This chapter contains sections titled: Financial markets Financial services Financial management.

The claim that managers have a fiduciary duty to shareholders to run the corporation in their interests is generally supported by two arguments: that shareholders are owners of a corporation and that they have a contract or agency relation with management. The latter argument is used by Kenneth E. Goodpaster, who rejects a multi-fiduciary, stakeholder approach on the grounds that the shareholder-management relation is “ethically different” because of its fiduciary character. Both of these arguments provide an inadequate basis for the (...) fiduciary duties of officers and directors of corporations. The basis is to be found, rather, in considerations of public policy, a point that was established in the Dodd-Berle exchange of the 1930s. This conclusion also shows the inadequacy of Goodpaster’s solution to the so-called stakeholder paradox, and an alternative solution to the paradox is presented. (shrink)

The claim that managers have a fiduciary duty to shareholders to run the corporation in their interests is generally supported by two arguments: that shareholders are owners of a corporation and that they have a contract or agency relation with management. The latter argument is used by Kenneth E. Goodpaster, who rejects a multi-fiduciary, stakeholder approach on the grounds that the shareholder-management relation is “ethically different” because of its fiduciary character. Both of these arguments provide an inadequate basis for the (...) fiduciary duties of officers and directors of corporations. The basis is to be found, rather, in considerations of public policy, a point that was established in the Dodd-Berle exchange of the 1930s. This conclusion also shows the inadequacy of Goodpaster’s solution to the so-called stakeholder paradox, and an alternative solution to the paradox is presented. (shrink)

Abstract:The term stakeholder is a powerful one. This is due, to a significant degree, to its conceptual breadth. The term means different things to different people and hence evokes praise or scorn from a wide variety of scholars and practitioners. Such breadth of interpretation, though one of stakeholder theory’s greatest strengths, is also one of its most prominent theoretical liabilities. The goal of the current paper is like that of a controlled burn that clears away some of the underbrush of (...) misinterpretation in the hope of denying easy fuel to the critical conflagration that would raze the theory. We aim to narrow its technical meaning for greater facility of use in management and organizational studies. By elaborating a number of common misinterpretations – critical and friendly – of the theory, we hope to render a stronger and more convincing theory as a starting place for future research. (shrink)

Stakeholder theorists have generally misunderstood the nature and ramifications of the fiduciary responsibilities that corporate directors owe their stockholders. This fiduciary duty requires the exercise of care, loyalty, and honesty with regard to the financial interests of stockholders. Such obligations do not conflict with the normative goals of stakeholder theory, nor, after a century of case law that includes Dodge Bros. v. Ford, do fiduciary responsibilities owed shareholders prevent managerial policies that are generous orsensitive to other corporate stakeholders. The common (...) law recognizes a multitude of legal relationships between various corporateconstituents, and fiduciary duties are only a subset of the obligations that arise from these relationships. This article argues that statuteand case law can bring comparable legal protection to constituents other than stockholders, and suggests ways that these protectionsmight be further strengthened. Implications for management education are also discussed. (shrink)

The primary appeal of stakeholder theory in business ethics derives from its promise to help solve two large and often morally difficult problems: (1) how to manage people fairly and efficiently and (2) how to determine the extent of a firm's moral responsibilities beyond its obligations to enhance its profits and economic value. This article investigates a variety of conceptual quandaries that stakeholder theory faces in addressing these two general problems. It argues that these quandaries pose intractable obstacles for stakeholder (...) theory which prevent it from delivering on its large promises. Acknowledging that various versions of stakeholder theory have made a contribution in elucidating the complex nature of firms and business decision making, the article argues that it is time to move on. More precise explications of the nature of modern firms focusing on the application of basic moral principles to different business contexts and situations are likely to prove more accurate and useful. (shrink)

This paper contrasts the normative foundations of the stakeholder and shareholder theories of the firm. It demonstrates how the shareholder theory of the firm appears to have at least as much normative support as stakeholder theory and suggests that a way forward may be for a variant of pure shareholder theory to emerge.

