Backdating of stock options is an example of an agency problem. It has emerged despite all the measures (i.e., new regulations and additional corporate governance mechanisms) aimed at addressing such problems? Beyond such negative controlling measures, a more positive empowering approach based on ethics may also be necessary. What ethical measures need to be taken to address the agency problem? What values and norms should guide the board of directors in protecting the shareholders' interests? To (...) examine these issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as transparency, accountability, integrity (which is reflected in proper mechanisms of checks and balances), and public responsibility. Second, we discuss various stakeholder approaches (e.g., government, directors, managers, and shareholders) by which conflicts of interest (i.e., the agency problem) can be addressed. Third, we assess the practice of backdating stock options, as an illustration of the agency problem, in terms of whether the practice is legally acceptable or ethically justifiable. Fourth, we proceed to an analysis of good corporate governance practice involving backdating options based on a series of ethical standards including: (1) trustworthiness; (2) utilitarianism; (3) justice; and (4) Kantianism. We conclude that while executive compensation schemes (e. g., stock options) were originally intended to help remedy the agency problem by tying together the interests of the executives and shareholders, these schemes may have actually become "part of the problem," and that the solution ultimately depends upon whether directors and executives accept that all of their actions must be based on a set of core ethical values. (shrink)

A shift in the cultural conception of the firm as productionsystem to that as investment-system entrenches the institutional logic of agency theory in governance reform. Reform initiatives emphasize the separation between management and the board, forensic reporting requirements, and the primacy of shareholders' entitlement to control and residual gains. Problems associated with this agency logic render reform unable to deliver a broad-based ethical operating environment. The introduction of a version of stakeholder theory, augmented by Knightian uncertainty, (...) places the development of an alternative conception of the firm into discourse. Implications for governance reform are considered. (shrink)

Firms have traditionally responded to environmental violations by increasing information disclosure and/or communication to manage stakeholder perceptions. As such, these approaches may be symbolic in nature, with no genuine intention to improve the environment. We draw from restorative justice grounded in stakeholder theory and explore a relatively new approach in the form of supplemental environmental projects aimed at restoring the environment, and empirically examine the role of corporate governance in firms’ decisions to undertake reparative actions. Using environmental (...) violations and SEPs data from the US Environmental Protection Agency between 2002 and 2015, we find that firms with smaller boards are more likely to undertake SEPs. We also find that firms with higher board independence and CEO duality undertake SEPs more frequently; however, board gender diversity and the existence of a sustainability committee appear to have no impacts. These results are robust to propensity score matching and an alternative data source. We extend the scope of stakeholder theory by emphasizing a new approach—restorative justice—by which corporations can repair damaged relationships and also improve the environment. We also contribute to corporate governance and environmentalism literature by identifying governance structures that promote environmental restorative justice. Thus, our study will inform different stakeholders, including regulators, shareholders, and boards of directors, and will open new avenues for business ethics scholarship. (shrink)

Abstract: Stakeholder theorists have typically offered both a business case and an ethics case for business ethics. I evaluate arguments for both approaches and find them wanting. I then shift the focus from ethics to law and ask: “Why should corporations obey the law?” Contrary to what shareholder theories typically imply, neoclassical or profit maximization theories of the firm can offer answers based only on instrumental justifications. Instrumental justifications for obeying the law, however, are pragmatically and normatively (...) incoherent. This is because the modern corporation is a legal artifact. It exists because communities create the legal framework necessary for its existence. Individual corporations can therefore be said to owe their existence to a partnership (what might be called a social contract) between shareholders and governments, a partnership that is itself built on the shared though often implicit understanding that corporations have an unconditional (categorical) obligation both to obey the law and to treat their stakeholders ethically while generating wealth for their shareholders. (shrink)

This paper studies the relationship between personal stock donation by top executives and board of directors (insiders) of publicly traded corporations and their personal tax, shareholders' returns, and social responsibility. The study finds evidence that the timing of stock donations is driven by personal tax gain. The study further shows, comparing stock gift corporations relative to their non-stock gift cohorts, that personal stock gifts are associated with lower short-term and long-term stock returns to shareholders. This implies that stock (...) donation driven by insiders' personal gain adversely affects shareholder wealth. However, the likelihood and intensity of insiders to make personal stock donation is reduced when firms have strong corporate social responsibility (CSR). Agency theory explains insiders' opportunistic behavior, stakeholder theory is also supported by evidence that stock donation is negatively related to CSR, and stewardship theory offers a different view to explain the rationale behind insiders' stock donation and shareholders' reactions to stock gifts. (shrink)

