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)

What, if anything, is wrong with high executive compensation? Is the common “lay reaction” of indignation and moral outrage justified? In this paper, my main goal is to articulate in a more systematic and philosophical manner the egalitarian responses to these questions. In order to do so, I suggest that we take some insights from recent debates on two versions of egalitarianism: a distributive one, according to which no one should be worse off than others because of unfair distributions of (...) goods and resources, especially ones based on matters of luck or arbitrary factors, and a relational one, which maintains that egalitarian justice requires members of a society to relate to one another as equals. Drawing on recent attempts to highlight the tricky nature of managerial authority, I argue that high inequalities in pay are not simply a distributional matter but should also be analyzed through a relational lens. I also attempt to show that relational egalitarians are well-equipped to question the now dominant “incentives” view of CEO compensation. (shrink)

ABSTRACT:Debates about the ethics of executive compensation are dominated by familiar themes. Many writers consider whether the amount of pay CEOs receive is too large—relative to firm performance, foreign CEO pay, or employee pay. Many others consider whether the process by which CEOs are paid is compromised by weak or self-serving boards of directors. This paper examines the issue from a new perspective. I focus on the dutiesexecutives themselveshave with respect totheir owncompensation. I argue that CEOs’ fiduciary duties place a (...) moral limit on how much compensation they can accept, and hence seek in negotiation, from their firms. Accepting excessive compensation leaves the beneficiaries of their duties (e.g., shareholders) worse off, and thus is inconsistent with observing those duties. (shrink)

Moral luck – which seems to appear when circumstances beyond a person’s control influence our moral attributions of praise and blame – is troubling in that modern moral theory has supposed morality to be immune to luck. In business, moral luck commonly influences our moral judgments, many of which have economic consequences that cannot be reversed. The possibility that the chance intervention of luck could influence the way in which we assign moral accountability in business ethics is unsettling. This paper (...) argues that if we cannot explain moral luck away, we should give consideration to moral risk in our moral judgments and the associated assignment of economic rewards regarding episodes in which moral luck plays a role. (shrink)

This paper investigates a series of normative principles that are used to justify different aspects of executive compensation within business firms, as well as the remuneration of lower-ranking employees. We look at how businesses perform pay benchmarking; employees’ engagement, fidelity and loyalty ; and the acceptability of what we call both-ends-dipping, that is, receiving both ex ante and ex post benefits for the same work. We make two observations. First, either different or incoherent principles are used to justify the pay (...) of executives compared to employees, or the same principles are applied differently. Second, these differences or inconsistencies tend to be to the benefit of executives and/or to the detriment of employees. We conclude by asking whether there is any reason for thinking differently about executive pay than we do about employee pay. Our analysis leads us to question the principles justifying current executive compensation and to wonder if these principles are potentially being instrumentalized to serve other ends. (shrink)

This paper investigates a series of normative principles that are used to justify different aspects of executive compensation within business firms, as well as the remuneration of lower-ranking employees. We look at how businesses perform pay benchmarking; employees’ engagement, fidelity and loyalty ; and the acceptability of what we call both-ends-dipping, that is, receiving both ex ante and ex post benefits for the same work. We make two observations. First, either different or incoherent principles are used to justify the pay (...) of executives compared to employees, or the same principles are applied differently. Second, these differences or inconsistencies tend to be to the benefit of executives and/or to the detriment of employees. We conclude by asking whether there is any reason for thinking differently about executive pay than we do about employee pay. Our analysis leads us to question the principles justifying current executive compensation and to wonder if these principles are potentially being instrumentalized to serve other ends. (shrink)

This article outlines the structure of a Rawlsian theory of justice in the employment relationship. A focus on this theory is motivated by the role it plays in debates in business ethics. The Rawlsian theory answers three central questions about justice and the workplace. What is the relationship between social justice and justice at work? How should we conceive of the problem of justice in the economic sphere? And, what is justice in the workplace? To see fully what demands justice (...) makes on the workplace, we should first spell out the implications that domestic justice has for working conditions. When this is done, we can develop a conception of workplace justice and investigate what content such local justice should have. John Rawls’s political liberalism was constructed for the specific problem of a just basic structure; in order to apply it to another problem the key theoretical concepts must be revised. Reasons for a specific construction of a local original position are given and arguments are presented in support of a principle of local justice, which takes the form of a choice egalitarian local difference principle. (shrink)

