and it directs citizens to maximize the sum of
these values. Because it focuses on the aggregate, the aggregative view may require citizens to
impose a debilitating condition on some of their fellow citizens when this would generate
sufficient gains for others.
Solidarity rules out the aggregative view. Starting with an appropriate view of her own
interests, solidarity requires each citizen to give certain interests of her fellow citizens a status
in her reasoning that is similar to the status that she gives to her own interests. This way of
thinking does not allow citizens to abandon the interests of any of their fellow citizens for the
sake of aggregate gains. For instance, solidarity would not allow citizens to subject some of
their fellow citizens to slavery, even if this might produce substantial benefits for others,
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because enslavement would involve a failure on the part of each citizen to give the interests of
each of her enslaved comrades the right status in her reasoning.
5. Common Interests (i): Joint Activity
Let’s turn now to some of the ways that conceptions of the common good differ from each
other. One way has to do with how they define the privileged class of common interests that
are the object of the political relationship. We can divide the important views in the literature
into two main categories: (a) joint activity conceptions and (b) private individuality conceptions.
A joint activity conception defines the privileged class of common interests as interests that
members have in taking part in a complex activity that involves all or most members of the
community. Among those who endorse this kind of view are ancient philosophers, such as Plato
(Republic) and Aristotle (Politics), secular natural law theorists such as John Finnis (1980), and
most natural law theorists in the Catholic tradition. Aspects of the joint activity view are also
important in the work of communitarian thinkers such as Charles Taylor (1984) and, to a lesser
extent, Michael Sandel (2009). The most important and influential view is Aristotle’s.
Aristotle holds that members of a political community are not just involved in a military alliance
or an especially dense network of contractual agreements (Pol. 1280b29–33). Members are
also involved in a relationship that he describes as a form of friendship (NE 1159b25–35). This
friendship consists in citizens wishing one another well, their being aware of the fact that their
fellow citizens wish them well, and their taking part in a shared life that answers to this mutual
concern (Pol. 1280b29–1281a3). In caring about one another and wishing one another well,
what citizens care about in particular is that they and their fellow citizens live well, that is, live
the most choice-worthy life.[13]
The most choice-worthy life, on Aristotle’s view, is a pattern of activity that fully engages and
expresses the rational parts of human nature. This pattern of activity is a pattern of joint activity
because, like a play, it has various interdependent parts that can only be realized by the
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members of a group together. The pattern is centered on an array of leisured activities that are
valuable in themselves, including philosophy, mathematics, art and music. But the pattern also
includes the activity of coordinating the social effort to engage in leisured activities (i.e.,
statesmanship) and various supporting activities, such as the education of citizens and the
management of resources.
In Aristotle’s view, a properly ordered society will have an array of material, cultural and
institutional facilities that answer to the common interest of citizens in living the most choice-
worthy life. These facilities form an environment in which citizens can engage in leisured
activities and in which they can perform the various coordinating and supporting activities.
Some facilities that figure into Aristotle’s account include common mess halls and communal
meals, which provide occasions for leisured activities (Pol. 1330a1–10; 1331a19–25); a
communal system of education (Pol. 1337a20–30); common land (Pol. 1330a9–14); commonly
owned slaves to work the land (Pol. 1330a30–3); a shared set of political offices (Pol. 1276a40–
3; 1321b12–a10) and administrative buildings (Pol. 1331b5–11); shared weapons and
fortifications (Pol. 1328b6–11; 1331a9–18); and official system priests, temples and public
sacrifices (Pol. 1322b17–28).
Aristotle’s account may seem distant from modern sensibilities, but a good analogy for what he
has in mind is the form of community that we associate today with certain universities. Think of
a college like Princeton or Harvard. Members of the university community are bound together
in a social relationship marked by a certain form of mutual concern: members care that they
and their fellow members live well, where living well is understood in terms of taking part in a
flourishing university life. This way of life is organized around intellectual, cultural and athletic
activities, such as physics, art history, lacrosse, and so on. Members work together to maintain
an array of facilities that serve their common interest in taking part in this joint activity (e.g.,
libraries, computer labs, dorm rooms, football fields, etc.). And we can think of public life in the
university community in terms of a form of shared practical reasoning that most members
engage in, which focuses on maintaining common facilities for the sake of their common
interest.[14]
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6. Common Interests (ii): Private Individuality
Private individuality conceptions offer a different account of the privileged class of common
interests. According to these views, members of a political community have a relational
obligation to care about their common interest in being able to lead lives as private individuals.
Citizens each have an interest in being able to shape their lives through their own private
choices about what activities to pursue and what associations to form. Choices are “private” in
the relevant sense when citizens are not required to consult with anyone in making these
choices and they are not required to reach a decision through any form of shared deliberation.
[15]
Among the philosophers who endorse this kind of view are many important thinkers in the
liberal tradition, including John Locke (1698), J.J. Rousseau (1762b), Adam Smith (1776), and
G.W.F. Hegel (1821). More recent figures who endorse this kind of view include John Rawls
(1971) and Michael Walzer (1983).
A sophisticated example of a private individuality conception is Rawls’s. On Rawls’s view,

members of a political community have a relational obligation to care for the interests attached
to the “position of equal citizenship” which all citizens share (1971 [1999: 82–83]). These
interests are (a) the interest in a fully adequate scheme of equal basic liberties and (b) the
interest in a fair opportunity to reach the more attractive positions in society. Rawls uses the
term “the common good” to refer to the sum total of social conditions that answer to the
interests attached to the position of equal citizenship (1971 [1999: 217]). Understood in this
way, the common good consists, inter alia, of: a legal order that provides citizens with the
liberty of expression, the liberty of conscience and the other liberal freedoms; a democratic
system of government that provides citizens with political liberties, such as the liberty to vote,
hold office and participate in collective rule-making; a system of courts to enforce the rule of
law; as well as police protection and national defense to protect the basic liberties. The
common good also consists of legal protections for free choice of occupation; mass media
mechanisms that gather and disperse information about job possibilities; a transportation
system to give people access to work; and a system of education (whether public or private)
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that ensures conditions in which people with similar talents and motivations have similar
prospects, regardless of their class or family background.
Rawls’s conception has the core features of a private individuality view. The facilities that
answer to the common interest in equal liberty and fair opportunity put citizens in a position to
join or withdraw from various activities and associations as private persons who can make their
own independent choices. For example, the liberty of conscience gives citizens the legal right to
join or leave a religious association based on their own private beliefs. They need not consult
with other citizens about these choices or make these choices as part of a wider deliberative
process that involves other citizens.
Rawls’s view takes the common good to consist partly in a system of bodily security, private
property and civil liberty. In this way, his view resembles Rousseau’s, which also focuses on
these common interests. Where Rawls’s view differs from Rousseau’s is that it extends the
privileged class of common interests to include an interest in a wider set of basic liberties and
an interest in a fair opportunity to reach the more attractive positions in society. These
interests involve a more extensive array of institutions and social conditions, especially when it
comes to education, communication, and economic redistribution. But it is worth emphasizing
that neither Rawls nor Rousseau incorporates a full account of distributive justice into their
conceptions of the common good.[16] I will say more about this in the next section.
7. The Common Good Perspective: Communal or Distributive?
One of the most important differences among different conceptions of the common good has
to do with how they take private and sectional interests to factor into determining the
relational obligations of citizens. Here we can distinguish two main types of views:
(a) communal conceptions of the common good and (b) distributive conceptions of the common
good.
Members of a political community have a relational obligation to care for certain interests that
they have in common. A “communal” conception of the common good takes these interests to
be interests that citizens have as citizens, where the status of being a citizen and the interests
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attached to this status are both understood to be prior to the various statuses and interests
that make up each member’s identity as a private individual. When citizens engage in social
deliberation about their laws and institutions, a communal conception typically directs them to
abstract away from their private interests and the sectional interests they may have as
members of one subgroup or another and to focus instead on their common interests as
citizens.
For example, imagine that citizens are considering changes to trade rules in their society. They
may be inclined to assess proposals in terms of how attractive these are from the standpoint of
their sectional interests as members of a certain profession or participants in a certain industry.
But a communal conception of the common good directs citizens to set these interests aside
and assess proposals in terms of how well they answer to common civic interests, such as the
interest in national security or the interest in a productive economy. [17]
A “distributive” conception of the common good differs from a “communal” conception in that
it does not direct citizens to abstract away from their private and sectional interests in the same
way. A distributive conception starts with the idea that citizens belong to various groups with
distinct sectional interests. These interests make partly competing claims on the material,
cultural and institutional facilities in a community. The distributive conception incorporates a
distributive principle that determines how social facilities should answer to these sectional
interests, and the conception says that members have a relational obligation to maintain a set
of facilities that answers to everyone’s sectional interests in the way that the distributive
principle prescribes.
As an example of a distributive view, consider the view held by many philosophers, which
defines the common good in terms of Rawls’s difference principle (see, e.g., J. Cohen 1996
[2009: 169–170]; see also section 8 below). According to this view, we can think of citizens as
belonging to various subgroups, each consisting of all those born into a certain “starting
position” in social life. Citizens in each group share certain choice-independent characteristics,
such as their class position at birth and their level of innate talent. Group members have
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sectional interests in better life prospects (as measured in terms of primary goods), where
these interests make partly competing claims on the basic structure of society. The difference
principle says that social institutions should answer to the interests of each group equally, with
the caveat that institutions should incorporate whatever inequalities would serve to maximize
the prospects of the least advantaged group. Citizens are then understood to have a relational
obligation to maintain a scheme of institutions that attends to everyone’s sectional interests in
the way that the difference principle prescribes.
The disagreement between communal and distributive conceptions of the common good is
perhaps the most important disagreement among different conceptions, and it raises some
important questions about the nature of the political relationship. Let me make two general
points.
The first has to do with the moral underpinnings of the communal view. It is helpful to think of
communal accounts of the common good as appealing to a certain conception social life (e.g.,
Rousseau 1762b; Hegel 1821; Walzer 1983). According to this conception, citizens form their
various private and sectional interests within the framework of a more fundamental effort to
maintain certain social conditions together. The political bond is prior to their private interests
in a certain way, so the political relationship may sometimes require citizens to set their private
interests aside in order to act collectively to maintain the relevant social conditions. Perhaps
the clearest example of this is national defense (see section 9 below). When defending the
constitutional order against a foreign threat, political morality requires citizens to act
collectively in defense of common interests, without organizing their efforts in a way that
answers specifically to their competing private interests in different levels of protection.
An analogy may help here. Members of a family each have distinct interests as private
individuals—e.g., in developing their talents, pursuing relationships, cultivating career
prospects, and so on. At some level, the household must be organized in a way that answers to
these private interests. But there are some matters where the familial relationship requires
members to act together in a way that sets their competing private interests aside. If the family
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home is on fire, members are required to save the home, without special regard for how
resources are being deployed in ways that are more likely to save one member’s room rather
than another’s. In certain domains, members are supposed to act from a communal point of
view that focuses on common interests that are essential to their social bond, rather than their
distinct and potentially competing interests as private individuals. Communal conceptions of
the common good see the political relationship as having a similar character.[18]
The second point is that—surprisingly—Rawls himself favours a substantially communal rather