This paper studies the relationship between personal stock donation by top executives and board of directors (insiders) of publicly traded corporations and their personal tax, shareholders' returns, and social responsibility. The study finds evidence that the timing of stock donations is driven by personal tax gain. The study further shows, comparing stock gift corporations relative to their non‐stock gift cohorts, that personal stock gifts are associated with lower short‐term and long‐term stock returns to shareholders. This implies that stock (...) donation driven by insiders' personal gain adversely affects shareholder wealth. However, the likelihood and intensity of insiders to make personal stock donation is reduced when firms have strong corporate social responsibility (CSR). Agency theory explains insiders' opportunistic behavior, stakeholder theory is also supported by evidence that stock donation is negatively related to CSR, and stewardship theory offers a different view to explain the rationale behind insiders' stock donation and shareholders' reactions to stock gifts. (shrink)

Business ethics is one of the most significant demands made by institutional and individual investors, who usually require the participation of the board of directors in the planning and implementation of ethical behaviour in corporations. This is done by drawing up an ethics code and then monitoring its fulfilment. This study has a dual objective: first, to analyse the role played by the composition of the board of directors, and by that we mean its independence (...) and the diversity of its members, on the implementation and scope of an EC, and, second, to detect whether the corporate governance system moderates the level of involvement of the board in ethical issues. The findings obtained from a data panel sample made up of 760 listed companies from 12 countries for the years 2003–2009 show that the largest companies with large-sized and diverse boards implement the most developed ECs. Nevertheless, the extent of involvement of the independent directors is conditioned by the level of shareholder orientation characteristic of the system of CG in the corporation’s country of origin. (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)

In today's world, the corporate image of the largest companies is closely linked to their performance in the field of corporate social responsibility and the disclosure of information on that topic, specifically, on climate change. Since the Board of Directors is the body responsible for this process, the aim of this article is to show the role that companies' Boards of Directors play in the accountability process vis-à-vis stakeholders in relation to one specific aspect which (...) has enormous significance in environmental information: practices used to monitor greenhouse gas emissions. In order to achieve this, we shall verify certain business characteristics, in addition to the size and activity of the Board of Directors, and we shall take different dependence models into consideration. These models will include variables related to the level of independence and diversity of the Board of Directors, which interact with dummy variables representing the company's litigation risks regarding environmental behavior and the institutional macro-context of the organization's country of origin. The results make it clear that Boards of Directors are basically focused on the traditional responsibility of creating economic value, instead of dealing with today's broader business world concepts, which include social responsibility. This focus, therefore, does not favor the accountability process before other stakeholders, if this makes it more difficult to protect the interests of shareholders. (shrink)

As a result of recent corporate scandals, several rules have focused on the role played by Boards of Directors on the planning and monitoring of corporate codes of ethics. In theory, outside directors are in a better position than insiders to protect and further the interests of all stakeholders because of their experience and their sense of moral and legal obligations. Female directors also tend to be more sensitive to ethics according to several past studies (...) which explain this affirmation by early gender socialization, the fact that women are thought to place a greater emphasis on harmonious relations and the fact that men and women use different ethical frameworks in their judgments. The goal of this paper is to determine the influence of these characteristics of the Board in terms of promoting and hindering the creation of a code of ethics. Our findings show that a greater number of female directors does not necessarily lead to more ethical companies. Moreover, within Europe as a continent, board ownership leads to an entrenchment of upper-level management, generating a divergence between the ethical interests of owners and managers. In light of this situation, the presence of independent directors is necessary to reduce such conflicts. (shrink)

This paper examines the shareholder primacy norm as a widely acknowledged impediment to corporate social responsibility and explores the role of business schools in promoting the SPN but also potentially as an avenue for change by addressing misconceptions about shareholder primacy and the purpose of business. We start by explaining the SPN and then review its status under US and UK laws and show that it is not a likely legal requirement, at least under the guise of (...) shareholder value maximization. This is in contrast to the common assertion that managers are legally constrained from addressing CSR issues if doing so is inconsistent with the economic interests of shareholders. Nonetheless, while the SPN might be muted as a legal norm, we show that it is certainly evident as a social norm among managers and in business schools—reflective, in part, of the sole voting rights of shareholders on corporate boards and of the dominance of shareholder theory—and justifiably so in the view of many managers and business academics. We argue that this view is misguided, not least when associated with claims of a purported legally enforceable requirement to maximize shareholder value. We propose two ways by which the influence of the SPN among managers might be attenuated: extending fiduciary duties of executives to non-shareholder stakeholders and changes in business school teaching such that it covers a plurality of conceptions of the purpose of the corporation. (shrink)

Two obvious trends in corporate governance include broadening board accountability beyond shareholders’ interests and paying outside directors with equity compensation (stock and stock options). By integrating common agency and instrumental stakeholder theories, we examine the effect of stock compensation on secondary stakeholders and a firm’s participation in social issues, two areas where interests are less aligned with shareholder value. Consistent with our predictions, we found that while stock compensation may be an effective way to align (...) directors’ goals to those of shareholders, it has adverse effects on important non-shareholder constituencies in the company’s operating environment. (shrink)