This paper applies a utilitarian analysis to corporate political donations. Unlike the more common rights-based analyses, it is argued that the optimal policy is the one that best satisfies society’s rational preferences concerning donor influence, adequate financing, donor pressure and the cost of maintaining and enforcing the democratic system. This analysis suggests that a ban is best if it would be generally observed and sufficient financing from other sources is available, otherwise a donation cap is a better option. Further, lobbyists (...) should be banned from donating small gifts and drafting bills for candidates. The impact of disclosure and other risk management mechanisms are also considered. (shrink)

Must CEOs Be Saints? Contra Moriarty on CEO Abstemiousness by Robert KolbIn this journal, Jeffrey Moriarty argued that CEOs must refuse to accept compensation above the minimum compensation that will induce them to accept and per­form their jobs. Acting otherwise, he maintains, violates the CEO’s fiduciary duty, even for a CEO new to the firm. I argue that Moriarty’s conclusion rests on a failure to adequately distinguish when a person acts as a fiduciary from when she acts on her own (...) account as a person. Further, Moriarty’s argument assumes that the CEO knows this minimum level of compensation. However, we learn the suitability of compensation only through the market process of wage negotiation, not through some process of introspection. I conclude that a CEO who abstains from interfering with the board of directors and its compensation com­mittee is morally free to negotiate for the highest wage available. (shrink)

Prior research has examined several ethical questions related to executive compensation. The issues that have received most attention are whether executives' pay is fair and justified by performance. Since more recent studies show that stock options grants constitute the single largest component in executive compensation, we examine the relations of these grants to economic determinants and corporate governance for firms in the stagnant stage of their lifecycle. We find that, on average, stock options grants comprise a significant portion of annual (...) CEO compensation (26.4%) for stagnant firms. We also find that economic (corporate governance) factors explain less (or more) of the cross-sectional variation in stock options grants for stagnant firms than for growth firms. Furthermore, we document lower pay-performance sensitivity (i.e., weaker incentive alignment) and no improvement in future firm performance from past stock options grants to CEOs of stagnant firms. In particular, our study provides empirical evidence on some inefficiencies associated with stock options grants to CEOs of low potential (stagnant) firms, a long-standing concern of business ethics researchers (Moriarty, 2005; Nichols and Subramaniam, 2001; Perel, 2003). Our results also provide support for the corporate governance reforms discussed in Matsumura and Shin (2005), especially those proposed provisions that curtail the power of CEOs in the governance of firms. (shrink)

This article addresses the issue of moral compunction among a sample of senior managers set against the background of their routine organizational participation. In considering what factors influence their moral sensibilities these managers were interviewed using an approach designed to elicit their perceptions concerning both the ethical and commercially imperative dimensions of their working lives. The qualitative data resulting from this inquiry, while tentative, indicates the primacy of the normative appeal of shareholder value, conditioned by the exigencies of engagement in (...) corporate bureaucracies, including the maintenance of career and livelihood responsibilities. These conclusions indicate the magnitude of the obstacle that the normative business ethics project requires to overcome in order to fulfil its promise. (shrink)

This article addresses the issue of moral compunction among a sample of senior managers set against the background of their routine organizational participation. In considering what factors influence their moral sensibilities these managers were interviewed using an approach designed to elicit their perceptions concerning both the ethical and commercially imperative dimensions of their working lives. The qualitative data resulting from this inquiry, while tentative, indicates the primacy of the normative appeal of shareholder value, conditioned by the exigencies of engagement in (...) corporate bureaucracies, including the maintenance of career and livelihood responsibilities. These conclusions indicate the magnitude of the obstacle that the normative business ethics project requires to overcome in order to fulfil its promise. (shrink)