than distributive conception of the common good. In A Theory of Justice, he does not define the
common good in terms of his full conception of social justice. He defines it instead in terms of
the “principle of common interest”. This principle assesses social institutions from the position
of equal citizenship. As he says, “as far as possible, the basic structure should be appraised from
the position of equal citizenship” where this position “is defined by the rights and liberties
required by the principle of equal liberty and the principle of fair equality of opportunity” (1971
[1999: 82–83]). Rawls thinks that a wide variety of policy questions can be settled by appeal to
the principle of common interest, including “reasonable regulations to maintain public order”,
“efficient measures for public health and safety”, and “collective efforts for national defense in
a just war” (1971 [1999: 83]).[19]
Social deliberation, on Rawls’s view, should unfold, as far as possible, within a framework of
reasoning that focuses on interests that are common to all citizens, where the difference
principle enters the discussion mainly when the appeal to common interests alone could not
properly decide an issue. But why should political deliberation unfold in this way? Why does
Rawls think that, “as far as possible, the basic structure should be appraised from the position
of equal citizenship”?
One possible rationale has to do with the kind of solidarity that citizens realize through their
shared status as “citizens”. When members of a society reason in terms of the principle of
common interest, they set their private and sectional interests aside whenever possible in order
to focus on their common interests as citizens. Setting their sectional interests aside (e.g., as
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members of the least advantaged group, the second least advantaged group, the third least
advantaged group, etc.), citizens treat their shared interests as “citizens” as being more
fundamental than their distinct and potentially competing interests as private individuals. Each
citizen effectively tells her fellow citizens, “What unites us is more important than what divides
us”. Bringing the status of “citizen” to the center of how citizens relate to one another in public
life is particularly important for Rawls because mutual recognition on the basis of this shared
status is important to his account of how a just social order will prevent envy and positional
competition from undermining the basic liberties (1971 [1999: 476–9]).
A closely related idea has to do with mutuality (section 4.4 and 4.5 above). When members of
society reason in terms of their common interests in liberty and opportunity, they assess
policies from a standpoint that does not distinguish between one citizen and another. They
each accord the interests of their fellow citizens the very same status in their reasoning that
they accord to their own interests. When citizens do their parts in a social arrangement that
answers to common interests, and they do so on the grounds that the arrangement serves
common interests, citizens realize a form of solidarity that is perfectly mutual: each citizen
works for the interests of each her fellow citizens in exactly the same way that each of her
fellow citizens works for her interests.
Social cooperation on the basis of the difference principle does not embody the same kind of
mutuality. Imagine that citizens are reasoning about their institutions. Starting with an
arrangement that creates equal prospects for those born into every starting position, they
consider different arrangements that would yield Pareto improvements over the egalitarian
scheme.[20] Citizens must now choose between different possibilities: one arrangement would
maximize the prospects for the least advantaged group; another would maximize the prospects
for the second least advantaged group; a third would maximize the prospects for the third least
advantaged group; and so on. Given these possibilities, the difference principle requires citizens
to choose the arrangement that is best from the standpoint of one group in particular—i.e.,
those in the least advantaged position.
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Imagine now that we live in a social order that satisfies the difference principle. There are
certain facilities in society—say, certain educational facilities—that answer distinctively to the
interests of those in the least advantaged group. The resources involved could have been
deployed in ways that would have been better for those in the second least advantaged group,
or the third least advantaged group, etc., so the arrangement as a whole is tilted in favour of
one group in particular. Because it is tilted in this way, the pattern of interaction lacks the
property of perfect mutuality: each citizen does not work for the interests of each of her fellow
citizens in exactly the same way each of her fellow citizens works for her interests. Everyone
works in a way that is distinctively oriented towards the interests of the least advantaged.
Of course, citizens realize a form of solidarity insofar as social cooperation is organized in light
of the difference principle; the point is just that citizens realize a distinctive form of solidarity
insofar as social cooperation is organized in light of the principle of common interest. In the
latter case, they realize a more communal form of solidarity, as citizens set their private
interests aside to focus on common interests and citizens attach no special significance to the
distinctions between different groups. A more communal form of solidarity answers better to
the social dimension of the political relationship and this may be one reason why Rawls favors a
form of public reasoning in which the principle of common interest governs “matters which
concern the interests of everyone and in regard to which distributive effects are immaterial or
irrelevant” (1971 [1999: 82–83]).
8. The Common Good in Politics: Democracy and Collective Decision-Making
In the vast literature on the common good, several topics stand out as important subjects of
concern. One important topic is democracy. Democracy figures prominently in philosophical
reflection about the common good because there is broad agreement among philosophers—
though by no means universal agreement!—that a private society would be defective in terms
of the way that members make collective decisions. Collective decision-making in a political
community must unfold in its public life, that is, in the sphere of interaction in which citizens
transcend their own private concerns and reason from the standpoint of the common good.
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On some accounts of democracy, citizens are not required to take up the perspective of the
common good. According to pluralism, for example, democracy is best understood as a
collective decision-making process that disperses power and influence among many different
groups in society (see Dahl 1956 and 1989). Citizens each have their own private interests and
groups of citizens with similar interests advance these interests in various rule-making forums.
The overall process is essentially a form of bargaining, where each group strategically trades
concessions with other groups in order to maximize the satisfaction of their policy preferences.
A properly ordered democratic regime will maintain fair bargaining conditions, where all
important groups are able to exercise a meaningful degree of influence on the collective
decisions that affect their interests. But on the pluralist view no one needs to take an interest in
the common affairs of the community: each citizen may care only about her own private affairs,
entering the public forum to advance her private interests against the interests of others.
Many philosophers criticize pluralism and other similarly privatized views of democratic
reasoning because these views fail to capture an important aspect of political life. As Jeremy
Waldron notes, citizens often vote on the basis of something other than their own private
interests:
People often vote on the basis of what they think is the general good of society. They are
concerned about the deficit, or about abortion, or about Eastern Europe, in a way that reflects
nothing more about their own personal interests than that they have a stake in the issues.
Similarly, the way they vote will usually take into account their conception of the special
importance of certain interests and liberties. (Waldron 1990 [1993: 408])
Many critics also contend that pluralism does not distinguish properly between the form of
practical reasoning appropriate to democratic decision-making and the form that is appropriate
in market contexts. Managers in a firm may justify one business strategy over another on the
grounds that this strategy will improve the bottom line for the firm, taking no account of how
the strategy might harm competitors or other groups. But citizens in a democratic process are
not supposed to reason this way:
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…it is a political convention of a democratic society to appeal to the common interest. No

political party publicly admits to pressing for legislation to the disadvantage of any recognized
social group. (Rawls 1971 [1999: 280])
If a privatized approach to democratic decision-making is morally defective, what exactly is the

problem? What is wrong with citizens assessing laws and voting on laws based on how well
these will serve their private interests?
One prominent line of reasoning in democratic theory appeals to an epistemic conception of

democracy (e.g., Rousseau 1762b; J. Cohen 1986). According to this view, there is an
independent standard of correctness for legislation, which says that laws must serve common
interests. Democratic decision-making is a requirement of political morality because the
legislative process is more likely to generate laws that meet the standard when the process is
democratic. Moreover, a democratic process is more likely to generate laws that meet the
standard when those taking part in the process are actually trying to identify laws that meet the
standard. So citizens taking part in the democratic process should assess legislative proposals in
terms of how well these proposals serve common interests because this is the best way to
identify and enact laws that are justified.
The other main line of reasoning in democratic theory appeals to a deliberative conception of
democracy (J. Cohen 1996, 2009; Habermas 1992; Gutman & Thompson 1996). According to
Joshua Cohen’s deliberative conception, political morality requires citizens to make binding
collective decisions through a process of public reasoning in which citizens recognize one
another as equal members of the political community (J. Cohen 1989, 1996). The process of
public reasoning requires that each citizen should offer reasons to convince others to adopt a
legislative proposal, where these reasons are reasons that she could properly expect others to
accept, given the facts of reasonable pluralism.
Cohen argues that the ideal of deliberative democracy, as he understands it, provides a
compelling account of the common good orientation of democratic decision-making (1996
[2009: 168–170]). No citizen could reasonably expect others to accept a legislative proposal
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simply because it serves her own interests, so there is a basic requirement that any legislative
proposal must be responsive to the interests of all citizens. Furthermore, the background idea
that citizens are equal members of the political community imposes an additional requirement.
Citizens
can reject, as a reason within [the] process, that some are worth less than others or that the
interests of one group are to count less than the interests of other groups. (1996 [2009: 169])
This constraint on acceptable reasons leads to a substantive requirement that legislation must
be consistent with a public understanding of the common good that treats people as equals in
the relevant sense.
Cohen cites Rawls’s difference principle as one example of a public understanding of the
common good that satisfies the relevant requirement.
Treating equality as a baseline, [the difference principle] requires that inequalities established
or sanctioned by state action must work to the maximal advantage of the least advantaged.
That baseline [i.e., equality] is a natural expression of the constraints on reasons that emerge
from the background equal standing of citizens: it will not count as a reason for a system of
policy that that system benefits the members of a particular group singled out by social class or
native talent or any other feature that distinguishes among equal citizens. […In addition, the
principle] insists, roughly speaking, that no one be left less well off than anyone needs to be—
which is itself a natural expression of the deliberative conception. (J. Cohen 1996 [2009: 169–
170])
Note that Cohen argues here for a “distributive” rather than a “communal” conception of the
common good (see section 7 above). On Cohen’s view, members of a political community have
a relational obligation to provide one another with a set of facilities that answers to everyone’s
sectional interests in the way that a certain distributive principle prescribes (i.e. the difference
principle). This differs from a communal conception, which does not conceive of the relational
obligation of citizens in terms of a distributive principle.
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Cohen is probably right that the difference principle is a natural expression of the deliberative
ideal against the background of an assumption that all citizens are equal members of the
political community. But defenders of a communal conception might argue that the political
relationship among citizens has a social dimension that goes beyond equal membership in the
political community. Like the relationship among friends or among members of a sports team,
the political relationship must be understood to impose obligations on people that embody
relational ideals such as solidarity and mutuality. This means that the political relationship may
require citizens to reason with each other in ways that embody these values. For instance, the
political relationship may require citizens to set their private and sectional interests aside in
certain deliberative contexts in order to focus on their common interests as citizens. An implicit
concern for social ideals such as solidarity and mutuality may be one reason why Rawls
identifies the common good with the principle of common interest and gives this principle a
special role to play in political reasoning.
9. The Common Good in Civic Life: Burden Sharing and Resource Pooling
Many philosophers agree that citizens must transcend their private concerns when they take
part in the political process. But some philosophers believe that there are other aspects of
social life in which citizens have a relational obligation to transcend their private concerns. Two
especially prominent examples in the literature involve burden sharing and resource pooling.
Michael Walzer’s discussion of conscription and national defense highlights several important
issues (1983: 64–71, 78–91, 97–9, and 168–70; see also Walzer 1970).
When a foreign power threatens the constitutional order in a liberal democracy, political
morality seems to direct citizens to defend the order in a particular way. Citizens must
approach national defense as a communal enterprise in which they organize themselves to
achieve a certain common level of security together through various forms of burden sharing
and resource pooling. Burden sharing, in this case, requires every member of the community to
participate in some way in carrying the collective burden of fighting the threat. Some citizens
will do the actual fighting, but others will contribute by treating the wounded, developing
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weapons, taking care of children, sending care packages to soldiers, rationing essential
resources, and so on.
The moral importance of burden sharing comes out most clearly when we consider certain
highly privatized ways of organizing national defense. Consider, for example, a market based
approach. A political community might allow entrepreneurs to set up “protection agencies”
that would act as firms, hiring mercenaries, buying weapons, and selling varying levels of
protection to individual citizens based on their preferences and their ability to pay (see Nozick
1974). Even if it were possible to defend people’s constitutional liberties through a mechanism
of this kind,[21] political morality seems to rule it out. One reason is that the market scheme
would allow citizens who are wealthy enough to buy protection services for themselves, but
then leave it to others to face the actual dangers of combat. This would violate the communal
ideal that all citizens must share in some way in carrying the collective burden of defending the
community (see Walzer 1983: 98–9 and 169).
Another problem with a highly privatized approach to national defence has to do with the
injured. When soldiers get injured in combat, their injuries have a different moral status as
compared to the injuries that they might suffer if they decide to do things as private individuals
like ride a motorcycle or work in a circus. The difference is that combat injuries are
not private injuries that citizens must bear as private persons. Even in the case where soldiers
volunteer for combat, they perform a public service and we treat their injuries as part of a
collective burden that the community as a whole must bear, e.g., by providing medical care and
rehabilitation services to the wounded free of charge.
The communal ideal of public service and burden sharing might extend beyond national
defence to other forms of socially necessary work that is difficult or dangerous.
Miners today are free citizens, but we might think of them…as citizens in the service of the
nation. And then we might treat them as if they were conscripts, not sharing their risks, but
sharing the costs of the remedy: research into mine safety, health care designed for their
immediate needs, early retirement, decent pensions, and so on. (Walzer 1983: 170)
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A more extensive application of the communal ideal might require citizens to treat the burdens
associated with other occupations as parts of a shared social burden, including the burdens
faced by police officers, firefighters, teachers, day care workers, nurses, nursing home workers,
and so on (cf. Brennan & Jaworski 2015).
Besides burden sharing, resource pooling is another way that citizens may organize their
activities in light of the common good. Many facilities in a modern liberal democracy serve
common interests, including the armed forces, public health services, and the education
system. These facilities require material resources, and this raises an array of questions about
how to generate these resources and incorporate them into the pool of assets that serve
common interests.
Aristotle favors an approach that works through private ownership. In Plato’s Republic, almost
all of the resources held by the guardians are held as collective assets that the guardians may
use for the sake of the common interest of the community.[22] Importantly, because the
guardians hold almost nothing as private property, they do nothing that is analogous to the
choices that a group of friends might make on a camping trip to voluntarily pool their resources
for the sake of common interests. In other words, the guardians do not express their concern
for the members of the community through gifts, donations or other forms of private
contribution. Partly for this reason, Aristotle favors an arrangement in which citizens have
private ownership and control over assets and a civic obligation to pool these assets for the
sake of common interests (see Kraut 2002: 327–56). For example, if the community faces a
naval threat, wealthy citizens in Aristotle’s ideal community would be responsible for building
warships and contributing these ships to the war effort.
Aristotle’s view draws attention to an important set of questions in contemporary market