This article examines whether and how the participation of women in the firm’s board of directors and senior management enhances financial performance. We use the Fama and French (1992, 1993) valuation framework to take the level of risk into consideration, when comparing firm performances, whereas previous studies used either raw stock returns or accounting ratios. Our results indicate that firms operating in complex environments do generate positive and significant abnormal returns when they have a high proportion of women (...) officers. Although the participation of women as directors does not seem to make a difference in this regard, firms with a high proportion of women in both their management and governance systems generate enough value to keep up with normal stock-market returns. These findings tend to support the policies currently being discussed or implemented in some countries and organizations to foster the advancement of women in business. (shrink)

Aimee Barbeau advances a thoughtful critique of my article, “The Connection Between Stakeholder Theory and Stakeholder Democracy: An Excavation and Defense.” Although Barbeau does much to push forward the debate about corporate governance, she does it without undermining my thesis. For what Barbeau has shown is not that stakeholder theorists should not endorse stakeholder boards of directors, but that they should also endorse other ways for stakeholders to participate in decision-making processes within firms.

Stakeholder theorists distinguish between normative stakeholders, those who gain moral standing by making contributions to the firm, and derivative stakeholders, those who can constrain the corporate association even though they make no contribution. The board of directors has the legal authority to distinguish among these stakeholder groups and to distribute rights and obligations among these stakeholder groups. To be sure, this stakeholder formulation appropriately seizes on the firm’s voluntary, associative character. Yet, the firm’s (...) constituents contribute assets and incur risks to participate in market, economic activities. And, as such, the firm’s “stakeholders” must share an imperfect language to assist in making two key economic decisions: (1) who are the legitimate and who are the derivative stakeholders; and (2) who should sit on the board? Still, stakeholder theorists have good reason to be skeptical of neoclassical economics. Its assumptions that all act opportunistically and that all can calculate rationally and fully hardly correspond to studies on the managerial experience of corporate coordination. However, advances in behavioral law and economics now provide a cogent economic logic that readily fits into a stakeholder mode. In brief, we argue that (1) the firm’s economic purpose designates legitimacy to core stakeholders, to those who add value, assume unique risk, and can incur harm; (2) the board serves as the principal who coordinates these core stakeholders to sustain competitive advantage and new wealth creation; and (3) state incorporation law, Delaware in particular, reinforces the board’s function. These, in turn, supply selection criteria for board membership. We aim to synchronize concepts from behavioral law and economics with stakeholder theory. (shrink)

Board composition, insider participation on compensation committees, and director compensation practices can potentially cause conflicts of interest between directors and shareholders. If these corporate governance structures result in situations where actions beneficial to directors do not also benefit shareholders, then shareholders may suffer.Corporate ethics programs usually address conflicts of interest that may arise in the firm''s activities. Some boards of directors take active roles in their firms'' ethics programs by actively overseeing the programs. This (...) paper empirically examines the relationship between ethics programs and potential conflicts of interest and the relationship between board involvement in a firm''s ethics program and potential conflicts of interest. (shrink)

There is a distinct lack of research into the relationship between corporate governance and corporate social responsibility (CSR) in the banking sector. This paper fills the gap in the literature by examining the impact of corporate governance, with particular reference to the role of board of directors, on the quality of CSR disclosure in US listed banks’ annual reports after the US sub-prime mortgage crisis. Using a sample of large US commercial banks for the period (...) 2009–2011 and controlling for audit committee characteristics, board meeting frequency, and banks’ profitability, size and risk, we find evidence that board independence and board size, the two board characteristics usually associated with the protection of shareholder interests, are positively related to CSR disclosure. This indicates that, with regard to CSR disclosure, more independent boards of directors and larger boards are the internal corporate governance mechanisms which promote both shareholders’ and other stakeholders’ interests. Contrary to our expectations, CEO duality also impacts positively on CSR disclosure. From an agency-theoretical viewpoint, this suggests that powerful CEOs may promote transparency about banks’ CSR activities for their private benefits. While this could indicate that powerful CEOs are under particular pressure to appease stakeholders’ concerns that they might abuse their power by providing a high degree of CSR disclosure, it could also be a sign of managerial risk aversion or managers’ private reputational concerns. (shrink)

One of the fundamental principles of good corporate governance is transparency, i.e., the disclosure of private information to external stakeholders, so that they may make judgments and decisions relating to the corporation. Equally important, but less discussed, is the competing value that corporations need to protect legitimate secrets. Corporations thus need a communication strategy for dealing with external stakeholders which addresses the conflict between disclosure and secrecy. This article focuses on an important element of that communication strategy in the (...) context of financial reporting: the possibility that corporate insiders may consider it in their interest, or in the interest of specific stakeholders, to alter or manipulate the financial information that it discloses publicly. Using concepts from the corporate governance and financial reporting literatures, it addresses the ethical question of who (management or the board of directors) should be responsible for making the fundamental strategic choices whether and (if so) how the corporation alters or manipulates the financial information. This article argues that the board of directors is responsible for formulating (and monitoring) the corporation's communication strategy, and that management is responsible for carrying it out. (shrink)