This paper contrasts the normative foundations of the stakeholder and shareholder theories of the firm. It demonstrates how the shareholder theory of the firm appears to have at least as much normative support as stakeholder theory and suggests that a way forward may be for a variant of pure shareholder theory to emerge.

Stakeholder theorists have generally misunderstood the nature and ramifications of the fiduciary responsibilities that corporate directors owe their stockholders. This fiduciary duty requires the exercise of care, loyalty, and honesty with regard to the financial interests of stockholders. Such obligations do not conflict with the normative goals of stakeholder theory, nor, after a century of case law that includes Dodge Bros. v. Ford, do fiduciary responsibilities owed shareholders prevent managerial policies that are generous orsensitive to other corporate stakeholders. The common (...) law recognizes a multitude of legal relationships between various corporateconstituents, and fiduciary duties are only a subset of the obligations that arise from these relationships. This article argues that statuteand case law can bring comparable legal protection to constituents other than stockholders, and suggests ways that these protectionsmight be further strengthened. Implications for management education are also discussed. (shrink)

Critics attack normative ethical stakeholder theory for failing to recognize the special moral status of shareholders that justifiesthe fiduciary duties owed to them at law by managers. Stakeholder theorists reply that there is nothing morally significant about shareholders that can underwrite those fiduciary duties. I advance an argument that seeks to demonstrate both the special moral status of shareholders in a firm and the concomitant moral inadequacy of stakeholder theory. I argue that (i) if some relations morally requirefiduciary duties, and (...) (ii) the shareholder-manager relation possesses the features that make fiduciary duties morally necessary to thoserelations, then (iii) stakeholder theory is morally lacking. (shrink)

In the canonical view of the corporation, management is the agent of the owners of the corporation-the stockholders-and, as such, has a fiduciary duty to manage the corporation in their best interests. Most business ethicists condemn this arrangement as morally indefensible because it fails to respect the right of other corporate constituencies or “stakeholders” to self-deterrnination. By contrast, the modern agency theory of the firm provides a defense of this arrangement on the grounds that it is the result of stakeholders’ (...) right to self-determination. This paper uses the exarnple of managers’ fiduciary duty to stockholders to argue that different normative judgrnents often mask empirical disagreements. (shrink)

In the canonical view of the corporation, management is the agent of the owners of the corporation-the stockholders-and, as such, has a fiduciary duty to manage the corporation in their best interests. Most business ethicists condemn this arrangement as morally indefensible because it fails to respect the right of other corporate constituencies or “stakeholders” to self-deterrnination. By contrast, the modern agency theory of the firm provides a defense of this arrangement on the grounds that it is the result of stakeholders’ (...) right to self-determination. This paper uses the exarnple of managers’ fiduciary duty to stockholders to argue that different normative judgrnents often mask empirical disagreements. (shrink)

In this paper, we examine critically the notion of “Triple Bottom Line” accounting. We begin by asking just what it is that supporters of the Triple Bottom Line idea advocate, and attempt to distil specific, assessable claims from the vague, diverse, and sometimescontradictory uses of the Triple Bottom Line rhetoric. We then use these claims as a basis upon which to argue (a) that what issound about the idea of a Triple Bottom Line is not novel, and (b) that what (...) is novel about the idea is not sound. We argue on bothconceptual and practical grounds that the Triple Bottom Line is an unhelpful addition to current discussions of corporate social responsibility. Finally, we argue that the Triple Bottom Line paradigm cannot be rescued simply by attenuating its claims: the rhetoric isbadly misleading, and may in fact provide a smokescreen behind which firms can avoid truly effective social and environmental reporting and performance. (shrink)

