Transcript Nexus-of-Contracts Theory - Mount St. Joseph University

By: Ronald F. White, Ph.D.
Professor of Philosophy
College of Mount St. Joseph
• Two Issues
– What is a corporation and what does a
manager do?
• Descriptive scientific theories
– What is a “Good” corporation and what does a
“Good” manager do?
• Prescriptive moral theories
• Questions about Corporations
• Descriptive Scientific Theories– What is a Corporation?”
• Social science
– Psychology, Sociology, Political Science, Economics
• Biology
– Evolutionary biology
• Prescriptive Moral Theories– What is a “good corporation?”
• Teleological: “good consequences”
• Deontological: “rights-based”
• Virtue-Based: “human excellence”
• The Moral Landscape
– Relationship between “Descriptive Facts” and “Prescriptive
Values”
– Moral Theory
• Rights-Based (Enlightenment Deontology)
• Consequentialism (Teleology: egoism, utilitarianism))
• Virtue-Based (Aristotelian/Judeo-Christian)
• The “Is-Ought Gap?”
– Descriptive Egoism and/or Altruism
• Is there a naturalistic foundation for altruistic cooperative human
behavior or is it solely the product of social learning?
– Prescriptive Egoism and/or Altruism
• Is altruistic cooperative human behavior “Good” and if so, “ought it be
preserved and or cultivated?
• Legality v. Morality
– Liberal (Kant: “good citizen” vs. “good person”)
– Communitarian (good citizen=good person)
• Theory of the Firm
– Nexus-of-Contracts Theory
• Stockholder theory (Locke)
• Stakeholder theory (Kant)
– Agency Theory
• Orthodoxy is business management and
business ethics is currently occupied by a
deontological “Nexus-of-Contracts
Theory,” whereby: “Each constituency or
stakeholder group bargains with the firm
over a set of rights that will protect the firm
specific assets that it makes available for
production.” (Boatright p. 1837)
• Human Nature
– Individuals, Rationality, Self Interest, Free Will
• Classical Liberalism (Locke-Nozick)
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Life, Liberty, and Property
Persons/Property
Invisible Hand
Role of Government in Human Affairs
Natural and Artificial Monopolies
• Obligations to Stockholders
– Corporations as “Money Machines”
• Agency Theory
• Human Nature
– Individuals, Rationality, Self Interest, Free Will
• Welfare Liberalism (Kant-Rawls)
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Life, Liberty, and Property
Persons/Property
Invisible Hand
Role of Government in Human Affairs
• Natural Advantage and Rights
– Corporations as Persons
– Stakeholders
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Stockholders
Employees
Consumers
Society
Government
• Machiavellian Background
• Jensen and Meckling: “Theory of the Firm” (1976)
– Conflict of interest between contracting parties
• (shareholders, corporate managers, debt managers etc.)
• Conceptual Framework–
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Contractual Obligations
Trust
Principals (owners)
Agents (managers)
Behavior of Principles and Agents
• Delegation of Authority from Principle to Agent
– Incentives and Monitoring-
• Problem of Self-Interest• Agency and Moral hazard: Who bears cost? Who enjoys
Benefits?
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• Moral Relationships Between:
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Corporate Agents and Stockholders
Corporations and Employees
Corporations and Society
Corporations and other Corporations
Corporations and Government
• Regulation of Corporations
– Competition
– Morality
» Utility
» Beneficence
» Non-Maleficence
» Justice