societies. The civic obligation he has in mind comes closest to our notion of private
philanthropy. But is private philanthropy really the right way for a community to maintain
common facilities for the sake of common interests? In 2015, Mark Zuckerberg, the billionaire
founder of Facebook, announced that he would donate 99% of his shares in the company to
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charitable causes, including public education (Kelly 2015). From Aristotle’s point of view, this
reflects well on our society: our institutions put wealth in private hands, thereby allowing
citizens to make meaningful choices to pool their wealth for common interests. But many
would argue that our arrangements are seriously defective insofar as they put some individuals
in a position to control a private fortune worth over $45 billion, even if these individuals will
eventually devote these resources to common interests. Plato is on to something when he says
that political solidarity requires that social institutions channel some wealth directly into the
public domain. But Plato seems to go too far in the other direction, and this leaves us with an
important set of questions about when society should pool resources through the state and
when society should pool resources through private philanthropy.
10. Markets, Competition and the Invisible Hand
A third important topic in philosophical reflection about the common good is the market.
Citizens have a relational obligation to care about certain common interests, and social
coordination through markets can draw citizens into a pattern of production activity and
consumption activity that answers to these interests. For example, markets can lead citizens to
make better use of land and labor in society, thereby generating more resources for everyone
to use in pursuing their various ends. The problem is that market coordination involves a
privatized form of reasoning, and the proper functioning of the market may require
citizens not to reason from the standpoint of the common good.
To illustrate, suppose that a society uses markets to coordinate the education of citizens (see
Friedman 1962). A system of for-profit schools would operate as firms, hiring teachers, buying
computers, and selling education services to the public. Parents, in turn, would act as
consumers, buying the best education for their children at the lowest cost. Each citizen in this
arrangement would reason from the standpoint of her own private concerns: as school
managers, citizens would aim to maximize profits, and as parents, citizens would aim to get the
best education for their children at the lowest cost. No one would act out of a concern for the
education system as a shared facility that serves common interests. In fact, the market may
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require citizens to avoid this perspective. After all, to lower costs effectively, school managers
must not show too much concern for the education of their students. And in order to improve
the education of their own children, parents must not show too much concern for the
education of other people’s children.
We can divide the philosophical debate into two camps. The first camp says that market society
—i.e., a social order that relies extensively on markets to coordinate social life—is compatible
with the requirements of the political relationship. Theorists in this camp include Adam Smith
(1776), G.W.F. Hegel (1821), John Rawls (1971), Michael Sandel (2009) and perhaps Michael
Walzer (1983). We might also include deliberative democrats such as Jürgen Habermas (1992)
and Joshua Cohen (Cohen & Sabel 1997).[23]
As an example of someone in the first camp, consider Hegel (1821) and his view of the market.
Hegel follows Adam Smith in thinking that the market draws citizens into a pattern of
specialization that serves common interests. The market does this through prices. Each citizen
finds that she can do better for herself by developing her talents and selling her labor at the
going rate, then buying the goods that she needs from others. But following price signals
involves a form of reasoning that is focused only on private interests, not the common good. As
a result, it is essential, on Hegel’s view, that the realm of market activity must be integrated
into a wider political community. As members of a political community, citizens (or at least
some citizens) discuss their common interests in the public sphere, vote in elections, and find
their views represented in legislative deliberations that shape an official conception of the
common good. This official conception shapes the laws and guides the government in managing
the economy. So even if citizens do not reason from the standpoint of the common good as
market actors, their lives as a whole are organized by a form of reasoning that is focused on
maintaining shared facilities for the sake of common interests.
The other camp in the disagreement says that market society is not compatible with the
requirements of the political relationship. Theorists in this camp include Aristotle
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(see Pol. 1256b39–1258a17), Rousseau (1762b), Marx (1844, 1867), and G.A. Cohen (2009).
Marx’s view provides an interesting contrast to Hegel’s.
Marx agrees with Hegel that members of a political community must organize their activities in
light of a conception of the common good. But he does not think that members live up to the
ideal if most of them never actually reason from this standpoint. A political community must be
“radically democratic” in the sense that ordinary citizens participate directly in the collective
effort to organize social life by appeal to a conception of the common good (Marx 1844). What
makes social coordination through markets problematic is that market actors are drawn into
certain patterns of activity through prices, which means that they never actually reason with
each other in terms of the common good. On Marx’s view, a properly ordered political
community would move beyond this opaque form of social coordination:
The life-process of society, which is based on the process of material production, does not strip
off its mystical veil until it is treated as production by freely associated men, and is consciously
regulated by them in accordance with a settled plan. (Marx 1867 [1967:84]).
In a properly ordered political community, members will transcend the authoritarian mysticism
of price coordination and organize their production and consumption activities through an open
and transparent process of reasoning that makes explicit to everyone how their activities serve
common interests.
Many contemporary issues in political philosophy revolve around questions about the market
and the standpoint of the common good. Most theorists today hold views that fall somewhere
between the two camps I just described: they argue for some more nuanced view about when
citizens are supposed to adopt a privatized perspective and when they must reason from the
standpoint of the common good.
When it comes to corporations and corporate executives, for example, Thomas Christiano
(2010) argues for a certain kind of socially conscious orientation: corporate leaders must reason
from the standpoint of the common good at least in limiting their strategic pursuit of private
objectives in a way that is consistent with the broader social objectives established by
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democratic majorities.[24] Joseph Heath (2014) argues for a more limited view, such that market
actors must not take a purely privatized perspective in cases where externalities and other
market failures would prevent the market process from generating attractive results. A great
deal of work remains to be done when it comes to other aspects of market life that may require
citizens to reason from a more socially conscious perspective, particularly when it comes to
labor rights, political liberties and climate change.
Another important set of contemporary issues has to do with competition. Market coordination
typically works through a process in which citizens compete with one another for important
goods. In the United States, for instance, labor market participants compete for jobs that
substantially determine who gets access to different levels of income, and by extension,
different levels of health care, police protection, consideration in the justice system, and
political influence. As citizens square off against each other, each one strives to secure
important goods for herself, knowing that her activities will—if successful—effectively deprive
some other citizen of these same goods. In this way, labor market competition requires citizens
to act with an extreme form of disregard for how their actions affect one another’s basic
interests.
Many philosophers believe that the antagonistic structure of market competition is inconsistent
with the relational obligation that members of a political community have to care about certain
common interests. G.A. Cohen (2009: 34–45) articulates the problem in terms of a “socialist
principle of community” that rules out social arrangements that require people to view one
another simply as obstacles that must be overcome. Hussain (forthcoming) takes a more
moderate view, arguing that there is a difference between a “friendly competition” and a “life
or death struggle”. The political relationship allows for a certain degree of competition among
citizens, but it limits how severely institutions can pit citizens against each other when it comes
to goods that are part of the common good, e.g., health care, education, and the social bases of
self-respect.
11. Conclusion: Social Justice and the Common Good

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This article has covered the main points of agreement and disagreement among different
conceptions of the common good, as well as a few central topics of concern. Let me conclude
by saying something about the relationship between the common good and social justice.
Consider the case of friendship. Friendship is a social relationship that requires those who stand
in the relationship to think and act in ways that embody a particular form of mutual concern.
The relevant form of concern incorporates the basic requirements of morality—i.e., what
Scanlon (1998) calls “the morality of right and wrong”—as friends must not lie to each other,
assault each other, or take unfair advantage of each other. But even strangers are required to
conform to these basic moral standards. What distinguishes friendship is that the form of
mutual concern it involves goes beyond basic morality and requires friends to maintain certain
patterns of conduct on the grounds that these patterns serve certain common interests.
Members of a political community stand in a social relationship, and this relationship also
requires them to think and act in ways that embody a certain form of mutual concern. The
common good defines this form of concern. The common good incorporates certain basic
requirements of social justice, as citizens must provide one another with basic rights and
freedoms and they must not exploit each other. But the common good goes beyond the basic
requirements of justice because it requires citizens to maintain certain patterns of conduct on
the grounds that these patterns serve certain common interests.
The analogy with friendship should make it clear that the common good is distinct from, but
still closely related to social justice. According to most of the major traditional views, the
facilities and interests that members of a political community have a relational obligation to
care about are partly defined in terms of social justice. For instance, Rousseau (1762b), Hegel
(1821) and Rawls (1971) all hold that a basic system of private property is both a requirement
of justice and an element of the common good. Similarly, in Natural Law and Natural Rights,
Finnis holds that respect for human rights is a requirement of justice and that “the maintenance
of human rights is a fundamental component of the common good” (1980: 218). But the
common good goes beyond the requirements of justice because (1) it describes a pattern of
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inner motivation, not just a pattern of outer conduct and (2) it may incorporate facilities and
interests that are not general requirements of justice.
All of this leaves us with some important questions. Many contemporary social issues turn on
disagreements about when citizens may take up a privatized perspective and when they must
reason from the standpoint of the common good. Social justice is often silent on these issues
because people could, in principle, act as justice requires, whether they are moved by a scheme
of private incentives or by a concern for common interests. These social issues are best
understood as turning on disagreements about the nature of the political relationship and the
form of mutual concern that it requires. Philosophical reflection has an important role to play in
shedding light on this relationship and what it requires of us beyond what we owe to each
other as a matter of justice.
CHAPTER 3
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ENVIRONMENTAL GOVERNANCE AND INTERNATIONAL ENVIRONMENTAL