Recent perspectives on community investments suggest that they are opportunities for firms to create value for shareholders and other stakeholders. However, many corporate managers are still influenced by a widely held belief that such investments erode profits and are therefore unjustifiable from an agency perspective. In this paper, we refine and test theory regarding countervailing forces that influence community-based firm performance. We hypothesize that high levels of available slack will be associated with higher community-based performance, but that this (...) relationship will be moderated by three important governance variables: board independence, investment fund ownership, and CEO ownership. We find support for our hypotheses in longitudinal study of a large sample of U.S. corporations. (shrink)

This study examines the influence of board independence on firm agency cost among listed firms in Bangladesh, which feature concentrated ownership and high insider representation on corporate boards. This study uses three measures of agency cost: the ‘expense ratio’, the ‘Q-free cash flow interaction’ and the ‘asset utilization ratio’. The finding of the study is that board independence can reduce the firm agency cost only under ‘asset utilization ratio’ measure of agency cost. These (...) findings are robust to several robustness tests. Furthermore, the non-linearity tests suggest that the benefit of outside independent directors is generally plausible as a factor controlling agency costs in the case of a medium level of board independence. Overall, these findings do not reject the validity of agency theory, supporting the Anglo-American orthodoxy promoting outside independent directors as good monitors. (shrink)

Contemporary academic and policy discussions of corporate governance tend to accord primacy to the interests of shareholders. While the primacy (descriptive or prescriptive) of shareholders is argued for in various ways, others seek to promote a wider stakeholder model of the firm and its governance. In both cases, the interests of creditors tend to be neglected. In this paper, the fundamental position of creditors in a system of corporate law that offers limited liability is reasserted and explained, (...) and the implications explored. It is demonstrated that there are, in effect, two modes of governance possible for a limited liability corporation: the “normal” mode, when shareholders’ interests are primary, and the “distressed” mode, when creditors’ interests are paramount. As a result of this analysis, writers on corporate governance who are influenced by certain managerial myths or economic theories of the firm are encouraged to view the position of shareholders in a more informed light. Writers on business ethics, who often find themselves contending, perhaps implicitly, with inappropriate understandings of the nature of business corporations and their governance, are similarly alerted to the weakness of certain positions perceived as antithetical to their agenda. Finally, business ethicists who advocate a stakeholder perspective are encouraged to recognize the position of creditors and to pay more attention to them as a stakeholder group. (shrink)

On May 16, 2012, RAND brought together a group of public company directors and executives, chief ethics and compliance officers, and stakeholders from the government, academic, and nonprofit sectors for a series of conversations about organizational culture, as well as to explore the business and policy ramifications of efforts to build better ethical cultures in corporations.

A number of companies allocate ownership rights to stakeholders different from shareholders, despite the fact that the law attributes these rights to the equity holders. This article contributes to an understanding of this evidence by developing a contingency model for the allocation of ownership rights. The model sheds light on why companies, despite pressures from the law, vary in their allocation of ownership rights. The model is based on the assumption that corporations increase their chance to survive and prosper if (...) the stakeholders supplying “critical contributions” receive the ownership rights. According to the model, “critical” contributions involve (1) contractual problems due to specific investments, long-term relationships, and low measurability; (2) the assumption of the uncertainty resting on the company; and (3) the supply of scarce and valuable resources. The model is dynamic because it also provides a basis for understanding why the allocation of ownership rights changes with time. Finally, the article presents the strategies companies can use to realize an efficient distribution of ownership rights among their stakeholders. (shrink)

Although US and European research has documented improvement in earnings quality associated with corporate governance characteristics, the situation in Latin America is questionable, given the business environment in which firms operate, which is characterized by controlling family ownership and weak legal protection. The purpose of this study is to examine the relation between the internal mechanisms of Corporate Governance and Earnings Management measured by discretionary accrual. We use a sample of listed Latin American non-financial companies from the (...) period 2006–2009. Our results show how in the Latin American context the role of external directors is limited and that Boards which meet more frequently take a more active position in the monitoring of insiders, so showing a lower use of manipulative practices. In addition, we find a non-linear relation between insider ownership and discretionary accruals, also pointing to the fact that ownership concentration may be a manipulative practices constrictor mechanism only when the ownership of main shareholders is moderate. The findings have important policy implications since this is, to the best of our knowledge, the first study to analyze the relation between the effectiveness of the government and the earnings management behavior. As policy implications, we document how when a country implements controls aimed at reducing corruption, strengthening the rule of law or improving the effectiveness of government, this leads to a reduction in firm earnings management. (shrink)

The concept of pluralism in corporate governance is stated as an emergent theory. Grounded in the concept of enhancing the input of various stakeholders and lessening the control of managers in corporate governance, the theory is the foundation of proposed legal changes in corporate governance and the board of directors. While more pluralistic control has been conceptually linked to improved social performance of the firm, this proposition is not supported in an empirical investigation.

