Transcript HERE

Alpha Pi Mu
Business Ethics Presentation
The Myths of Business and Ethics
Prof. Mulligan
Nov. 30, 2006
Slide 1
What’s the Goal
Economic
Legal
Normative
Slide 2
Myth # 1: The Law
• The law requires business leaders
to maximize short-term profits for
shareholders, even if this means
injuring other “stakeholders.”
Slide 3
Corporate Structure
Shareholder Shareholder
Shareholder
Shareholder
Shareholder
Limited rights and duties
•Voted in by shareholders to
represent their interests.
•Oversight Duties/Major
Transactions
Board of
Directors
•Accountable to Shareholders
•Perform day-to-day management
of Corporation directly or via
subordinates.
CEO
Slide 4CFO
COO
G.C.
•Accountable to Board
Etc.
Duty to Maximize Profits?
• American Law Institutes
Principles:
•“with a view to enhancing corporate
profit and shareholder gain.” In the
long term
•Must follow law
•May consider ethical considerations
•May make charitable donations
Slide 5
Business Judgment Rule
• As the Delaware Supreme Court puts it:
“An acknowledgment of the managerial
prerogatives of . . . directors . . . . It is a
presumption that in making a business
decision the directors of a
corporation acted on an informed
basis, in good faith and in the honest
belief that the action taken was in the
best interests of the company.”
Aronson v. Lewis, 473 A.2d 805, 812
(Del. 1984).
Slide 6
Constituency Statutes --- N.Y. Bus.
Corp. Law § 717
(b) In taking action . . . a director shall be entitled to consider,
without limitation,
(1) both the long-term and the short-term interests of the
corporation and its shareholders and
(2) the effects that the corporation`s actions may have in the
short-term or in the long-term upon any of the following:
(i) the prospects for potential growth, development,
productivity and profitability of the corporation;
(ii) the corporation`s current employees;
(iii) the corporation`s retired employees and other
beneficiaries . . . .
(iv) the corporation`s customers and creditors; and
(v) the ability of the corporation to provide, as a going
concern, goods, services, employment opportunities and
employment benefits and otherwise to contribute to the
communities in which it does business.
Slide 7
Myth # 2: Economics
• Shareholders desire profit
maximization at all costs.
Slide 8
Shareholder Value
• Prof. Greenwood argues that
shareholders are real people and
care about much more than merely
increased profits.
Slide 9
Triple Bottom Line
• John Elkington
coined this term
• The idea is that
stakeholders (and
thus the firm itself)
will value a firm via
three functions:
– Economic
– Social
– Environmental
Slide 10
Novo Nordisk
• How might this be
done in a firm?
• Novo Nordisk
(diabetes cures) sees
its business model this
way.
• Thus it issues Social
and Environmental
statements like a
financial statement
Slide 11
Go Shopping in Ann Arbor
• Note how many businesses market
on a “good business” motif.
Slide 12
Myth # 3: Ethics
• “East is East and West is West and
never the ‘tween shall meet.” --Kipling
• Business decisions are not moral
decisions and moral decisions are
always anti-business.
Slide 13
Problems for Legal Regimes
Christopher Stone, some thirty years ago,
leveled a critique of legally imposed
corporate social performance regimes
arguing that they:
(1) react only after a problem had occurred,
(2) cost too much in policing and enforcement,
(3) attempt to frame societal values in legalese,
and
(4) focus upon legal duties to the detriment of
moral aspirations.
Christopher D. Stone, Where the Law Ends: The Social Control
of Corporate Behavior (1975)
Slide 14
If not Law, what?
What “really” governs
relationships in the world of sale
of goods?
• Reputation
• Leverage
• Need to make future sales
• Wanting to be an honest broker
• Ethical constraints
Slide 15
The Myth of Amoral Leaders
• Are business leaders by and large
amoral or worse yet evil
• Willful v. Negligent
Slide 16
Nike Images: Child Labor
Slide 17
Would you?
• Business choices are human/moral
decisions.
• Your choices as a
– Consumer
– Investor
– Employee
– Manager
– Director
• All these actions are moral choices
Slide 18