GOVERNANCE
LESSON 9. ENVIRONMENTAL GOVERNANCE
This chapter reviews the literature relevant to environmental governance in four domains of
scholarship: globalization, decentralization, market and individual incentives-based
governance, and cross-scale governance. It argues that in view of the complexity and
multiscale character of many of the most pressing environmental problems, conventional
debates focused on pure modes of governance–where state or market actors play the leading
role–fall short of the capacity needed to address them. The review highlights emerging hybrid
modes of governance across the state-market-community divisions: co-management, public-
private partnerships, and social-private partnerships. It examines the significant promise they
hold for coupled social and natural systems to recover from environmental degradation and
change. It also explores some of the critical problems to which hybrid forms of environmental
governance are subject.
INTRODUCTION
The Millennium Ecosystem Assessment, perhaps the most ambitious and extensive examination
of the state of Earth's ecosystems, outlines what might reasonably be expected to happen to
them under different future scenarios (1). Its conclusions are pessimistic; the changes required
to address the declining resilience of ecosystems are large and currently not underway. It ends
with a discussion of the types of responses that can lead to sustainable management of
ecosystems. Ostensibly, only the first of these responses focuses directly on institutions and
governance—the subject of this review. Others concern economics and incentives, social and
behavioral factors, technology, knowledge and cognition, and decision-making processes.
Although some of these other responses may seem unrelated to environmental governance, in
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reality, the effectiveness of every single one depends on significant changes in existing
environmental governance strategies.
Our chapter reviews the literature on environmental governance to examine how different
approaches have attempted to address some of our time's most pressing environmental
challenges: global climate change, ecosystem degradation, and the like. We find that a
significant proportion of this literature has tended to emphasize a particular agent of
environmental governance as being the most effective—typically market actors, state actors
and, more recently, civil society-based actors such as nongovernmental organizations (NGOs)
and local communities.
Today, a broad array of hybrid environmental governance strategies are being practiced, and it
has become clear that seemingly purely market-, state-, or civil society-based governance
strategies depend for their efficacy on support from other domains of social interactions. Our
discussion examines the importance of spatial and institutional scales to environmental
governance, focusing especially on emerging hybrid forms. Of significant interest to our review
are (a) soft governance strategies that try to align market and individual incentives with self-
regulatory processes and (b) cogovernance, which is predicated on partnerships and notions of
embedded autonomy across state-market-society divisions (2, 3). These innovations in
environmental governance can potentially be extended to engage multiple types of
environmental problems and conflicts.
Environmental governance(EG) consist of a system of laws, norms, rules, policies and practices
that dictate how the board members of a environment related regulatory body should manage
and oversee the affairs of any environment related regulatory body[1] which is responsible for
ensuring sustainability (sustainable development) and manage all human activities—
political, social and economic.[2] Environmental governance includes government, business and
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civil society, and emphasizes whole system management. To capture this diverse range of
elements, environmental governance often employs alternative systems of governance, for
example watershed-based management.[3]
It views natural resources and the environment as global public goods, belonging to the
category of goods that are not diminished when they are shared.[4] This means that everyone
benefits from, for example, a breathable atmosphere, stable climate and stable biodiversity.
Public goods are non-rivalrous—others can still enjoy a natural resource enjoyed by one person
—and non-excludable—it is impossible to prevent someone from consuming the good (such as
breathing). Public goods are recognized as beneficial and therefore have value. The notion of a
global public good thus emerges, with a slight distinction: it covers necessities that must not be
destroyed by one person or state.
The non-rivalrous character of such goods calls for a management approach that restricts public
and private actors from damaging them. One approach is to attribute an economic value to the
resource. Water is an example of this type of good.
https://en.wikipedia.org/wiki/Environmental_governance
DEFINING ENVIRONMENTAL GOVERNANCE
For the purposes of this review, environmental governance is synonymous with interventions
aiming at changes in environment-related incentives, knowledge, institutions, decision making,
and behaviors. More specifically, we use “environmental governance” to refer to the set of
regulatory processes, mechanisms and organizations through which political actors influence
environmental actions and outcomes. Governance is not the same as government. It includes
the actions of the state and, in addition, encompasses actors such as communities, businesses,
and NGOs. Key to different forms of environmental governance are the political-economic
relationships that institutions embody and how these relationships shape identities, actions,
and outcomes (4–6). International accords, national policies and legislation, local decision-
making structures, transnational institutions, and environmental NGOs are all examples of the
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forms through which environmental governance takes place. Because governance can be
shaped through nonorganizational institutional mechanisms as well (for example, when it is
based on market incentives and self-regulatory processes), there is no escaping it for anyone
concerned about environmental outcomes. Environmental governance is varied in form, critical
in importance, and near ubiquitous in spread.
To investigate emerging trends in environmental governance in a way that is both sufficiently

general for a review and reflects ongoing changes in the world of governance, we focus on four
themes around which some of the most interesting writings on environmental governance
cluster. The ensuing discussion first reviews the scholarship on globalization, decentralized
environmental governance, market- and individual-focused instruments (MAFIs), and
governance across scales to uncover how the conventional roles and capacities of important
actors and institutions are getting reconfigured. This discussion leads us to a framework
through which approaches to environmental governance and the terrain of environmental
governance can usefully be explored. We apply insights from this framework to two sets of
consequential environmental problems: global climate change and ecosystem degradation. We
identify important limitations of hybrid forms of environmental governance and conclude with
a discussion of some of the implications of ongoing developments related to environmental
governance.
THEMES IN ENVIRONMENTAL GOVERNANCE
The four themes upon which we focus below—globalization, decentralized environmental

governance, market- and individual-focused instruments, and governance across scales—are
among the most important emerging trends that are shaping environmental governance. They
are generating pressures for innovative ways to address environmental and natural resource
crises and challenging existing forms of governance. They are emblematic of the possibilities
present in efforts to engage seriously with environmental problems, and their shortcomings are
a reason to be concerned about the extent to which environmental actors have the capacity to
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deal with worsening environmental dilemmas. Although we treat each of these themes
distinctly below, it goes without saying that there are close, perhaps even causal, connections
among them, even if a review permits only speculation about how they may be related.
Globalization and Environmental Governance
Globalization describes an interconnected world across environments, societies, and

economies. Multiplicity, diversity, interdependence, and flows of influence and materials are
common themes associated with globalization even if there is significant disagreement about
its definition, implications, impacts, and usefulness as a concept (7–10). (See References 11–
13 for definitions and implications of globalization.)
From an environmental perspective, globalization produces both negative and positive

pressures on governance. Economic globalization produces tremendous impacts on
environmental processes at the local, regional, national, and global levels. By integrating far-
flung markets and increasing demand, globalization may intensify the use and depletion of
natural resources, increase waste production, and lead to a “race to the bottom” as capital
moves globally to countries and locations that have less stringent environmental standards (14–
17). Most free trade regimes—facilitated by and assisting globalization—provide limited or
inadequate environmental provisions and insufficient safeguards for their enforcement (18–20).
Analogously, despite evidence of the negative effect of international trade on carbon-dioxide
emissions, it remains uncertain how economic provisions of trade agreements such as those of
the World Trade Organization (WTO) intersect with the goals of climate regimes such as the
Kyoto Protocol (15). Additionally, the global flow of energy, materials, and organisms through
the environment, which Clark labels “environmental stuff,” “couples the actions of people in
one place with the threats and opportunities faced by people long distances away” (21, p. 86).
By broadening the range of problems national governments are called upon to address,
globalization strains the resources of nation states at the same time as it may contribute to
socioeconomic inequalities. These pressures can ultimately enhance levels of vulnerability to
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climate change and other environmental threats (22). Finally, neoliberal policy reforms
associated with globalization may complicate the efficacy of state action by shifting power to
alternative actors and levels of decision making through decentralization and privatization as
well as through the use of MAFIs (see below).
Observers of globalization also argue in favor of its potentially positive impacts on economic
equity and environmental standards through a virtuous circle and the diffusion of positive
environmental policy initiatives. Clearly, the globalization of environmental problems has
contributed to the creation and development of new global regimes, institutions, and
organizations dedicated to environmental governance. More efficient use and transfer of
technology, freer flow of information, and novel institutional arrangements based on public-
private partnerships have the potential to contribute positively to environmental governance
(23, 24).
Globalization can also enhance the depth of participation and the diversity of actors shaping
environmental governance. For instance, the globalization of social action through international
environmental groups expands the role of social movements, so that they can produce deep
social changes across national boundaries instead of being limited to negotiations with
governments within a nation state (25). By introducing new ways of organizing, interacting, and
influencing governmental processes, globalization can help increase the social and political
relevance of nonstate actors such as NGOs, transnational environmental networks, and
epistemic communities—defined as networks of knowledge-based expertise (26). Finally, more
accessible and cheaper forms of communication improve access to knowledge and technology
and enhance the rate of information exchange, speeding up the dissemination of both
technological and policy innovations (21–24).
The analytical argument for global environmental governance lies in the “public bads”
implications of processes and outcomes related to environmental problems. Ozone depletion,
carbon emissions, and climate change cannot be addressed by any single nation. Global
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cooperation and institutional arrangements are therefore necessary to address them.

Historically, this conceptualization of environmental problems and their solutions meant that
nation states were viewed as the appropriate agents of environmental action (27, 28), and
international regimes as the appropriate governance mechanism.
Writings about international regimes have tended to cluster around two significant foci:
understanding, measuring, and comparing the effectiveness of regime performance (29, 30)
and exposing their inherent democratic deficit (31). There are three main aspects to the
democratic deficit of international environmental regimes. First, countries participating in the
negotiating process may not be democracies. Second, limited participation from nonstate
actors (with the exception of large NGOs and at times epistemic communities); the unequal
distribution of power, knowledge, and resources among the participant countries; and the
ability of some powerful countries to impose their preferences may undermine the capacity of
certain participants to make much of an impact on final outcomes. Additionally, the opaque
character of the negotiation process itself strengthens the perception that international
regimes and negotiations within the scope of multilateral organizations are driven by the more
powerful actors (9, 30, 32). Finally, most international environmental agreements lack effective
enforcement, especially when the more binding provisions in an agreement are at stake
(33, 34).
The failure of state-centered international regimes to address many of the most pressing global
problems successfully prompted a search for new institutions, partnerships, and governance
mechanisms. A more inclusive global environmental governance paradigm holds the promise
not only of innovative governance strategies, but also of expanded cooperation among social
actors that may have been previously outside the policy process: corporate interests, social
movements, and nongovernmental organizations (21, 35). The fragmentary nature of the
sources of complex environmental problems, such as global climate change, and the reluctance
or inability of nation states to regulate the sources of these problems, means that nonstate
actors and organizations may be able to play an essential role in mobilizing public opinion and
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generating innovative solutions (36). It is for this reason that scholars of environmental
governance such as Haas have proposed multilevel, nonhierarchical, information-rich, loose
networks of institutions and actors as an alternative to ineffective state-centric international
regimes (37–39).
These new international environmental governance mechanisms are viewed as being superior
along a number of dimensions: (a) integrating scientific, technological, and lay knowledge and
at quickly relaying information; (b) providing sufficient redundancy and flexibility in functional
performance; (c) gaining the involvement of multiple actors; (d) recognizing that the
relationship between international regimes and nonstate actors is fundamental to address
economic and environmental changes; (e) identifying modalities of cooperation that go beyond
legal arrangements; (f) working across scales to develop cooperation and synergy to solve
common problems; and (g) promoting social learning and compromise seeking. However, these
mechanisms may also fail to limit the negative externalities emerging from lack of
implementation capacity. Their characteristic reliance on decentralized action and
interdependent coordination and their lack of instruments to deal with system disruption and
unanticipated systemic effects mean that major environmental problems may be difficult to
address directly and efficaciously through them (40, 41).
Decentralized Environmental Governance
Climate change, globalization, recent sociopolitical transformations, and the challenges they
pose for environmental processes have been the major concerns occupying many of the
scholars who have written and talked about environmental governance. Indeed, for many
interested in environmental governance, it is synonymous with what happens on the
international or the global stage (42). However, it is at least equally correct that some of the
most important contemporary changes in environmental governance are occurring at the
subnational level and relate to efforts to incorporate lower-level administrative units and social
groups better into formal processes of environmental governance. It is perhaps only a matter of
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historical record today, but the landscape of natural resource management has undergone a
breathtaking shift since the colonial period and its immediate aftermath. Until as recently as the
late 1970s and early 1980s, those concerned about loss of biodiversity, soil erosion,
desertification, deforestation, decline of fisheries, and other such environmental phenomena
used to call for more elaborate and thoroughgoing centralized control. Indeed, the elaborate
forms of coercive control that marked governance arrangements for most natural resources
continued with little change between the colonial and the postcolonial period. State
bureaucratic authority appeared to many policy makers and academic observers as the
appropriate means to address the externalities associated with the use of environmental
resources. Centralized interventions were therefore essential to redress resulting market
failures (43, 44) (for a review of relevant claims, see References 45 and 46).
A loss of faith in the state as a reliable custodian of nature has accompanied the analogous loss
of faith in states as effective managers of the economy (47, 48). The reasons for the shift away
from centralized forms of governance also have to do, however, with very real forces of change,
among them the fall of economies relying on centralized control. Economic pressures on states,
resulting both from greater integration of economic activities across national boundaries and a
decline in aid flows, have been supplemented by fiscal crises in many developing countries (49).
Many nation states no longer have the resources to manage their environments. At the same
time, as emerging economic forces have challenged the political and economic capacities of
nation states, a shift toward more democratic political processes throughout much of the
developing world has facilitated the move toward alternative forms of governance whose
effectiveness depends on higher levels of participation and greater involvement of citizens in
processes of governance.
In addition, extensive research by scholars of common property and political ecology,