This research aims to explore the relationship between corporate governance and CSR: What are the major factors that play a direct role in the establishment of this relationship? How does context and institutional background impact upon the relationship between CSR and Governance? Using in-depth semi-structured interviews from two types of governance systems in three countries over three years, this study has demonstrated that in practice, within different settings, CSR is being used both as a strategy as well as a (...) reaction to different drivers. We call this adaptive governance where governance can be defined as a flexible system of action incorporating strategic and monitoring activities that determines the way a company enacts its responsibilities to its shareholders and stakeholders and which is determined at any given time by the interrelationship of institutional drivers and behavioural norms. Governance systems and their interrelationships with CSR are demonstrated as fluid according to the national and institutional context, economic situation and industry impact. In the eyes of practitioners corporate governance includes both structural and behavioural factors as well as responsibilities and actions towards shareholders and stakeholders. Contextual factors that this research highlights to be important to the incorporation of CSR into governance include the economic environment, national governance system, regulation and soft law, shareholders, national culture, behavioural norms and industry impacts. Hypotheses on the impact of institutional contexts, industry impacts and economic situations on different types of CSR actions are proposed for further research. (shrink)

The “basic debate” in business ethics between shareholder theory and stakeholder theory has underlined the field since its inception, with wide ranging normative, descriptive, and instrumental arguments offered on both sides. We maintain that insofar as this is primarily a normative debate, clarity can be brought by elucidating how it is framed by the political philosophies of liberalism and libertarianism.With liberalism represented by John Rawls’s theory of justice and libertarianism represented by the ideas of Milton Friedman and Robert (...) Nozick, and Edward Freeman, the paper shows that both liberalism and libertarianism can be interpreted to justify shareholder and stakeholder theory respectively. The debate between shareholder theory and stakeholder theory is framed by liberal and libertarian justifications that hinge primarily on whether and to what extent one should have exogenous or endogenous safeguards on corporate behavior. Accordingly, political philosophy turns out to be highly relevant to both business ethics and corporate governance, not because the corporation resembles the state, but because of the potential safeguards placed on the corporation by the state. (shrink)

The “basic debate” in business ethics between shareholder theory and stakeholder theory has underlined the field since its inception, with wide ranging normative, descriptive, and instrumental arguments offered on both sides. We maintain that insofar as this is primarily a normative debate, clarity can be brought by elucidating how it is framed by the political philosophies of liberalism and libertarianism.With liberalism represented by John Rawls’s theory of justice and libertarianism represented by the ideas of Milton Friedman and Robert (...) Nozick, and Edward Freeman, the paper shows that both liberalism and libertarianism can be interpreted to justify shareholder and stakeholder theory respectively. The debate between shareholder theory and stakeholder theory is framed by liberal and libertarian justifications that hinge primarily on whether and to what extent one should have exogenous or endogenous safeguards on corporate behavior. Accordingly, political philosophy turns out to be highly relevant to both business ethics and corporate governance, not because the corporation resembles the state, but because of the potential safeguards placed on the corporation by the state. (shrink)

While much has been written on specificity (e.g., in texts on new institutional economics, agency theory, and team production theory), there are still some insights to be learnt by business ethicists. This article approaches the issue from the perspective of team production, and will propose a new form of corporate governance: enlightened corporate governance, which takes into consideration the specific investments of employees. The article argues that, in addition to shareholders, employees also bear a residual risk (...) which arises due to their specific investments. This residual risk presents a valid and legitimate basis for residual claims. In this way, employees can be seen as residual claimants due to the fact that their income depends upon a hazardous quasi rent. Therefore, this article will call on the fiduciary duty of board members to protect those employees who are exposed to such residual risks and may thus be vulnerable as a result. This leads to a fundamental change of perspective on the “theory of the firm” – a change which will adopt the theories of new institutional economics, agency theory, and team production theory in order to promote business ethics research. Against this background, enlightened corporate governance aims to follow the criterion of specific investments as a legitimate basis for residual claims. Furthermore, it seeks to understand the consequences for board members, and to promote the sharing of control and ownership. The article will close with some discussion of the implications and future prospects for business ethics. (shrink)

The seventh edition of this pragmatic guide to determining right and wrong in the workplace is updated with new case studies and ancillary materials to combine stakeholder perspectives with a deep dive on workplace ethics issues. Using a unique stakeholder-based approach, this book takes business ethics out of the theory realm and provides practical ways to analyze any business decision. Including dozens of cases, Joseph Weiss looks beyond the impacts of ethical lapses on share price and (...) profit to focus on relationships between stakeholders, including individuals, groups, corporations, and governments. The new seventh edition includes seven new cases and ten new Point/Counterpoint exercises, which challenge students to argue both sides of a contemporary issue. It incorporates the latest research as well as updated cases dealing with recent scandals at organizations such as Boeing, Facebook, and Uber. Professors will have access to online support, including teaching notes, PowerPoint slides, and sample tests. The book is equipped with a step-by-step guide to implementing stakeholder analysis, tips to help students apply ethical principles in their personal and professional lives, and comprehensive coverage of employee workplace issues. Addressing relevant topics such as risk management, preferential hiring, and sexual harassment in conjunction with the digital divide, bribery, the environment, and more, Business Ethics, seventh edition explores ethical implications in today's increasingly interconnected global business environment. (shrink)

