This article argues that the misalignment of private profit-maximizing objectives with public health needs causes institutional corruption in the pharmaceutical sector and systematically leads firms to act contrary to public heath. The article analyzes how financial incentives generate a business model promoting harmful practices and explores several means of realigning financial incentives in order to foster therapeutic innovation and promote the rational use of medicines.

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)

This article offers proposed guidelines intended to protect the public interest in relationship to the advocated social responsibilities of successful entrepreneurs. The author argues that the most effective approach, then, is not preaching about obligations but, rather, establishing financial incentives for doing well by doing good. One example is the U.S. patent system. Another is a redesigned tax system that uses imposts to make socially damaging activities expensive, while reducing the financial burden on virtuous behavior.

Theories of business ethics or corporate responsibility tend to focus on justifying obligations that go above and beyond what is required by law. This article examines the curious fact that most business ethics scholars use concepts, principles, and normative methods for identifying and justifying these beyond-compliance obligations that are very different from the ones that are used to set the levels of regulations themselves. Its modest proposal—a plea for a research agenda, really—is that we could reduce this normative asymmetry by (...) borrowing from the normative framework of “regulation” to identify and justify an important range of beyond-compliance obligations. In short, we might think of “self-regulation” as a language and a normative framework with some distinct advantages over other frameworks like stakeholder theory, corporate social responsibility, corporate citizenship, and the like. These other frameworks have been under attack in the business ethics literature of late, primarily for their vagueness and their disappointing inability to distinguish clearly between genuine beyond-compliance moral obligations, on the one hand, and charitable acts that are laudable but not morally obligatory, on the other. (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)

This paper offers the concept of “justice failure,” as a counterpart to the familiar idea of market failure, in order to better understand managers’ ethical obligations. This paper takes the “market failures approach” to business ethics as its point of departure. The success of the MFA, I argue, lies in its close proximity with economic theory, particularly in the idea that, within a larger scheme of social cooperation, markets ought to pursue efficiency and leave the pursuit of equality to the (...) welfare state. As a result, the core ethical responsibility of business actors is to avoid profiting off of market failure. After reviewing this approach I challenge its emphasis on efficiency. I argue that just as we note the suboptimal efficiency of actual markets, we should also take seriously the suboptimal equality of actual welfare states. Taking this idea seriously results in a whole other set of ethical responsibilities for businesses to take into account; in addition to market imperfections and regulatory lacunae, managers should also avoid profiting from, and exacerbating, structural inequalities and injustices. I offer an outline of the kinds of injustices and inequalities that would have bearing on business ethics, and the kinds of ethical responsibilities that this approach suggests that business actors should take into account. (shrink)

Should the democratic exercise of authority that we take for granted in the realm of government be extended to the managerial sphere? Exploring this question, Christopher McMahon develops a theory of government and management as two components of an integrated system of social authority that is essentially political in nature. He then considers where in this structure democratic decision making is appropriate. McMahon examines the main varieties of authority: the authority of experts, authority grounded in a promise to obey, and (...) authority justified as facilitating mutually beneficial cooperation. He also discusses the phenomenon of managerial authority, the authority that guides nongovernmental organization, and argues that managerial authority is best regarded not as the authority of a principal over an agent, but rather as authority that facilitates mutually beneficial cooperation among employees with different moral aims. Viewed in this way, there is a presumption that managerial authority should be democratically exercised by employees. Originally published in 1994. The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905. (shrink)

Henry Hansmann has claimed we have reached the “end of history” in corporate law, organized around the “widespread normative consensus that corporate managers should act exclusively in the economic interests of shareholders.” In this paper, I examine Hansmann’s own argument in support of this view, in order to draw out its implications for some of the traditional concerns of business ethicists about corporate social responsibility. The centerpiece of Hansmann’s argument is the claim that ownership of the firm is most naturally (...) exercised by the group able to achieve the lowest agency costs, and that homogeneity of interest within the ownership group is the most important factor in achieving lower costs. He defends this claim through a study of cooperatives, attempting to show that homogeneity is the source of the competitive advantage most often enjoyed by shareholders over other constituency groups, such as workers, suppliers and customers, when it comes to exercising control over the firm. Some business ethicists, impressed by this argument, have taken it to be a vindication of Milton Friedman’s claim that profit-maximization is the only “social responsibility” of management. I would like to suggest that this conclusion does not follow, and that the “Hansmann argument” lends itself to a less minimalist view, what I refer to as a “market failures” approach to business ethics. (shrink)

The importance of business ethics is not contrdicted in any way by Adam Smith’s pointer to the fact that our “regards to our own interests” provide adequate motivation tor exchange. There are many important economic relationships other than exchange, such as the institution of production and arrangements of distribution. Here business ethics can playa major part. Even as far as exchange is concerned, business ethics can be crucially important in terms of organization and behavior, going weil beyond basic motivation.

Christopher McMahon links political theory and business ethics and thereby takes the latter to a new level of philosophical sophistication. McMahon argues that legitimate authority, political or managerial, characteristically preempts certain of one’s judgments, so that one may reasonably submit to a directive to do something that contravenes one’s principles. Authoritative preemption does not involve weighing reasons pro and con, as one who is considering breaking a promise must do: it disqualifies competing considerations.

One common justification for the pursuit of profit by business firms within a market economy is that profit is not an end in itself but a means to more efficiently produce and allocate resources. Profit, in short, is a mechanism that serves the market’s purpose of producing Pareto superior outcomes for society. This discussion examines whether such a justification, if correct, requires business managers to remain attentive to how their firm’s operation impacts the market’s purpose. In particular, it is argued (...) that the value of efficiency, despite views to the contrary, cannot be fully separated from the planning and intentions of business managers as long as those managers direct their firms in an ethically responsible fashion. This position is inspired by, and serves as a supportive clarification of Joseph Heath’s so-called “market failures approach” to business ethics. (shrink)

This paper proposes a description of the moral obligations of economic agents. It will show that a threefold division should be adopted to distinguish moral obligations applying to their interactions in the market, obligations applying to their interactions inside business firms and obligations applying to their interactions with agents outside the market. Competition might be permissible in the first case since markets are special patterns of social interactions (called adversarial schemes). They produce their benefits when agents try to satisfy exclusive (...) preferences at the expense of others. However, moral obligations inside the firm and moral obligations outside the market are of a different nature. This argument will be developed in the two first parts of this paper. In the third part, it will outline the relevant strengths of that account in relation with two popular views of economic agents’ moral obligations: the shareholder primacy view and the stakeholder theory. (shrink)

This essay articulates a crucial and neglected element of a general theory of the ethics of bureaucratic organizations, both private andpublic. The key to the approach developed here is the thesis that the distinctive ethical principles applicable to bureaucratic organizations are responses to the distinctive agency-risks that arise from the nature of bureaucratic organizations as complex webs of principal/agent relationships. It is argued that the most important and distinctive ethical principles for bureaucratic organizations express commitments on the part of bureaucrats (...) that function to reduce the agency risks that are inherent in such organizations. This approach to the ethics of bureaucratic organizations is shown to be more illuminating than those that concentrate exclusively or primarily on determining the conditions for corporate responsibility or on the idea that the ethical obligations distinctive of bureaucracies are role-derived. (shrink)