This paper challenges Alasdair MacIntyre’s assertion that the modern firm — such as Google, Unilever, or Microsoft — is inimical to human flourishing within an Aristotelian framework. The paper begins by questioning MacIntyre’s rendering of utopian communities. It then addresses four specific criticisms of the modern firm to be found throughout MacIntyre’s oeuvre, namely compartmentalisation, myopia, inequality, and loss of community. Arguments are made to the effect that these criticisms do not vitiate the institutional role of the modern firm in (...) an Aristotelian context. The paper concludes with an invocation of the modern firm as institutional ideal within an evolving utopian vision of human flourishing. This is a utopian vision in which the modern firm plays a constructive, not corruptive, institutional role. (shrink)

We empirically examine the impact of corporate social responsibility (CSR) on CEO compensation using a large sample of the US firms from 1996 to 2010. We develop and test two hypotheses, the overinvestment hypothesis based on agency theory and the conflict–resolution hypothesis based on stakeholder theory. We find that the lag of CSR adversely affects both total compensation and cash compensation, after controlling for various firm and board characteristics. Our estimates show that an interquartile increase in CSR is followed by (...) a 4.35% (2.78%) decrease in total (cash) compensation. We also find an inverse association between lagged employee relations and CEO compensation. Our results are robust to the correction for endogeneity using instrumental variable approach. Taken together, our results support the conflict–resolution hypothesis, but not the CSR overinvestment argument. (shrink)

This article recommends the film Inside Job as an effective teaching tool for illustrating the ethical issues that surrounded the global financial crisis of 2008 and the subsequent economic downturn. The study discusses issues such as the revolving door, conflicts of interest, fiduciary duty, executive compensation, and financial regulation. The presentation of each ethical issue comprises suggested questions, background information, and guides to specific sections of the film. An overview of the film is provided as well.

In this article, I aim to clarify some key issues in the ongoing debate about the relationship between Rawlsian political philosophy and business ethics. First, I discuss precisely what we ought to be asking when we consider whether corporations are part of the “basic structure of society.” I suggest that the relevant questions have been mischaracterized in much of the existing debate, and that some key distinctions have been overlooked. I then argue that although Rawlsian theory’s potential implications for business (...) ethics are more extensive than some have suggested, the nature of the concern that we ought to have about the effects of corporate behavior on individuals’ economic and social conditions should lead us to reject the view that corporations are bound by principles of justice only if, and insofar as, they are part of the basic structure. (shrink)

We examine how UK listed companies set executive pay, reviewing the implications of following best practice in corporate governance and examining how this can conflict with what shareholders and other stakeholders might perceive as good behaviour. We do this by considering current governance regulation in the light of interviews with protagonists in the debate, setting out the dilemmas faced by remuneration-setters, and showing how the processes they follow can lead to ethical conflicts.Current ‘best’ practice governing executive pay includes the use (...) of market benchmarks to determine salary and bonus levels, significant levels of performance-related pay, the desire for executives to hold equity in their companies, the disclosure of total shareholder return compared to an index, and a perceived need for conformity, in order to grant legitimacy to policies. Whilst each of these may in some circumstances lead to good practice, each has the potential to cause dysfunctional behaviour in executives. Overall, we conclude that although best practice might drive good executive behaviour that coincides with the company’s and key stakeholders’ objectives, there are many reasons why it should not. (shrink)

We examine how UK listed companies set executive pay, reviewing the implications of following best practice in corporate governance and examining how this can conflict with what shareholders and other stakeholders might perceive as good behaviour. We do this by considering current governance regulation in the light of interviews with protagonists in the debate, setting out the dilemmas faced by remuneration-setters, and showing how the processes they follow can lead to ethical conflicts. Current 'best' practice governing executive pay includes the (...) use of market benchmarks to determine salary and bonus levels, significant levels of performance-related pay, the desire for executives to hold equity in their companies, the disclosure of total shareholder return compared to an index, and a perceived need for conformity, in order to grant legitimacy to policies. Whilst each of these may in some circumstances lead to good practice, each has the potential to cause dysfunctional behaviour in executives. Overall, we conclude that although best practice might drive good executive behaviour that coincides with the company's and key stakeholders' objectives, there are many reasons why it should not. (shrink)