emphasizing the capacity of communities and other small-scale social formations to manage
resources, has provided the intellectual grounds for a shift toward comanagement, community-
based natural resource management, and environmental policy decentralizations (50–54). It
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has done so by demonstrating that forms of effective environmental governance are not
exhausted by terms such as “state” and “free market institutions” and that users of resources
are often able to self-organize and govern them. By identifying literally thousands of
independent instances of enduring governance of resources and at the same time highlighting
arenas in which external support can improve local governance processes, scholars of common
property and political ecology have helped prepare the ground for decentralized environmental
governance.
Since the mid-1980s, decentralization of authority to govern renewable resources such as

forests, irrigation systems, and inland fisheries has gathered steam. Indeed, it has become a
characteristic feature of late twentieth and early twenty-first century governance of renewable
resources, even if nonrenewable resources continue to be held by state authorities in a
tightfisted grip (55–58). As Hutchcroft (59) suggests, “The decentralization of government
functions is ‘the latest fashion (60),’ or at least ‘a fashion of our time (61).’” Three distinct
justifications for decentralization of environmental governance are available. It can produce
greater efficiencies because of competition among subnational units; it can bring decision
making closer to those affected by governance, thereby promoting higher participation and
accountability; and finally, it can help decision makers take advantage of more precise time-
and place-specific knowledge about natural resources.
National governments across the developing world have advanced strong claims about the
imperative to establish and strengthen partnerships in which local administrative and
organizational arrangements complement or substitute for more central efforts to govern
environmental resources (62–64). In many cases, they have backed these claims with changes
in renewable resource policies. Whether these changes have occurred because of the alleged
advantages of decentralized governance or because of the significant flows of aid funds tied to
decentralized governance is difficult to judge. But the shift in favor of decentralization has
brought alternative means and new political claimants to the fore in the process of governance
as nation states attempt to reclaim governance through partnerships with local organizations.
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Indeed, the vast literature on decentralized environmental governance contains many different
conclusions regarding the nature and depth of the changes that have occurred since the 1980s.
Positions adopted by the participants range from those for whom nothing much has changed
(65, 66) to those who see the world of governance to have undergone a major transformation
with decentralization (67–69). Much of the debate's heat is explained by the variations in the
regional focus and the organizational affiliations of those involved. Because there is enormous
patchiness in the reforms different countries have undertaken, indeed even within countries in
the case of federal policies, the geographical focus of analysis often leads to different
conclusions about the meaningfulness and effectiveness of institutional reforms (70). Similarly,
those belonging to organizations involved actively in reforms tend to assess them more
positively in comparison to outside observers and academic analysts.
When successful, decentralized governance of natural resources can be seen as effecting at

least three sets of changes in the political relationships through which human beings relate to
resources (71). The first set of changes concerns how decision makers in lower-level units in a
territorial-administrative hierarchy relate to those at higher levels (72). Indeed, much of the
existing literature on decentralized governance focuses precisely on this aspect of ongoing
changes. A second set of issues is linked with the ways local decision makers relate to their
constituents. This aspect of the decentralization of environmental governance has been
researched extensively in writings on local resource management, especially by scholars of the
commons. However, a third aspect of decentralized governance—alterations of the subjective
relationships of people with each other and with the environment as part of changing
relationships of power and governance—is also crucial to understand outcomes, an issue that
has received far less attention than the preceding two aspects of environmental governance (6).
Contemporary efforts at decentralized environmental governance, like those in earlier periods,

aim to make the exercise of control both more thorough and more economical.
Decentralization disperses multiple points of political leverage throughout an administrative
structure and makes them available to central decision makers (73, 74). It does so by
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encouraging the systematic creation of legal codes and performance standards that are
specified through the exercise of legislative or executive authority. Adherence to these codes
and standards is the price of inclusion in decision-making processes. Paradoxically perhaps,
decentralization appears to be perfectly compatible with the existence of centralized authority
when formal inclusion in decision-making processes occurs together with a clear delineation of
spheres of authority within which local actors are supposed to operate. In addition to helping
effect fiscal economies, decentralization also serves political and strategic considerations to the
extent that dissatisfaction with governance can find local points of authority against which to
protest instead of engaging centralized authority.
Contemporary decentralized environmental governance is different from earlier attempts at

decentralization of authority in two critical ways. For the most part, earlier efforts in the form
of indirect rule in colonial south Asia and Africa and community development programs in the
postcolonial developing world relied on existing authority structures and incorporated them
into the formal process of the exercise of authority. In contrast, decentralized environmental
governance, especially at the local level, has been built upon new organizational entities such as
community-based user groups and has established new lines of institutionalized authority. An
even more striking difference that characterizes contemporary environmental governance is
the way it conceptualizes individual citizens and their responsibilities. By focusing on the
incentives that prompt individuals to participate in new institutional arrangements to govern
the environment, present day decentralization processes help produce the very individual
subjects they require for their effective functioning. The rhetoric of capacity building, local
knowledge, and individual rationality is a lynchpin of decentralized environmental governance
(6). Ongoing changes in subnational environmental governance hold intriguing possibilities for
reshaping the future landscape of political decision making related to the environment.
Therefore, further research on environmental policy decentralization holds great promise both
for furthering the insights that work on common property institutions has produced and for
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enhancing the involvement of local decision makers in new forms of environmental

governance.
At the same time, it is worth highlighting that ongoing changes are not just an occasion for
optimism that less powerful human agents may come to exercise greater voice in how they and
their resources are governed. There is also room for cynicism that decentralization policies have
typically been motivated by powerful state actors to enhance their own political positions.
Without effective safeguards against arbitrary exercise of localized power and clear relations of
accountability, decentralization may lead to forms of regulation even more suffocating than
those encouraged by more centralized control. The contingent outcomes of contemporary
shifts in governance, therefore, depend crucially on the ways local actors mobilize and establish
alliances across sociopolitical and administrative scales of governance (64, 75).
Market- and Agent-Focused Instruments
The decline of the state since the 1970s as the prime agent of environmental governance has
also propelled market and voluntary incentives-based mechanisms to the fore. Instead of
relying on hierarchically organized, regulatory control or even purely participatory structures,
MAFIs aim to mobilize individual incentives in favor of environmentally positive outcomes
through a careful calculation and modulation of costs and benefits associated with particular
environmental strategies. They differ from more conventional regulatory mechanisms along a
number of dimensions, including the source of their legitimacy and authority. Cashore (76)
suggests that the strength of these instruments lies in their utilization of market exchanges and
incentives to encourage environmental compliance.
MAFIs encompass a broad range: ecotaxes and subsidies based on a mix of regulation and
market incentives, voluntary agreements, certification, ecolabeling, and informational systems
are some of the major examples. At the national level, the popularity of these instruments and
frameworks has increased quickly, even if their adoption and implementation can be
differentiated by sector and geography rather than being uniform (23, 77). Their popularity
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seems to relate to a general dissatisfaction with old policy instruments; the influence, transfer,
and diffusion of emerging governance paradigms based in neoliberal institutionalism and free
trade agreements; and the need for market innovations that keep national economies
competitive in a globalizing world (23).
Energy taxes, tradable permits, voluntary agreements, ecolabeling, and certification were
introduced as early as the 1960s in a number of western countries (23, 78). However, their
adoption has gathered steam especially since the 1990s (24). These instruments are founded
upon the bedrock of individual preferences and assumptions about self-interested behavior by
economic agents. A strong claim advanced in their favor is their superiority in terms of
economic efficiency related to implementation. Although an emerging literature focuses on the
extent to which process-oriented evaluative criteria such as popularity, responsiveness,
legitimacy, transparency, and accountability may also be associated with market incentive-
focused instruments, the extent to which they meet these criteria needs much greater
exploration (39, 76).
Environmental taxes of different kinds are among the more common market-based instruments
aimed to alter environmental actions of agents (by changing the costs and benefits of
environmental choices). Over time, a number of countries have adopted a sophisticated mix of
different kinds of ecotaxes as well as distinct policy positions about allocation of revenues
generated from such taxes (23). Taxes on commodities and services, such as energy, nutrients
used in agriculture, or tourism, are enacted in the belief that existing markets do not fully
incorporate the externalities associated with the production and use of these commodities and
services and that taxes are an effective mechanism to raise revenues to offset damages
associated with the overexploitation of underpriced resources. Similarly, tradable permits are
based on the idea that some ecosystem services, such as clean water and air, are not priced
fully by existing markets. In such situations, incentives for conservation and economic efficiency
of allocation can be improved through economic exchange only if appropriate legal and
institutional arrangements are in place and polluters pay a tax on their polluting activities. The
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resulting markets for some kinds of emissions can reach significant proportions: the total value
of trading in carbon markets, according to some recent estimates, may reach 10 to 40 billion
dollars by 2010 (1).
Voluntary agreements are negotiated to meet environmental targets regarding, for example,
lower waste generation and emissions or higher energy efficiency. Industry and corporate
actors often pursue such voluntarily imposed targets as a strategy to preempt legal regulation.
It can therefore be argued that the shadow of law is crucial to their emergence and
effectiveness (79). Indeed, some researchers of voluntary environmental compliance have
argued that without leadership by state agencies, voluntary agreements will produce anemic
results at best (80). Others such as Ruggie (35) suggest that the irony of the current reliance on
corporate actors to implement environmental sustainability lies in the fact that “the corporate
sector, which has done more than any other to create the growing gaps between global
economy and national communities, is being pulled into playing a key bridging role between
them. In the process, a global public domain is emerging, which cannot substitute for effective
action by states but may help to produce it” (35, p. 95).
Primary sector commodities such as coffee, timber, and energy provide familiar examples of
ecolabeling and certification schemes (81–83). Both ecolabeling and certification schemes are
forms of voluntary agreements wherein producers agree to meet environmental standards
related to production and marketing activities. Such standards may be the result of work by
third party actors, an industry association, or even the government. The operation of these
schemes hinges upon the idea that consumers are willing to express their preferences related
to cleaner energy or greener products through their choices in markets and through a
willingness to pay higher prices. Perceptions about environment-friendly preferences among
consumers have led many corporations to adopt certification mechanisms and advertising
campaigns that represent both real and cosmetic shifts in how corporate actors govern their
environmental actions.
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Some of the drivers of market-based policy instruments in the developed world are analogous
to those motivating decentralized environmental governance in much of the developing world
(84). Dissatisfaction with regulatory control by state agencies and the bureaucratization
associated with their growth play an important role in the expansion of market incentives-
based instruments and in their adoption across sectors and national boundaries (85). Difficulties
in implementation of traditional regulatory instruments provide a partial explanation of the
willingness of governments to experiment with market-oriented efforts. High costs of
compliance with environmental regulations and increasing awareness of environmental issues
among consumers are other parts of the explanation. Although many economists had argued
for the economic superiority of market-based instruments as early as the mid-1960s and 1970s
(86, 87), it is only recently that their application to environmental governance is becoming
more widespread.
The schematic review of a range of different instruments of environmental governance based

on market incentives and exchanges suggests that their success depends significantly on the
internalization of positive environment preferences among relevant stakeholders, most
importantly citizens and consumers (88), and effective leadership by governments. For
example, in their comparative study across eight European Union countries, Jordan et al. (23)
found that among the constraints to the implementation of MAFIs was the opposition of
environmental policy actors (especially environmental movements) and other vested interests
(such as energy-intensive industries). Other constraints to successful implementation are lack of
expertise across policy systems, fear among corporate sectors about loss of economic
competitiveness, and unequal distributional impacts because of ecotaxing schemes (e.g., fuel
taxes). Not surprisingly, corporate and industry actors are less likely to adhere voluntarily to
new environmental standards to the extent that they prove more costly in comparison to when
such standards are absent or weak (89). Indeed, efforts to induce voluntary compliance by
economically motivated actors have been found to be vulnerable to free-riding behavior when
effective mechanisms to deter free riding are not in place. For example, in a study of the U.S.
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Environmental Protection Agency's WasteWise program, Delmas & Keller (90) found that
organizations joining the program were likely not to report their creation of waste unless there
were private benefits to such reporting.
Other research, especially that focusing on corporate social responsibility, examines the extent
to which environmentally oriented actions of market actors are tied to their expectations about
consumer preferences—both those specific to their products and to “green preferences” more
generally (91, 92). Citizen preferences expressed in the form of a greater willingness to
purchase green products and policy environments in which superior environmental outcomes
are prized are important drivers of the success of new MAFIs of environmental governance.
These considerations suggest that the growing popularity of market incentives-based
instruments should not lead to the conclusion that governance is replacing governments. A
conclusion more broadly supported by existing evidence would be that there is a complex
relationship between governments and governance: governments are the source of credible
threats of regulatory action that would require costly compliance and such threats encourage
the adoption of voluntary agreements on environmental standards. Government agencies also
remain the monitoring authorities to which appeals regarding violations of environmental
standards can be made.
Cross-Scale Environmental Governance
The multiscalar character of environmental problems—spatially, sociopolitically, and temporally