Abstract: In this article, I offer a proposal to clarify what I believe is the proper relation between value maximization and stakeholder theory, which I call enlightened value maximization. Enlightened value maximization utilizes much of the structure of stakeholder theory but accepts maximization of the long-run value of the firm as the criterion for making the requisite tradeoffs among its stakeholders, and specifies long-term value maximization or value seeking as the firm’s objective. This proposal therefore solves the problems that arise (...) from the multiple objectives that accompany traditional stakeholder theory. I also discuss the Balanced Scorecard, which is the managerial equivalent of stakeholder theory, explaining how this theory is flawed because it presents managers with a scorecard that gives no score—that is, no single-valued measure of how they have performed. Thus managers evaluated with such a system (which can easily have two dozen measures and provides no information on the tradeoffs between them) have no way to make principled or purposeful decisions. The solution is to define a true (single dimensional) score for measuring performance for the organization or division (and it must be consistent with the organization’s strategy), and as long as their score is defined properly, (and for lower levels in the organization it will generally not be value) this will enhance their contribution to the firm. (shrink)

This paper raises a challenge for those who assume that corporate social responsibility and good corporate governance naturally go hand-in-hand. The recent spate of corporate scandals in the United States and elsewhere has dramatized, once again, the severity of the agency problems that may arise between managers and shareholders. These scandals remind us that even if we adopt an extremely narrow concept of managerial responsibility – such that we recognize no social responsibility beyond the obligation to maximize shareholder value – (...) there may still be very serious difficulties associated with the effective institutionalization of this obligation. It also suggests that if we broaden managerial responsibility, in order to include extensive responsibilities to various other stakeholder groups, we may seriously exacerbate these agency problems, making it even more difficult to impose effective discipline upon managers. Hence, our central question: is a strong commitment to corporate social responsibility institutionally feasible? In searching for an answer, we revisit the history of public management, and in particular, the experience of social-democratic governments during the 1960s and 1970s, and their attempts to impose social responsibility upon the managers of nationalized industries. The results of this inquiry are less than encouraging for proponents of corporate social responsibility. In fact, the history of public-sector management presents a number of stark warnings, which we would do well to heed if we wish to reconcile robust social responsibility with effective corporate governance. (shrink)

One of the most influential ideas in the field of business ethics has been the suggestion that ethical conduct in a business context should be analyzed in terms of a set of fiduciary obligations toward various “stakeholder” groups. Moral problems, according to this view, involve reconciling such obligations in cases where stakeholder groups have conflicting interests. The question posed in this paper is whether the stakeholder paradigm represents the most fruitful way of articulating the moral problems that arise in business. (...) By way of contrast, I outline two other possible approaches to business ethics: one, a more minimal conception, anchored in the notion of a fiduciary obligation toward shareholders; and the other, a broader conception, focused on the concept of market failure. I then argue that the latter offers a more satisfactory framework for the articulation of the social responsibilities of business. (shrink)

One of the most influential ideas in the field of business ethics has been the suggestion that ethical conduct in a business contextshould be analyzed in terms of a set of fiduciary obligations toward various “stakeholder” groups. Moral problems, according to this view, involve reconciling such obligations in cases where stakeholder groups have conflicting interests. The question posed in this paper is whether the stakeholder paradigm represents the most fruitful way of articulating the moral problems that arise in business. By (...) way of contrast, I outline two other possible approaches to business ethics: one, a more minimal conception, anchored in the notion of a fiduciary obligation toward shareholders; and the other, a broader conception, focused on the concept of market failure. I then argue that the latter offers a more satisfactory framework for the articulation of the social responsibilities of business. (shrink)

