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)

Corporate governance scholarship focuses on executive malfeasance, specifically its antecedents and consequences. Academic efforts primarily focus on prevention while practitioners are often left to hold firms and executives (including directors) accountable through a variety of sanctions. Even so, executive malfea­sance still occurs even in the face of the vast resources used to monitor, control, and penalize firms and executives. In this paper, we posit equity markets do not adequately penalize firms for inaccurate earnings reports. Using a sample of 129 firms (...) identified by the U.S. General Accounting Office for reporting fraudulent earnings in 10K filings, we found support for our assertion. Consequently, the one party who may benefit but escape accountability is firm shareholders. Moreover, we find little empirical evidence that the subset of firms sanctioned by the SEC is penalized more heavily than the full sample by markets at the time they report and correct their 10K filings. Our results raise serious questions whether such mana­gerial opportunism can be eradicated given the apparent lack of consequences in equity markets for investors. We also question whether the SEC is able to discern between fraud and error in financial reporting and its implications. (shrink)

This article argues that shareholder primacy cannot be defended on the grounds that there is something special about the position of shareholders that grounds a right to preferential treatment on part of management. The notions of property and contract, traditionally thought to ground such a right, are now widely recognized as incapable of playing that role. This leaves shareholder theorists with two options. They can either abandon the project of arguing for their view on broadly deontological grounds and try to (...) advance consequentialist arguments instead, or they can search for other morally relevant properties that could ground shareholder rights. The most sustained argument in the latter vein is Marcoux’s attempt to show that the vulnerability of shareholders mandates that managers are their fiduciaries. I show that this argument leads to the unacceptable conclusion that it would be unethical for corporations to make incomplete contracts with nonshareholding stakeholders. (shrink)

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)

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)

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)

Justifications and excuses are defenses that exculpate. They are therefore much more like each other than like such defenses as diplomatic immunity, which does not exculpate. But they exculpate in different ways, and it has proven difficult to agree on just what that difference consists in. In this paper I take a step back from justification and excuse as concepts in criminal law, and look at the concepts as they arise in everyday life. To keep the task manageable, I focus (...) primarily on excuses and excusing activities, distinguishing them from justifications as well as from other close relatives, in particular, forgiving and pardoning. I draw upon J.L. Austin’s classic A Plea for Excuses, but expand on his account, suggesting that we offer excuses for reasons besides those he mentions. My hope is that my examination of excuses and excusing activities will help us rethink our views on just how justifications and excuses differ, views which often are worked out without much attention to how these concepts function in everyday life and to the connection between offers of excuses and justifications and the rules of civility. (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)

This paper discusses the normative ethical theory of the business firm advanced principally by William E. Evan and R. Edward Freeman. According to their stakeholder theory, the firm should be managed for the benefit of its stakeholders: indeed, management has a fiduciary obligation to stakeholders to act as their agent. In this paper I seek to clarify the theory by discussing the concept of a stakeholder and by distinguishing stakeholder theory from two varieties of stockholder theory-I call them ‘pure’ and (...) ‘tinged.’ I argue that the distinctive claims of stakeholder theory, as contrasted with tinged stockholder theories, have been inadequately supported by argument. (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)

ABSTRACT:There is considerable overlap between the interests of business ethicists and those of political philosophers. Questions about the moral justifiability of the capitalist system, the basis of property rights, and the problem of inequality in the distribution of income have been of central importance in both fields. However, political philosophers have developed, especially over the past four decades, a set of tools and concepts for addressing these questions that are in many ways quite distinctive. Most business ethicists, on the other (...) hand, consider their field to be primarily a domain of applied ethics, and so adopt methods and conceptual frameworks developed by moral philosophers. In this paper, we discuss some of the salient differences between these two approaches, and suggest some ways in which business ethicists could benefit from taking a more “political philosophy” approach to these questions. Throughout, we underline the importance of seeking greater compatibility among the principles used in normative theorizing about markets, regulations, corporate governance, and business practices. (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 examines two issues about professionalism and business that appear at first blush to be entirely separate. The first is the question of who counts as a “professional,” and whether, in particular, business people are “professionals.” The second issue is howacknowledged professionals that regularly interact with business, such as accountants, lawyers, and physicians, can find the moral free space necessary to maintain professional integrity in the face of financial pressures. Conflicts of interest for professionals working incorporations recur with disturbing (...) regularity, and often have serious consequences. In the end I will show how both issues share a common solution. The solution involves understanding the normative function of the manager in the modern corporation, a function, I will argue, made more conspicuous by work over the last two decades done in the areas of stakeholder theory, corporate social performance (CSP), and social contract theory. The remainder of the paper is devoted to articulating these two problems and clarifying their common solution. (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)

This paper examines the role of vulnerability in the basis of business ethics by criticizing its role in giving a moral substantial character to fiduciary duties to shareholders. The target is Marcoux’s (Bus Ethics Q 13(1):1–24, 2003) argument for morally substantial fiduciary duties vis-à-vis the multifiduciary stakeholder theory. Rather than proceed to support the stakeholder paradigm, a conception of vulnerability is combined with Heath’s 2004) “market failure” view of the ethical obligations of managers as falling out of their roles as (...) professionals involved in the institution of the market. The result is the core of a theoretically defensible and managerially motivating and deployable ethic. (shrink)

A pragmatic approach to business ethics is argued for in this volume, which demonstrates the usefulness of the approach by applying it to a variety of issues. These issues are broad and far-reaching and include the relations between rational and moral//ethical decision-making, the limits of loyalty to employers, the impact of trust on business and the role of commercial public opinion polling during elections. The author also covers advertising, tobacco promotion, manufacture and marketing of armaments, concentration and taxation of wealth, (...) and the North American Free Trade Agreement. (shrink)

In four new and nine previously published essays, Joseph Heath provides a compelling new framework for thinking about the moral obligations of economic actors. The "market failures" approach to business ethics that he develops provides the basis for a unified theory of business ethics, corporate law, economic regulation, and the welfare state.

This book provides essential reading for anyone with an academic or professional interest in business ethics today.