—adds significant complexity to their governance (93–95). The implications of spatial scales for
environmental governance are twofold. First, the decoupling across scales of the causes and
consequences of environmental problems introduces major concerns about the unequal
distribution of costs and benefits of environmental issues. For example, a problem such as
global climate change may have been caused primarily by the major producers of greenhouse
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gases in the developed world, but many of their more dramatic effects will negatively affect
low-emitting countries in the global south. The spatial distribution of environmental problems,
such as acid rain, ozone depletion, and transboundary water pollution, transcends national
borders and adds to the challenge of designing and implementing solutions (26). As mentioned
above, the main strategy to address these issues has been international environmental regimes.
Although more than 1700 multilateral and bilateral environmental agreements have hitherto
been signed, their effectiveness is at best mixed (30).
Sociopolitically, cross-scale environmental problems affect and are affected by institutionalized

decision making at local, subnational, national, and transnational levels. A common prescription
to address the multilevel character of environmental problems is to design governance
mechanisms across levels of social and institutional aggregation. Multilevel governance is
intended to counteract the fragmentation that is characteristic of sectoral based decision-
making or, indeed, of decision-making that is organized by territorial, social, and political
divisions. The involvement of public-private networks in multilevel governance can enhance the
representation of the diversity of interests that are affected by environmental problems
(39, 96). At the same time, the configuration of cross-scale governance strategies is also
conducive to compromise-seeking and social learning, often enabling less formal modes of
decision-making, greater transparency, and higher levels of representativeness (39).
Increasingly, cross-scale governance mechanisms are being shaped by nonstate actors,

including NGOs, transnational environmental organizations, intergovernmental and multilateral
organizations, market-oriented actors (e.g., transnational and multinational companies), and
epistemic communities (26, 97–101). These new actors both introduce innovative tools and
mechanisms and positively shape power relations within the policy arena (31, 102), even if their
transformative potential is contested (103).
The cross-temporal implications of environmental problems are especially severe because of

two major obstacles to action: contempocentrism and uncertainty regarding cause and effect
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relationships involving long-term environmental changes. Contempocentrism, in part a

consequence of high market discount rates, is the tendency to disregard the welfare of future
generations and believe in the power of technology and technological change to take care of
environmental degradation and scarcities. It means humans are likely to “spend” the
environment now and discount the future heavily (33, 104). Coupled with the seeming high
costs of action that will shift existing trajectories of economic development, the uncertainty
surrounding the science of causes and effects of environmental degradation often leads to a
“do nothing until we know more” attitude–strongly reflected in the contemporary policy
positions of some nations that are the largest emitters of greenhouse gases. Many of the
impacts of global climate change on humans and ecosystems are still undetermined, and the
design and implementation of policies necessary to reduce emissions are both economically
and politically quite costly.
THE TERRAIN OF ENVIRONMENTAL GOVERNANCE
The elaboration above of environmental governance-related changes and challenges involving

four different themes shows that there are intriguing parallels across them despite the many
(and expected) differences in how governance is becoming reconfigured as a result of
globalization and decentralization. It also shows the increasing importance of cross-scale
governance, market instruments, and individual incentives. Perhaps the most obvious of these
parallels relates to the emergence of alternative institutional forms of governance. Some of the
new forms of governance are innovative hybrids between the conventionally recognized social
roles that markets, states, and, more recently, communities play. Others are the result of a
clearer appreciation that the effectiveness of what was conventionally understood as a pure
form of governance based in the market or the state may be the result of existing relationships
among market, state, and civil society actors. Figure 1 presents a schematic structure to classify
strategies of environmental governance as they are founded upon the actions of three different
social mechanisms.
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Figure 1 Mechanisms and strategies of environmental governance. Abbreviation: CBNRM,

community-based natural resource management.
Download Full-ResolutionDownload PPT
The triangle connecting state, market, and community constitutes the core of the figure. The
emphasis in the figure on these social mechanisms is a reflection of early conversations related
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to the environment that viewed environmental governance strategies as being especially

necessary to address the externalities stemming from the public goods nature of environmental
resources and processes. To overcome these externalities, some writers saw state action as
necessary; others, surmising that externalities could lead to market failure, advocated clearer
definition of property rights to allow functioning markets to emerge (43, 105). Arguments
advanced by scholars of the commons engaged these policy prescriptions and identified
communities as a third potential locus of environmental governance (51). These efforts,
championing state-, market-, and community-based governance strategies, were built around
perceived strengths of the particular social arena or mechanism being considered: the capacity
for action across jurisdictions backed by state authority; the mobilization of basic human
incentives through market exchanges; and the deployment of solidaristic relationships and
time- and place-specific knowledge embodied in communities (107).
In the past decade and a half, however, an exciting array of research has identified
opportunities for more nuanced arguments regarding hybrid forms of collaborations across the
dividing lines represented by markets, states, and communities. The three major forms we
identify in Figure 1—co-management (between state agencies and communities), public-private
partnerships (between state agencies and market actors), and private-social partnerships
(between market actors and communities)—each incorporate joint action across at least two of
the social mechanisms/arenas in the core triangle and correspond to scores if not hundreds of
specific experiments in which constituent social actors find differing levels of emphasis. They
simultaneously illustrate the dynamic and fast-changing nature of contemporary environmental
governance. The emergence of these hybrid forms of environmental governance is based upon
the recognition that no single agent possesses the capabilities to address the multiple facets,
interdependencies, and scales of environmental problems that may appear at first blush to be
quite simple.
The hope embodied in hybrid forms of environmental governance is evident in each case. They
seek simultaneously to address the weaknesses of a particular social agent and to build upon
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the strength of the other partner. Thus, the involvement of market actors in environmental
collaboration is typically aimed at addressing the inefficiencies of state action, often by injecting
competitive pressures in the provision of environmental services. In the same vein, market
actors are also viewed as enabling greater profitability in the utilization of environmental
resources. The addition of community and local voices to environmental governance is seen as
providing the benefit of time- and place-specific information that may help solve complex
environmental problems and, at the same time, allow a more equitable allocation of benefits
from environmental assets. Higher levels of participation by different stakeholders and the
blessings of state authorities can help overcome the democratic deficit and lack of legitimacy
often associated with market-focused instruments. Moreover, state actors, ostensibly, create
the possibility that fragmented social action by decentralized communities and market actors
can be made more coherent and simultaneously more authoritative.
A second obvious parallel across the discussion of the different themes related to
environmental governance is that within hybrid strategies one can discern a mobilization of
individual incentives that had initially been the core of market-oriented instruments and is now
becoming increasingly common. Thus, contemporary co-governance strategies, in contrast to
their historic counterparts, focus on how the individual subject will respond to efforts at
governance. Through such a calculation of individual responses, decentralized environmental
governance aims to elicit the willing cooperation of those subject to the goals of governance
(6, 108). The emphasis on willing cooperation has even prompted some scholars of incentive-
based governance strategies to term them “governance without government” (109, p. 652).
In view of the extent to which an appeal to individual self-interest is a part of new

environmental governance strategies, it is reasonable to conclude that a pervasive attempt to
restructure agent-level incentives and attitudes toward the environment underpins governance
instruments related to civil society-based solidarities, market-based policies, and voluntary
compliance mechanisms (110, 111). The same is true for public-private and social-private
partnerships, each of which is enabled by a level of valorization of corporate entities and
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market actors that would have been quite unimaginable in the 1970s (112–114). Here, the logic
of efficiency, which is the hallmark of capitalist organization of production, is also coming to
colonize the goal of environmental conservation and sustainable development.
LIMITATIONS OF HYBRID GOVERNANCE STRATEGIES
The reconfiguration of environmental governance so that the state is no longer the only actor
viewed as capable of addressing environmental externalities has many implications, but not all
of them have found an easy acceptance among those concerned about environmental
outcomes. The focus on individual incentives, the creation of new property rights and markets
in relation to water or carbon, and the encouragement to the corporate sector (insofar as the
policy environment enables more extensive public-private and social-private partnerships) have
been construed by some scholars as moves toward increasing democratic deficit and higher
levels of inequality in the allocation of environmental resources. Those who are able to exercise
greater access and expertise in relation to these new mechanisms are more likely to derive
greater benefits from them (66). Other scholars have expressed significant concerns about the
likely results of market actors being incorporated in a more thoroughgoing manner into
environmental governance, which Liverman (115), among others, has called the
“commodification of nature.” Greater efficiency in the utilization of natural resources, for many,
is equivalent to higher rates of extraction and, thereby, brings up issues of intergenerational
equity.
For scholars coming from a radical political economy perspective, there is no new approach to
global environmental governance; rather, the supposed new mechanisms of governance are
little more than a natural evolution of traditional regime politics because outsiders and
disempowered groups continue to have little opportunity to participate in contemporary efforts
at governance despite the greater incorporation of civil society actors (31). Here, the key
differences between models of new global environmental governance and older conceptions of
regime theory concern the role of and the importance accorded to members of global civil
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society, which is understood as a sphere of voluntary societal associations located above the
individual and below the state as well as across state boundaries (31, 98). Ford (31) argues, for
example, that the rhetoric of societal participation introduced by the Brundtland Report did
little to change regime politics because it failed to democratize the negotiation process itself.
New forms of global environmental governance, and their newly incorporated players, can be
viewed simply as reflecting existing distributions of power rather than having changed anything
fundamental. Indeed, global environmental governance is seen as being embedded in a
neoliberal political economy, which is hegemonic in the neo-Gramscian sense that dominant
power relations are maintained by consent as well as by coercion (31). In this sense, global
environmental governance is part of a broader agenda of corporate interests developed to
promote economic globalization and to regulate what both NGOs and nation states do (116). In
a world of weak states, deterritorialized action, and concentrated power, corporate interests
and multilateral organizations can control and reframe environmental action as a means to
legitimize their model of development (117). These dominant interests place greater weight on
the problem-solving aspect of new instruments rather than on ameliorating the unequal power
relations that the new system also continues to preserve. Indeed, actors who are mostly
responsible for nature's degradation are defining the terms of environmental protection.
“Governance from below,” represented by the role of social movements and protests against
organizations such as transnational corporations, the WTO, and the International Monetary
Fund, is currently the only recognizable challenge, despite the risk that it too may be coopted
(117).
In contrast, the inclusion of a wider array of social actors such as private and corporate
interests is justified by the need to guarantee that veto players, whose “voice” or “exit” can
jeopardize public action, agree with policy choices. The rationale is that if these elite actors are
provided with a privileged space for participation, they will have no incentive to exert their veto
power or obstruct the decision-making process. Moreover, the belief in the efficiency of
market-led forms of governance to produce positive outcomes justifies compromising for the
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“greater good.” Radical political economists, however, argue that this is hardly a justification for
legitimacy (39) and that the mere inclusion of more social actors does not necessarily make
governance systems more democratic (118). Although advocates of new forms of governance
argue that their democratic deficit is no worse than that of traditional representative
democracy (39), critics point out that they fail to meet normative models of deliberative
democracy whose fairness is grounded in the equal participation of all stakeholders. The
opacity of governance networks may prevent the mass public from identifying and evaluating
the role of specific agents, such as experts who play prominent roles in the building of relevant
issues and action agendas. For example, in cases of environmental issues with potentially
catastrophic impacts (e.g., global climate change), the predominance of “less than democratic”
expert politics is justified in the name of the urgency and severity of the problem.
MAFIs and multilevel governance frameworks may also have negative effects on policy capacity,
specifically in relation to environmental problems. In multilevel governance systems, the
“denationalization” of statehood, reflected empirically in the “hollowing out” of the national
state apparatus, reorganizes old and new capacities territorially and functionally—but not
always for the better (119). Indeed, globalization and subnational challenges have led to the
emergence of a rescaled state that simultaneously transfers power upward to supranational
agencies and downward toward regional and local levels (120), changing the way policy-making
capacity is distributed. This transfer of power to different levels of decision making may have
already negatively affected policy capacity of the modern state (121). Hybrid modes of
environmental governance and emerging partnerships across conventional divisions suggest
that the state is not the only, and perhaps not even the most important, actor in governance
(119). Yet, advocates of a bigger role for the state contend that, especially in cases where
redistributive policy making becomes necessary (e.g., adaptation), it is unlikely that either the
market or hybrid forms of governance will be able to accomplish much (122).
APPLICATIONS: CLIMATE CHANGE AND ECOSYSTEM DEGRADATION