Under resource dependence theory, firms should benefit from diverse boards of directors. Ethical arguments also highlight that boards should be as diverse as the stakeholders and communities that they serve. In an attempt to increase diversity and women’s presence on boards of directors, legislative efforts have enacted gender quotas. We examine how such efforts are perceived by U.S. market participants. We expect that when a firm operating under a quota law meets only the minimum requirement, investors will view (...) the female directors through the lens of token status theory and invest fewer resources in that firm than they will in a firm that exceeds the quota minimum or has the same composition but is not under a quota law. Through an experiment with 207 MTurk participants, we manipulated whether a firm was or was not under a quota law and whether the number of female board members was just at or exceeded the law’s minimum compliance. We find evidence that under a quota system, U.S. market participants tend to view female directors as tokens when the firm is just at the quota minimum, and these perceptions both affect their view of the firm’s prospects and negatively influence investment decisions. Importantly, however, we find that these negative effects can be offset and that resource dependence theory holds if the firm _exceeds_ the quota, signaling that the hiring of female directors is not simply compliance-dependent and subsequently leading U.S. market participants to invest more resources in the firm. (shrink)

ABSTRACT:The UN Framework on Human Rights and Business comprises the State’s duty to protect human rights, the corporate responsibility to respect human rights, and the duty to remedy abuses. This paper focuses on the corporate responsibility to respect. It considers how to overcome obstacles, arising out of national and international law, to the development of a legally binding corporate duty to respect human rights. It is argued that the notion of human rights due diligence will lead (...) to the creation of binding legal duties and that principles of corporate and tort law can be adapted to this end. Furthermore, recent legal developments accept an “enlightened shareholder value” approach allowing corporate managers to consider human rights issues when making decisions. The responsibility to respect involves adaptation of shareholder based corporate governance towards a more stakeholder oriented approach and could lead to the development of a new, stakeholder based, corporate model. (shrink)

This article explores how corporate governance processes and structures are being used in large Australian companies to develop, lead and implement corporate responsibility strategies. It presents an empirical analysis of the governance of sustainability in fifty large listed companies based on each company’s disclosures in annual and sustainability reports. We find that significant progress is being made by large listed Australian companies towards integrating sustainability into core business operations. There is evidence of leadership structures being put in (...) place to ensure that board and senior management are involved in sustainability strategy development and are then incentivised to monitor and ensure implementation of that strategy through financial rewards. There is evidence of a willingness to engage and communicate clearly the results of these strategies to interested stakeholders. Overall, there appears to be a developing acceptance amongst large corporations that efforts towards improved corporate sustainability are not only expected but are of value to the business. We suggest that this is evidence of a managerial shift away from an orthodox shareholder primacy understanding of the corporation towards a more enlightened shareholder value approach, often encompassing a stakeholder-orientated view of business strategy. However, strong underlying tensions remain due to the insistent market emphasis on shareholder value. (shrink)

In this article, we examine the factors determining the representation of women on boards of directors by considering three main questions. The first question deals with the relationship between characteristics of ownership and governance on one side, and female directorship on the other. The second major question concerns the demographic attributes of women directors, such as nationality, foreign experience, educational level, business expertise, and connections to external sources. The third important question refers to women in senior positions (...) on French boards (e.g., as independent members or board subcommittee members) in relation to firm characteristics and women’s demographic attributes. Our study focuses on French large- and mid-capitalized companies belonging to the SBF120 stock market index during a 5-year period running from 2000 to 2004. First, our results give evidence that the appointment of women directors is strongly related to family ownership and board or firm size. Second, the appointment of women directors is related to their professional services, valuable skills, and network links. Furthermore, we show that women face a double glass-ceiling problem, and note that French firms rely more on the demographic attributes of their women directors when they are appointed to senior board positions. Our study sheds light on issues concerning the law that comes into force in 2016, which imposes quotas of women members on boards of directors in French companies. (shrink)

Corporate governance and finance are dynamic academic fields that offer myriad opportunities for business ethics analysis. Within the corporate governance triad in recent years, shareholders have increased their power over boards of directors and executives through both regulation and movements to change corporate by-laws. The impact of board characteristics on firm performance has proven elusive, leading to questions concerning board processes and individual director beliefs and behaviors. At the same time, CEOs have lost (...) considerable power, leaving many struggling to regain their control and maintain their compensation levels, while others adopt a stewardship approach to their posts. In the field of finance, the recent financial debacle has led to a reexamination of financial regulation and of the fundamental nature and purpose of the industry. All of these issues provide business ethicists fodder for investigation and analysis. (shrink)