As information technologies have become synonymous with progress in modern society, several ethical concerns have surfaced about their societal implications. In the past few decades, information technologies have had a value-laden impact on social evolution. However, there is limited agreement on the responsibility of businesses and innovators concerning the ethical aspects of information technologies. There is a need to understand the role of business incentives and attitudes in driving technological progress and to understand how they steer the ethics discourse on (...) technology. In the information technology industry, there is an observed trivialization of ethics supported by a business driven and technology-centric approach to ethics. This trivialization rests on hardened beliefs, ideologies, and arguments which hint at reduced accountability for business and tend to individualize social responsibility. The phenomenon of ethics trivialization needs to be duly addressed to resolve the tensions between business needs and ethical concerns. This paper has identified from literature and conceptually analyzed the beliefs and ideologies underlying ethics trivialization which undermine ethics in business contexts. The paper has attempted to address the business concerns indicated by this phenomenon as well as highlight the weaknesses of its assumptions, rhetoric, and justifications. The aim of this paper is to systematically present the justifications in favor of and against the practice of ethics trivialization in the information technology domain, thereby highlighting the need to develop frameworks for assessment of ethical responsibility, accountability, and democratization of the value trade-offs involved in the design of technologies. (shrink)

This article provides an overview of the field of business ethics.

This thesis investigates what work ought to be like. The answer it presents consists of an outline of a liberaltheory of justice in the employment contract based on theory developed in the area of political philosophy. Thethesis also examines issues of efficiency—How should measures to improve working conditions be evaluated?—and the ethical implications of the economic theory of employment contracts and the neoclassical theory of themarket. Paper I: A theoretical framework is introduced for the evaluation of workplace inspections with respect (...) totheir effects on working conditions. The choice of a concept of efficiency is discussed, and its relation to criteriafor a good working environment is clarified. It is concluded that in order to obtain reliable information onthe effects of different inspection methods, it is necessary to perform controlled comparative studies in whichdifferent methods are used on different workplaces. Paper II: This article outlines the structure of a Rawlsian theory of justice in the employment relationship. The theory answers three questions about justice and the workplace. What is the relationship between socialjustice and justice at work? How should we conceive of the problem of justice within the economic sphere?And, what is justice in the workplace? Reasons for a specific construction of a local original position are givenand arguments are presented in support of a principle of local justice in the form of a choice egalitarian localdifference principle. Paper III: The political philosophy of John Rawls is applied to the moral dilemma of whistleblowing, andit is shown that that the requirement of loyalty, in the sense that is needed to create this dilemma, is inconsistentwith that theory. In a discussion and rejection of Richard De George’s criteria on permissible whistleblowing,it is pointed out that the mere rejection of loyalty will not lead to an extreme position; harms can still be takeninto account. Paper IV: The case is made that if contemporary economics of the employment contract is correct, thenin order to explain the existence of employment contracts, we must make the assumption that the contractingparties are attempting to deal with decisiontheoreticignorance. It follows that the course of action that theemployer chooses to take when acting from authority cannot be justified by consent, since the informednesscriterion of consent cannot be satisfied under ignorance. It is then suggested that in order to achieve justificationof acts of authority, there must be in place a real possibility to contest employers’ decisions. Paper V: According to Ronald Dworkin’s theory of equality of resources, mimicking the ideal market fromequal starting points is fair. According to Dworkin, the ideal market should be understood as described in GérardDebreu’s influential work, which implies that we should conceive of trade as taking place under certainty. Thereare no choices under risk in such a market. Therefore, there is no such thing as option luck in the ideal market. Consequently, when mimicking this market, we cannot hold people responsible for option luck. Mimicking thismarket also implies that we ought to set up a social safety net, since rational individuals with perfect foresightwould see to it that they always have sufficient resources at each point in life. Furthermore, the idea of insuranceis incompatible with the ideal market. (shrink)