Transcript Business Ethics

Stockholder Theory
Milton Friedman: "The Social
Responsibility of Business is to
Increase its Profits."
Description
• 1) Managers have a primary fiduciary duty to
stockholders.
• "That (fiduciary) responsibility is to conduct the business
in accordance with their desires, which generally will be
to make as much money as possible while conforming to
the basic rules of the society. " SRB
• "... there is one and only one social responsibility of
business - to use its resources and engage in activities
designed to increase its profits so long as it stays within
the rules of the game, which is to say, engages in open
and free competition, without deception and fraud"
Capitalism and Freedom p. 133.
Description
• 2) Profit maximization as highest practical
and moral goal
Coase: The nature of the firm is to
minimize transactions costs. "The Nature
of the Firm"
Practical Origins (Profit)
• 1) Utility maximization
– 1) Economic models of the firm
– 2) Homo Economicus: View of man leads to
view of the firm and moral duty.
Moral Origins
• 2) Property Rights Theories
Hume
– Conventions for property, trade and contract
are a spontaneous order created by the
interaction of self-interested individuals.
Locke
- Natural rights of life, bodily integrity, liberty,
and property
Problems
• 1) Utility maximization can conflict with
property rights.
• 2) Smith’s “self-interest” may be utility
maximization, but it is not profit
maximization.
• 3) Rights are a necessary, not sufficient,
element of Business Ethics. There is more
to ethics than rights.
Stakeholder Theory
• Description
– Based on "democratic" conception of
business: That option is right on which a
consensus can be reached.
Who gets a moral vote?
– Stakeholder: Any group or individual which
can affect or is affected by an organization.
Stakeholders
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Customers
Suppliers
Employees
Financiers (Includes Stockholders)
Community
Environment
Fair Representation as Moral Goal
• Different ethical theories define fairness
making for different stakeholder theories
– Private Property and Political Liberalism
– Doctrine of Fair Contracts, (Rawls veil of
Ignorance)
– Feminist Standpoint Theory, (Caring and
Connection)
– Ecological Principles
Economic Origins
“Invisible Hand” Doctrine fails because of:
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Externalities
Tragedy of the Commons
Free Rider Problems
Moral Hazard
Monopoly
Philosophical Origins
• Kant
– Political decision making procedures show
fundamental moral respect for persons.
• Utilitarianism
– Political decision making leads to better
outcomes, that make more people happier,
than current economic methods of decision
making.
Problems
• Replaces business decision making with
political decision making.
• Attempt to do ethics without the concept of
rights.
Poletown Case
• "Most of us believe that management at General
Motors owed it to the people of Detroit and to the
people of Poletown to take their (non-fiduciary)
interests very seriously, to seek creative
solutions to the conflict, to do more than use or
manipulate them in accordance with GM's needs
only." (Goodpaster, "Business Ethics and
Stakeholder Analysis", BEQ, 1 January 1991,
pp. 53-73)
• Kelo v. New London
Conclusion
• Stakeholder Theory is an attempt to do
Business Ethics without rights.
• This is a contradiction. There is no
business without rights.
• Therefore: Stakeholder Theory is not a
theory of business ethics.
The Purpose of Business
• Description
– The purpose of business is to produce a good
or service for trade.
– Managerial Stakeholder theory is relevant.
– Profit is a measure of success and necessary,
but not sufficient, element of business.
Origins
• Rights Theories
• Importance of individual choice
• Aristotle and Flourishing
Applications
• Discrimination and BFOQ
• What’s wrong with nepotism
• Requirements for full/relevant information
Explanatory Power
• Housing Bubble and its collapse
– Fannie Mae, Freddie Mac, and Fed. Gov.
– Is business its brother’s keeper
• Enron
– Gas and hot air
• Tycho
– My piggy bank
Conclusion (draft)
• I am right.
Conclusion
• Stockholder Theory
• Stakeholder Theory
• The Purpose of Business