How Might a Consideration of the Management of Corporations and of the Proper Boundaries of Markets in More Relational Terms Change How We Think About the Values at Stake in Enterprise and Exchange Beyond Maximizing Profits?
Ethics, then, is as much an organizational as a personal issue. Managers who fail to provide proper leadership and to institute systems that facilitate ethical conduct share responsibility with those who conceive, execute, and knowingly benefit from corporate misdeeds.
They undertake actions that produce societal value—whether or not those actions are tied to the core functions of making and selling goods and services. Whereas the aim of financial logic is to maximize the returns on capital, be it shareholder or owner value, the thrust of institutional logic is to balance public interest with financial returns. Institutional logic should be aligned with economic logic but need not be subordinate to it. For example, all companies require capital to carry out business activities and sustain themselves. However, at great companies profit is not the sole end; rather, it is a way of ensuring that returns will continue. The institutional view of the firm is thus no more idealized than is the profit-maximizing view. Well-established practices, such as R&D and marketing, cannot be tied to profits in the short or long runs, yet analysts applaud them. If companies are to serve a purpose beyond their business portfolios, CEOs must expand their investments to include employee empowerment, emotional engagement, values-based leadership, and related societal contributions. Business history provides numerous examples of industrialists who developed enduring corporations that also created social institutions. The Houghton family established Corning Glass and the town of Corning, New York, for instance. The Tata family established one of India’s leading conglomerates and the steel city of Jamshedpur, Jharkhand. That style of corporate responsibility for society fell out of fashion as economic logic and shareholder capitalism came to dominate assumptions about business and corporations became detached from particular places. In today’s global world, however, companies must think differently.
Perhaps BP itself was morally responsible for polluting the Gulf of Mexico. Perhaps certain individuals who work at BP were. What hangs on this? According to Hasnas (2012), very little. Firms such as BP can be legally required to pay restitution for harms they cause even if they are not morally responsible for them. What ascribing agency and responsibility to firms enables us to do, according to Hasnas, is blame and punish them. But, he argues, we should not engage in this practice. Phillips (1995), by contrast, argues that in some cases no individual employee in a firm is responsible for the harm a firm causes. To the extent that it makes sense—and it often does, he believes—to assign responsibility for the harm, it must be assigned to the firm itself. On Phillips’s view, corporate moral agency makes blaming behavior possible where it would otherwise not be.
We cannot rule this out. But in the absence of evidence establishing this conclusion to be correct, we believe that shareholder welfare maximization should replace market value maximization as the proper objective of companies.
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Phillips, R. & J.D. Margolis, 1999, “Toward an Ethics of Organizations”, Business Ethics Quarterly, 9(4): 619–638.
Piker, A., 1998, “Strict Product Liability and the Unfairness Objection”, Journal of Business Ethics, 17(8): 885–893.
Powell, B. & M. Zwolinski, 2012, “The Ethical and Economic Case Against Sweatshop Labor: A Critical Assessment”, Journal of Business Ethics, 107(4): 449–472.