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The four themes we highlighted above and the framework for viewing emerging hybrid
mechanisms of environmental governance are visible in the major problem areas related to the
environment. Two significant arenas in which these themes and hybrid governance strategies
are especially evident are global climate change and ecosystem degradation. An examination of
these areas of environmental concern and crisis provides useful indications about the extent to
which contemporary and emerging environmental governance approaches have the capacity to
help address major problems.
Climate Change
Among the factors that challenge environmental governance structures, global climate change
promises to be one of the most critical. As the need to design policies to respond to the
negative impacts of climate change increases, more attention has been paid to emerging modes
of environmental governance and to how they can increase the capacity of economic, social,
and cultural systems to help humans mitigate and adapt to climatic change. Considering that
climate is one of many stressors, the resilience of already overextended economic, political, and
administrative institutions may decrease rapidly, especially in the more impoverished regions of
the globe (22). Some signs of how environmental stresses may exacerbate governance
challenges related to poverty, violence, and authoritarianism are already visible (1). Among the
expected casualties of governance breakdown as a result of climate change may be economic
growth, democratic institutions, and livelihood possibilities.
Responses to global climate change fall broadly into two main categories: those seeking to curb
or stabilize the level of emissions of greenhouse gases into the atmosphere (mitigation) and
those seeking to boost natural and human systems' resilience to prevent, respond, and recover
from potential impacts of a changing climate (adaptation). Although at this point adaptation
may be inevitable, its magnitude and range depends on how much mitigation is successfully
implemented to prevent and avoid the most dangerous interference in the climate regime.
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Many of the factors that make global climate change unique also make it complex. Global
climate change is the quintessential multiscalar environmental problem; because greenhouse
gases mix equally in the atmosphere, the costs of the negative effects of climate change are
socialized at the global level, but the effects are likely to be felt at the local level. The
fragmented and highly politicized nature of the causes of climate change means that it is
extremely difficult to assign blame and target offenders. Effective responses to climate change
are likely to require a diversity of actors and organizations across the state-society divide. The
high level of uncertainty still involving the definition of the magnitude and character of the
impacts of climate change in different human and natural systems and the fact they might not
be felt for years also make it a politically and financially costly problem (33). Finally, the
differences among those causing climate change (large producers of greenhouse gases) and
those likely to be more negatively affected by it, including the global poor and natural and
biological systems, make it unique in terms of the distribution of costs and benefits and bring
up a whole host of equity and environmental justice questions (123). For example, although
mitigation actions are likely to fall upon countries and sectors mostly responsible for the
production of greenhouse gases, such as polluting corporations and developed countries,
adaptation will be realized mostly by affected groups such as the poor, living in less-developed
countries, or agencies entrusted with the task of building generic adaptive capacity to climate
change such as local governments, NGOs, and aid organizations. In the literature on adaptation,
most efforts to compare differential vulnerability identify already stressed countries and
regions in Africa and South Asia and small island states as the most vulnerable (124, 125), but
the primary burden of mitigation falls on developed countries under international regimes to
curb greenhouse gas emissions, such as the Kyoto protocol (127).
MITIGATION
The Intergovernmental Panel on Climate Change (IPCC) defines mitigation of global climate
change as “an anthropogenic intervention to reduce the sources or enhance the sinks of
greenhouse gases” (128). Mitigation of greenhouse gas emissions has been organized at the
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international level primarily through the entering into force of the Kyoto Protocol and has been
realized at the national level through regulation and implementation of new governance
mechanisms across the public-private divide. Mechanisms to mitigate global climate change
range from technological fixes to the design of institutions that curb carbon emission practices.
Five categories of strategies to mitigate carbon emissions are available: energy conservation,
renewable energy, enhanced natural sinks, nuclear energy, and fossil carbon management. Yet
the magnitude, complexity, and urgency of the climate change problem suggest that the
implementation of any or of a combination of these strategies would require tremendous
amounts of financial, human, and political capital (129).
Not surprisingly, the lack of capacity of nation states to implement such strategies (exemplified
by the lackluster accomplishments of Kyoto to date) (130), and the general lack of confidence
that this capacity will improve dramatically in the near future, suggests that a broader array of
hybrid modes of governance is necessary to address global climate change. Comanagement and
public-private partnerships in the implementation of Kyoto's Clean Development Mechanism
and social-private partnerships to develop community-based carbon sequestration projects are
a promising start (131, 132). Carbon taxes and joint development of fuel-efficient technology
(e.g., FredomCAR, California Fuel Cell Partnership) are also examples of initiatives involving
both public and private actors. Yet, despite the promise of effectiveness, many question the
ability of hybrid modes of governance to address mitigation as fast and as broadly as necessary
to defuse many of the most negative impacts of global climate change.
Already, in the implementation of mitigation policy, NGOs and businesses have played a
particularly important role both in influencing the design and implementation of climate
governance mechanisms. Although business interests have focused mostly on flexible
mechanisms for carbon trading (see section on market-based mechanisms) and the pursue of
fuel efficiency (in addition to playing an oppositional role to the implementation of emission-
curbing strategies), NGOs have played a broader role in monitoring implementation and
compliance of regulation, lobbying, raising equity issues, and providing scientific and technical
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knowledge (34, 127, 133, 134). One of the most effective ways NGOs have influenced the global
climate change policy process has been through their role as knowledge producers and as
members of information networks and epistemic communities seeking to affect the response
process.
ADAPTATION
The IPCC defines adaptation as an “adjustment in natural or human systems in response to

actual or expected climatic stimuli or their effects, which moderates harm or exploits beneficial
opportunities.” Vulnerability in turn is “a function of the character, magnitude, and rate of
climate variation to which a system is exposed, its sensitivity, and its adaptive capacity” (128).
Adaptive capacity, the third concept important to understand vulnerability to global climate
change, is the “potential and capability to change to a more desirable state in the face of the
impacts or risks of climate change” (135). It is the ability of a system to moderate and to adjust
to global climate change-related damages. Adaptation policy considers the entitlements, assets,
and resources that improve the capacity of this system to resist, cope, and recover from a given
hazard.
To date, adaptive capacity indicators have been defined mostly at the national scale both
because it is an appropriate level to make adaptation decisions and because it allows for
comparison of vulnerability across countries (124). Although the reality of building adaptive
capacity involves cascading decisions across scales and a diversity of private and public agents
and organizations (136), because of the redistributive character of adaptive capacity building,
the bulk of action is expected to fall over nation states (22).
At lower scales of government, global climate change critically intersects with decentralization
not only in the assessment of different levels of vulnerability within countries but also in the
design of policy to enhance adaptive capacity. For example, at the local level, vulnerability
assessment (e.g., participatory vulnerability mapping) holds the promise of a more accurate
understanding of the “character” of the vulnerability of specific social and human systems
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(137). At the global level, adaptation policy is influenced by the role that institutions such as the
United Nations Framework Climate Change Convention play in coordinating international
action, advancing rationales for compensation, and preparing for future impacts (123, 138).
In sum, the panoply of governance strategies related to global climate change are clearly
difficult to view as being centered on any single category of social agent as depicted in Figure 1.
Although it might have been argued a decade ago that nation states are the only actors who
can generate effective measures to address climate change, it is evident that, although their
involvement is necessary, they are not adequate to perform the task by themselves. The willing
cooperation of civil society and market actors and changes in individual level actions are
critically important to the successful implementation of the set of governance strategies that
might have some prospect of being effective.
Ecosystem Degradation
Like climate change, ongoing and fundamental alterations of the relationship between humans
and ecosystems pose a complex set of multiscale challenges for environmental governance.
Ecosystems and their services are the basis upon which human lives and all human actions are
founded; thus it is not surprising that when examining human impacts on the environment, the
Millennium Ecosystem Assessment (MEA) focused on ecosystem services. In this section, we
draw upon this comprehensive assessment of ecosystems to pursue our arguments about
changing forms of environmental governance. The MEA (1) categorized the range of benefits
available to humans from ecosystems into “provisioning services such as food, water, timber,
and fiber; regulating services that affect climate, floods, disease, wastes, and water
quality; cultural services that provide recreational, aesthetic, and spiritual benefits;
and supporting services such as soil formation, photosynthesis, and nutrient cycling.” This
assessment concludes that humans have altered ecosystem services more comprehensively in
the past half century than in any previous comparable period. Although these alterations in the
relationships between humans and ecosystems have led to substantial net gains in economic
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development and well-being, 60% of ecosystem services are being degraded or used
unsustainably. Not only are current use and management patterns unsustainable, they are
increasing the likelihood of nonlinear and irreversible changes, such as disease emergence,
fisheries collapse, alterations in water quality, and regional climate shifts. Finally, the costs of
ongoing changes are being borne disproportionately by the poor, thereby contributing to
growing disparities (1).
To address these changes, the MEA evaluates a range of potential responses and focuses
especially on those that would (a) lead to institutional changes and governance patterns that
can manage ecosystems effectively, (b) align market incentives better with the real costs of
environmental services, (c) focus on particular social behavioral obstacles to better utilization of
ecosystems, (d) promote more efficient technologies, (e) provide better knowledge about what
is happening to ecosystems, and (f) improve the efficacy of environment-related decision
making. Throughout the discussion of these responses, it is evident that the authors of the MEA
simultaneously define the terrain of environmental governance quite narrowly and extremely
broadly. They identify a specific set of responses, those having to do with institutional and
governance-related changes, as properly the domain of environmental governance. Such
responses include the integration of ecosystem goals into existing sectoral strategies, for
example, in the poverty reduction strategies encouraged by the World Bank, increased
emphasis on international environmental agreements and target setting, and greater
accountability of environmental decision making.
But they treat environmental governance too narrowly in restricting its scope to specifically
institutional responses. In fact, the entire set of responses they identify in relation to markets,
social behaviors, technological innovation, and monitoring capacity is contingent on changes in
governance. Indeed, without comprehensive changes in contemporary national policies, the
basis on which market exchanges are organized, and the incentives on which individuals act,
there is little reason to think that the real costs of negative environmental outcomes will be
incorporated into economic decision making. Similar arguments are not difficult to advance in
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relation to desired technological changes, social behaviors, or cultural processes. Although we

may, in part as a result of a particular division of social-scientific labors, view the world as being
divided into economic, social, political, and cultural domains, shifts in human actions in all of
these domains require a reconfiguration of the costs and benefits of given actions. In the
absence of changes introduced through shifts in governance patterns, there is little likelihood
that humans will change their economic, political, social, or cultural behaviors.
Precisely because of the social interconnections across what we view as local, regional,
national, and global levels and what we categorize as the economic, political, social, and
cultural domains, successful environmental governance strategies will require heightened
cooperation of many different actors across these levels and domains. Thus, not only is it the
case that human beings will be able to introduce manageable changes in ecosystems only
through significant transformations in environmental governance strategies, it is also very likely
that successful outcomes will hinge on environmental governance approaches that are founded
upon heightened cooperation involving all actors in all three social locations identified in Figure
1: market, state, and community.
https://wedocs.unep.org/bitstream/handle/20.500.11822/7935/
Environmental_Governance.pdf?sequence=5&isAllowed=y
LESSON 10: International Environmental Governance

At the end of this lesson you will be able to:
1. Define what International Environmental Governance is.