In an open, unregulated and globalised economy, it is logical that the problem of corporate government not only occupy the time of academics, but also preoccupy both companies and the public administration. Corporate governance varies depending on several factors, such as the culture of a particular country, the economic situation and the organisational structures. Thus, there is no single recipe which can be applied automatically and is universally valid in all contexts. However, it is possible to propose some (...) general principles which have duly stood the test of experience and are recognised as providing valuable guidance for efficient corporate governance.The aim of this article is to present the Spanish "Olivencia Report", which is an attempt to draft an "ethical code" containing a number of practices and principles, which, if they were to be applied, could improve the governance of the larger Spanish companies listed on the Stock Market. (shrink)

Golden parachutes are often viewed as a form of excessive compensation because they provide senior management with substantial payouts following an acquisition while other stakeholders are subjected to layoffs, disrupted business relationships and other negative externalities. Using a sample of S&P 500 firms, an economic and ethical justification for this type of contract is given. Golden parachutes ensure effective corporate governance that, in turn, preserve the firm's value for all stakeholders. Boards of directors enter into parachute agreements (...) to protect recently hired CEOs' human capital during periods of financial uncertainty and, thus, potential takeover activity. From an ethics viewpoint, golden parachutes are valuable to all stakeholders because they encourage merger or acquisition in lieu of bankruptcy. (shrink)

Corporate governance involves balancing the interests of the many stakeholders in a corporation—from shareholders and management to customers and the larger society. Corporate governance also offers the framework for attaining a company’s vision and mission, providing guidance and oversight on a broad spectrum—action plans and internal controls to performance measurement and corporate disclosure. Companies’ Act 2013 has been introduced in India with the primary objective of improving corporate governance practices in Indian corporations. In this paper, we (...) investigate the moderating role of corporate governance practices in large Indian corporations on firm performance, post introduction of Companies’ Act 2013. Specifically, we study the influence of board’s involvement in company’s affairs, board’s diversity, CEO duality, board compensation, and promoters’ involvement in the board. We find sufficient evidence that board involvement and board diversity positively influence firm performance, while CEO duality, board compensation, and promoters’ presence do not have an influence on firm performance. (shrink)

Ten countries have established quotas for female representation on publicly traded corporate and/or state-owned enterprise boards of directors, ranging from 33 to 50 %, with various sanctions. Fifteen other countries have introduced non-binding gender quotas in their corporate governance codes enforcing a “comply or explain” principle. Countless other countries’ leaders and policy groups are in the process of debating, developing, and approving legislation around gender quotas in boards. Taken together, gender quota legislation significantly impacts the composition of (...) boards of directors and thus the strategic direction of these publicly traded and state-owned enterprises. This article outlines an integrated model of three institutional factors that explain the establishment of board of directors gender quota legislation based on the premise that the country’s institutional environment co-evolves with gender corporate policies. We argue that these three key institutional factors are female labor market and gendered welfare state provisions, left-leaning political government coalitions, and path-dependent policy initiatives for gender equality, both in the public realm as well as in the corporate domain. We discuss implications of our conceptual model and empirical findings for theory, practice, policy, and future research. These include the adoption and penalty design of board diversity practices into corporate practices, bottom-up approaches from firm to country-level gender board initiatives, hard versus soft regulation, the leading role of Norway and its isomorphic effects, the likelihood of engaging in decoupling, the role of business leaders, and the transnational and international reaction to board diversity initiatives. (shrink)

Abstract:After a decade of intensive debate, stakeholder ideas have come to exert a significant influence on academic management thinking, but normative stakeholder theory itself appears to be in considerable disarray. This paper attempts to untangle the confusion and to prepare the ground for a more productive approach to the normative stakeholder problem. The paper identifies three distinct kinds of normative stakeholder theory and three different levels of claim that can be made by such theories, and uses (...) this classification to argue that stakeholder theorists have consistently pitched their sights either too high or too low to engage effectively with the rival shareholder theory. To the extent that they have their sights too high they have also undermined their own position by sacrificing credibility and introducing major problems of derivation. (shrink)

Agency theory involves what is known as the principal-agent problem, a topic widely discussed in economics, management, and business ethics today. It is a characteristic of nearly all modern business firms that the principals (the owners and shareholders) are not the same people as the agents (the managers who run the firms for the principals). This creates situations in which the goals of the principals may not be the same as the agents--the principals will want growth in (...) profits and stock price, while agents may want growth in salaries and positions in the hierarchy. The fourth volume in the Ruffin Series in Business, this book explores the ethical consequences of agency theory through contributions by ethicists, economists, and management theorists. (shrink)

Director compensation can potentially represent an ethical minefield. When faced with supporting strategic decisions that can lead to an increase in director pay, directors may consider their own interests and not solely those of the shareholders to whom they are legally bound to represent. In such cases, directors essentially become agents, rather than those installed to protect principals (shareholders) from agents. Using acquisitions as a study context, we employ a matched-pair design and find a statistically significant difference in (...) outside director compensation between acquiring and control firms. Outside directors of acquiring firms earn more than twice as much as their counterparts in the matched-sample. (shrink)