In the economic literature on the firm, especially in the transaction-cost tradition, a sharp distinction is drawn between so-called “market transactions” and “administered transactions.” This distinction is of enormous importance for business ethics, since market transactions are governed by the competitive logic of the market, whereas administered transactions are subject to the cooperative norms that govern collective action in a bureaucracy. The widespread failure to distinguish between these two types of transactions, and thus to distinguish between adversarial and non-adversarial relations, (...) has led many business ethicists to develop a “uniform” moral code. Yet in market transactions, the checks and balances built into the system of commercial exchange are such as to permit more instrumental forms of behavior. In administered transactions, by contrast, these checks and balances are absent, and thus the institutional context calls for much greater exercise of moral restraint. In this paper, I begin the task of developing an adversarial ethic for business. According to this view, the competitive environment licenses a greater range of “self-interested” behavior, but also imposes its own constraints on the strategies that firms may adopt in the pursuit of their interests. (shrink)

In the economic literature on the firm, especially in the transaction–cost tradition, a sharp distinction is drawn between so-called “market transactions” and “administered transactions.” This distinction is of enormous importance for business ethics, since market transactions are governed by the competitive logic of the market, whereas administered transactions are subject to the cooperative norms that govern collective action in a bureaucracy. The widespread failure to distinguish between these two types of transactions, and thus to distinguish between adversarial and non-adversarial relations, (...) has led many business ethicists to develop a “uniform” moral code. Yet in market transactions, the checks and balances built into the system of commercial exchange are such as to permit more instrumental forms of behavior. In administered transactions, by contrast, these checks and balances are absent, and thus the institutional context calls for much greater exercise of moral restraint. In this paper, I begin the task of developing an adversarial ethic for business. According to this view, the competitive environment licenses a greater range of “self-interested” behavior, but also imposes its own constraints on the strategies that firms may adopt in the pursuit of their interests. (shrink)

Much has been written about stakeholder analysis as a process by which to introduce ethical values into management decision-making. This paper takes a critical look at the assumptions behind this idea, in an effort to understand better the meaning of ethical management decisions.A distinction is made between stakeholder analysis and stakeholder synthesis. The two most natural kinds of stakeholder synthesis are then defined and discussed: strategic and multi-fiduciary. Paradoxically, the former appears to yield business without ethics and the latter appears (...) to yield ethics without business. The paper concludes by suggesting that a third approach to stakeholder thinking needs to be developed, one that avoids the paradox just mentioned and that clarifies for managers (and directors) the legitimate role of ethical considerations in decision-making. (shrink)

This paper contrasts the normative foundations of the stakeholder and shareholder theories of the firm. It demonstrates how the shareholder theory of the firm appears to have at least as much normative support as stakeholder theory and suggests that a way forward may be for a variant of pure shareholder theory to emerge.

The purpose of this paper is to enter the conversation about stakeholder theory with the goal of clarifying certain foundational issues. I want to show, along with Boatright, that there is no stakeholder paradox, and that the principle on which such a paradox is built, the Separation Thesis, is nicely self-serving to business and ethics academics. If we give up such a thesis we find there is no stakeholder theory but that stakeholder theory becomes a genre that is quite rich. (...) It becomes one of many ways to blend together the central concepts of business with those of ethics. Rather than take each concept of business singly or the whole of “business” together and hold it to the light of ethical standards, we can use the stakeholder concept to create more fine-grained analyses that combine business and ethics; or more simply, we can tell many more, and more interesting, stories about business. (shrink)

Tocqueville pessimistically predicted that liberty and equality would be incompatible ideas. Robert Dahl, author of the classic _A Preface to Democratic Theory,_ explores this alleged conflict, particularly in modern American society where differences in ownership and control of corporate enterprises create inequalities in resources among Americans that in turn generate inequality among them as citizens. Arguing that Americans have misconceived the relation between democracy, private property, and the economic order, the author contends that we can achieve a society of real (...) democracy and political equality without sacrificing liberty by extending democratic principles into the economic order. Although enterprise control by workers violates many conventional political and ideological assumptions of corporate capitalism as well as of state socialism. Dahl presents an empirically informed and philosophically acute defense of "workplace democracy." He argues, in the light of experiences here and abroad, that an economic system of worker-owned and worker-controlled enterprises could provide a much better foundation for democracy, political equality, and liberty than does our present system of corporate capitalism. (shrink)