LONDON – There is a real danger that corporate leaders, making decisions that seem correct behind closed doors, end up being tone-deaf in a soundproof room. When the doors open and the decisions are announced, it is clear that board members are often deeply disconnected from the world’s economic and social realities.
Consider executive pay packages. Board remuneration committees can explain them logically with complex formulas to justify them, and yet often they are completely out of line with common sense.
Board members need to rethink what they are doing in those rooms, and here individual directors’ guiding principle should be the “veil of ignorance” proposed by the political philosopher John Rawls in his 1971 treatise A Theory of Justice. Rawls proposed the veil of ignorance as a way to derive principles of social justice to which anyone who did not know in advance their identity and position in society would consent.
How would the veil of ignorance work in a boardroom? Board directors’ role is not simply to ensure return on investment; it is also to make decisions with due consideration for the community, employees, suppliers, consumers, and even the overall economy. The decisions made in that room have an impact beyond the company, so it is not just shareholders who hold board members accountable for their choices.