2. Identify the main actors of IEG
3. Identify the elements of IEG
4. International Environmental Governance is the continuing process of interactive
decision-making in international environmental matters.
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5. It includes institutions and organizations as well as binding agreements, policy

instruments and procedures that regulate environmental protection
What is International Environmental Governance (IEG)?
In an increasingly globalized world many decisions are influenced by agreements and policies
decided at the international level. International Environmental Governance (IEG) comprises
global and regional environmental agreements; decisions and policies; as well as the
institutions that make them and the processes by which they are made. IEG is ultimately about
international processes and institutional frameworks, including financial mechanisms, that
develop and facilitate the implementation of the agreements and policy instruments that
regulate environmental protection. IEG is a broad, dynamic and complex concept that seeks to
improve the state of the environment while supporting sustainable development. IEG covers a
wide range of stakeholder and informal arrangements, such as voluntary codes of conduct for
private businesses and partnerships between governments and major groups and stakeholders,
including non-governmental organizations (NGOs).
Environmental issues may be regulated by regional or global agreements. Some issues, such as
air and watercourse pollution or protection of migratory species, may affect several States, and
would require regional actions. Other issues may concern all States, such as climate change or
the depletion of the ozone layer, raising the need for global cooperation. Even issues that may
be perceived as domestic concern might be regulated by an international agreement because of
their qualification as a common concern of humankind. An example is the protection of world
natural heritage sites. at the international level. 5 Lesson 1 | International Environmental
Governance How does IEG work? Principal actors in IEG States International organizations A
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HOW DOES INTERNATIONAL ENVIRONMENTAL GOVERNANCE

WORKS?
A State is only bound by an international legally binding obligation if it has consented to it. In
the absence of an international agreement in force or a binding rule of general international
law, there is no over-arching international body or institution that has the right or authority to
impose an international obligation upon a State.
International cooperation is often in a State’s own interest when it comes to environmental

protection. International co-operation can take many forms. It may take the form of a legally
binding instrument, such as a treaty, when there is a need for clear and strict rules to regulate
an activity (hard law). It can also be a policy instrument, such as a declaration, which is not
legally binding but imposes a political or moral obligation on States to act in a certain manner
(soft law).
Over the last 30 years there has been a great increase in such binding and non-binding
instruments as States respond to emerging environmental challenges.
PRINCIPAL ACTORS IN INTERNATIONAL ENVIRONMENTAL GOVERNANCE
1. States
States are the primary subjects of international law. They have the capacity to conclude treaties
and to make claims with regard to breaches of international law. States’ action is the most
fundamental part of IEG.
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2. International Organization
The term ‘international organization’ refers to intergovernmental organizations (IGOs). They are
increasingly accepted as subjects of international law. Intergovernmental organizations are
established by international agreements between States.
These agreements determine the organization’s legal personality, mandate, purpose, and
objectives. An IGO’s competence to participate in treaty-making and to claim certain rights can
only go as far as States have empowered it to do (e.g. European Union).
Various IGOs working in other fields have included environmental issues in their work to reach
their objectives, due to the strong interconnection and mutual dependence on environmental
protection, as well as the importance of a functioning environment for development, human
well-being, and other objectives of international cooperation.
The most prominent example of an IGO that was not founded to work on the conservation of
nature, but which has been of major importance to IEG, is the United Nations.
IGOs may be established at the global level with membership open to all the nations of the
world as far as they comply with membership criteria and after approval by a general assembly
or similar body. They may also be created on a regional or sub-regional level, with membership
restricted to those countries located in certain geographical areas (e.g. European Union, African
Union).
3. Major Groups and other stakeholders (MGoS)

Since the first United Nations Conference on Environment and Development in 1992 - known as
the Earth Summit, it was recognized that achieving sustainable development would require the
active participation of all sectors of society and all types of people. Agenda 21, adopted at the
Earth Summit, drew upon this sentiment and formalized nine sectors of society as the main
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channels through which broad participation would be facilitated in UN activities related to

sustainable development. These are officially called “Major Groups” and include the following
sectors:
 Women
 Children and Youth
 Indigenous Peoples
 Non-Governmental Organizations
 Local Authorities
 Workers and Trade Unions
 Business and Industry
 Scientific and Technological Community
 Farmers
 MGoS continue to demonstrate a high level of engagement with intergovernmental
processes at the UN. The coordination of their input to intergovernmental processes on
sustainable development has been led by UNDESA/Division for Sustainable
Development (DSD).
 Member States ultimately decide upon the modalities of participation of MGoS. Thus,
the engagement and participation of MGoS in intergovernmental processes related to
sustainable development varies depending on the particular sustainable development
topic under discussion.
Elements Of International Environmental Governance
International law-making and policy initiation The international environmental law-making

process begins when two or more subjects of international law (States and/or IGOs) identify an
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environmental issue which in their view requires concerted international action. The States
then agree on a forum or institution for their negotiations.
For a global issue, the UN may be the institutional framework. For regional concerns, a forum of
a regional organization might be more appropriate. If the negotiations are successful, an agreed
text is adopted by the States and signed by their representatives. States then undertake their
own national procedures to ratify the treaty. After a certain period specified in the treaty, it
enters into force and becomes binding upon States parties
States may decide that an issue is better addressed by a soft law instrument. In such case, they
may use one of the existing structures to decide on a declaration or develop guidelines, codes
of conduct or global plans or actions. Sometimes, these soft law instruments may be further
developed over time and eventually form the basis of a treaty.
Implementation of International Environmental Law
States are responsible for implementing international law at the national level. National
governments must give effect to their treaty obligations through their national law and policy.
For example, to fulfill their obligations resulting from a species-protecting convention, such as
Convention on International Trade on Endangered Species (CITES), States may need to enact a
law to authorize a national body to issue permits or to prohibit the import into the country of
protected specimens without a license.
Each Multilateral Environmental Agreement (MEA) establishes an institutional structure to

allow Parties to regularly meet to discuss the implementation of the MEA and assist with
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developing it further, for example by adopting non-legally binding decisions to provide

guidance to Parties in the implementation of their obligations.
To enable and encourage States to implement the commitments of MEAs, international funding
agencies provide financial assistance, especially to developing countries.
International mechanisms to ensure compliance and enforcement
IEG also foresees the mechanisms to address compliance and enforcement of international
environmental law. Compliance with and enforcement of MEA obligations raises a number of
difficult issues.
The Guidelines on Compliance with and Enforcement of Multilateral Environmental Agreements

(UN Environment Programme) provide a useful distinction between the terms compliance and
enforcement at international and national levels. If a State persistently fails to implement its
international obligations, there are only limited mechanisms for enforcing compliance at the
international level.
Cases of non-compliance are frequently settled by negotiation and compromise among the
Parties to a MEA. The most important fora for such negotiations are the regular meetings of the
Parties, often referred to as the Conference of the Parties (COP). A COP offers an opportunity to
discuss and resolve differences, provide guidance on interpretation as well as adopt specific
mechanisms to deal with compliance issues, such as compliance committees.
These approaches are a good mechanism to put pressure on State vis-à-vis their obligations and
reputation within the international community. States may decide that an issue is better
addressed by a soft law instrument. In such cases, they may use one of the existing structures
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to decide on a declaration or develop guidelines, codes of conduct, or global plans or actions.

Sometimes, these soft law instruments may be further developed over time and eventually
form the basis of a treaty.
Fundamental principles of good environmental governance
It is through good governance that sustainable development can be achieved in a fair and
effective manner. Good governance includes:
Participation: Good governance needs to be participatory. Participation can happen directly or

through legitimate intermediate institutions or representatives. It includes the obligation of
providing information. The rights of free association and freedom of expression are
fundamental to participation.
Rule of law: Good governance requires fair legal frameworks that are enforced impartially. The
judiciary and executive powers need to be impartial and incorruptible.
Transparency: Transparency means that the decision-making processes, as well as the

enforcement of decisions, follow rules and regulations. In addition, information needs to be
freely available and directly accessible to those who will be affected by such decisions and their
enforcement. Information needs to be provided in an easily understandable form and through
appropriate media that reaches the people concerned.
Responsiveness: Good governance requires that institutions and processes try to respond to all
stakeholders within a reasonable timeframe.
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Consensus-oriented: Good governance requires that different interests within the society be
taken into account and that decisions follow the objective of reaching a broad consensus on
what is in the best interest of the whole community.
Equity and inclusiveness: Good governance does not only serve the interests of the
mainstream of society, but includes also its most vulnerable and minority groups.
Effectiveness and efficiency: Good governance means that processes and institutions produce
results that meet the needs of society while making the best use of resources at their disposal.
The concept of efficiency in the context of good governance also covers the sustainable use of
natural resources and the protection of the environment.
Accountability: Accountability is a key requirement of good governance. Governmental

institutions, but also the private sector and civil society organizations, must be accountable to
those who will be affected by their decisions or action

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College of Business Administration Education

2nd Floor, SS Building

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed Learning

Course/Subject: BUS 1 - Good Governance and Social Responsibility

Name of Teacher: J OAN LOUISE CARBONELL

THIS SIM/SDLMANUAL ISADRAFT VERSION ONLY; NOTFOR

Bahr 213- good governance and social responsibility

Lesson 1. THEORIES OF CORPORATE GOVERNANCE

"New economy" called "post-modern", "post-industrial", "post-capitalist", "post-structural", and "post-

2. Debating corporate governance theories

2.1 Agent Theory

The agency theory can be represented in graphical form as follow:

2.2 Hazard Moral Theory

2.3 Stewardship Theory

Steward theory model could be represented in graphical form as follows:

2.4 Stakeholders Theory

In the graph below, we design the Stakeholder Theory Model as follows:

2.5. Transaction Cost Theory

2.6 Resource Dependency Theory

2.7 Political Theory

2.8 Ethics Theories

2.9 Theory of Information Asymmetry

2.10 Theory of Efficient Markets

Borlea, Sorin Nicolae, PhD; Achim, Monica-Violeta, PhD.

Lesson 2: Introduction to Good Governance

CHARACTERISTICS OF GOOD GOVERNANCE

Equity and inclusiveness

Effectiveness and efficiency

institutional stakeholders. Who is accountable to whom varies depending on whether decisions

organization or an institution is accountable to those who will be affected by its decisions or

LESSON 3: SOCIAL RESPONSIBILITY

What Is Social Responsibility?

Social responsibility means that businesses, in addition to

What is Corporate Social Responsibility?

Understanding Social Responsibility

Additionally, more investors and consumers are factoring in a company's commitment

In general, social responsibility is more effective when a company takes it on

Social Responsibility in Practice

The International Organization for Standardization (ISO) emphasizes that a business's

societal and environmental issues is a critical factor in operating efficiently and

Both companies purchase Fair Trade Certified ingredients to manufacture their

The key ways a company embraces social responsibility include philanthropy,

Criticism of Corporate Social Responsibility

Not everyone believes that businesses should have a social conscience.

TYPES OF CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is traditionally broken into four categories: environmental,

Environmental responsibility refers to the belief that organizations should behave in as

Companies that seek to embrace environmental responsibility can do so in several

 Reducing pollution, greenhouse gas emissions, the use of single-use plastics,

Ethical responsibility is concerned with ensuring an organization is operating in a fair

In addition to acting as ethically and environmentally friendly as possible, organizations

BENEFITS OF CORPORATE SOCIAL RESPONSIBILITY

LESSON 4: CORPORATE GOVERNANCE

CONCEPT OF CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY

 The concept of corporate responsibility is essentially about ensuring a

MAJOR DISTINCTION BETWEEN CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY

FROM RELATIONSHIP TO ACCOUNTABILITY

Relationship – While corporate responsibility strives to forge relationships, corporate