This study investigates how adoption of advisory governance policy encourages firms to become more responsive to their shareholders over time. Although shareholder activism is costly and often viewed as unable to drive meaningful change, we identify increasing shareholder voice as an underlying mechanism to explain how advisory policy adoption ultimately reshapes board–shareholder relations. Drawing on signaling theory and behavioral views of board–shareholder dynamics, we test our predictions following the broad shift in corporate board voting policies from (...) plurality to majority vote standards. While prior research shows that majority vote adoption has little to no direct impact on director elections, empirical results from 2,390 firm-year observations provide support for our hypotheses that adoption of this advisory electoral standard signals a willingness to hear shareholder concerns, leading to increased shareholder activism and, in turn, board responsiveness to shareholder proposals. Overall, our results help explain why some firms continue to fight the purely advisory policy and why an era of shareholder empowerment followed the majority vote campaign. (shrink)

The failure of the critics of corporate governance to agree on what should be done to improve the governance process can, in most cases, be traced to a different understanding of the role of corporate directors in that process. This article analyzes and contrasts the obligations of directors under two legal theories, the fictional person theory and the organic theory, of the corporation. A comparison of the director's obligations under each theory indicates that the organic theory (...) provides a better basis for assessing the performance of directors and initiating reform.Among the boards of directors of Fortune 500 companies, I estimate that 95% are not fully doing what they are legally, morally, and ethically supposed to do. And they couldn't, even if they wanted to. (shrink)

This article examines the political perspective of corporate social responsibility from the standpoint of normative Islam. We argue that large firms within Muslim majority countries have the moral obligation to assist governments in addressing challenges related to sustainable socioeconomic development and in advancing human rights. In substantiating our argument, we draw upon the Islamic business ethics, stakeholder theory, and corporate governance literatures, as well as the concepts of Maqasid al Shariah (the objectives of Islamic law) and (...) fard al ‘ayn (obligation upon all individuals within society) versus fard al kifayah (obligation upon some individuals within society) to introduce a normative model elucidating critical Islamic precepts. Finally, we propose an Islamic “political” corporate governance framework, which democratizes firm decision making by embedding “core” stakeholders, nongovernmental organizations (NGOs), and Shariah scholars in the corporate board, thereby enhancing the ability of businesses to respond to stakeholder concerns and priorities, while mitigating interstakeholder and intraboard power asymmetries. (shrink)

How does a board of directors decide what is right? The contest over this question is frequently framed as a debate between shareholder value and stakeholder rights, between a utilitarian view of the ethics of corporate governance and a deontological one. This paper uses a case study with special circumstances that allow us to examine in an unusually clear way the conflict between shareholder value and other bases on which a board can act. In the (...) autumn of 2010, the board of Liverpool Football Club sold the company to another investing group against the explicit wishes of the owners. The peculiar circumstances of this case provide insight into the conflict between ethical approaches to board decisions, allowing us to see certain issues more clearly than we can in listed corporations with many shareholders. What the analysis suggests is that the board saw more than one type of utility on which to base its ethical decision, and that one version resonated with perceived duties to stakeholders. This alignment of outcomes of strategic value with duties contrasted with the utility of shareholder value. While there are reasons to be cautious in generalizing, the case further suggests reasons why boards may reject shareholder value, in opposition to mainstream notions of corporate governance, without rejecting utility as a base of their decisions. Further, the partial alignment of duty and utility facilitates a pragmatic decision rather than one based on a priori claims. (shrink)

In this article, we document the growing influence of non-governmental organizations (NGOs) in the realm of socially responsible investing (SRI). Drawing from ethical and economic perspectives on stakeholder management and agency theory, we develop a framework to understand how and when NGOs will be most influential in shaping the ethical and social responsibility orientations of business using the emergence of SRI as the primary influencing vehicle. We find that NGOs have opportunities to influence corporate conduct via (...) direct, indirect, and interactive influences on the investment community, and that the overall influence of NGOs as major actors in socially responsible investment is growing, with attendant consequences for corporate strategy, governance, and social performance. (shrink)

This paper examines the relationships between corporate governance and corporate sustainability by focusing on two main components of companies’ governance structure: boards of directors and investor relations officers. We propose an original empirical strategy based on the 120 biggest French capitalizations for the year 2013, allowing us to measure boards of directors’ independence and expertise, as well as investor relations officers’ convictions and communication on corporate sustainability. Our results show that corporate governance has an (...) ambiguous impact on corporate sustainability because of opposing forces: internal, external and intermediate forces. On the one hand, the higher the proportion of inside directors, the higher the company’s environmental and governance performance, while the higher the proportion of general experts in the board room, the lower the company’s governance performance. On the other hand, investor relations officers’ beliefs that corporate sustainability is primarily driven by investors’ ethical values appear negatively related to companies’ governance performance. In sum, corporate sustainability appears positively related to internal forces and negatively related to external forces. The results of this study demonstrate the need to carry out efforts to train BoDs and IROs to respond to corporate sustainability and to take more of a leadership role in this area. (shrink)