Abstract
This article draws on the moral philosophy of Immanuel Kant to explore whether a corporate ‘duty of beneficence’ to non-shareholders is consistent with the orthodox ‘shareholder theory’ of the firm. It examines the ethical framework of Milton Friedman’s argument and asks whether it necessarily rules out the well-being of non-shareholders as a corporate objective. The article examines Kant’s distinction between ‘duties of right’ and ‘duties of virtue’ (the latter including the duty of beneficence) and investigates their consistency with the shareholder theory. The article concludes that it is possible within the ethical framework of shareholder theory for managers to pursue directly the happiness of non-shareholders. Furthermore, shareholders have a duty to hold management to account for the moral consequences of the firm’s activities on non-shareholding stakeholders.
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Notes
Kaler (2006, p. 253) has a similar interpretation.
This description of a particular understanding of the manager–shareholder relationship relates simply to the Greek verb dein ‘to bind’ and is opposed to a strictly consequentialist understanding. It is not meant to imply a necessary connection to Kant’s ethics. I do not suggest that the three authors taken here as exemplars of the deontological approach would identify themselves as Kantians.
According to Kant’s translator Mary Gregor, he uses this term to refer to a ‘system of external laws’, rather than conformity to law (recht as an adjective), or simply ‘a right’ (Recht in its substantive use) (Gregor 1996, pp. xxxiv–xxxv).
In an analysis of ‘perfect’ and ‘imperfect’ duties, O’Neill (2001) expresses more ambiguity on this matter than Kant, writing: “duties which can actually be claimed by corresponding right holders are particularly suitable for enforcement by legal sanctions, since failure to fulfill the duty can be clearly established… It is harder to establish whether duties without corresponding rights can or ought to be enforced by law. Failure to fulfill such duties would require assessment of the entire course of an agent’s activities…”
John Rawls, in A Theory of Justice, recounts Kant’s argument for the duty of mutual aid but adds that in his view the most important argument for adopting the duty “is its pervasive effect on the quality of everyday life. The public knowledge that we are living in a society in which we can depend upon others to come to our assistance in difficult circumstances is itself of great value… The primary value of the principle is not measured by the help we actually receive but rather by the sense of confidence and trust in other men’s good intentions and the knowledge that they are there if we need them.” (1999, p. 298).
Kant’s first formulation is as follows: “act only in accordance with that maxim through which you can at the same time will that it become a universal law.” (1785, p. 31).
Kant explains in his lectures from the mid-1770s how the ‘disposition of benevolence’ applies even to one’s enemies: “well-wishing love we may also have for our enemies. Such well-wishing can always be heartfelt. I wish that he may come to himself, and may thereby make himself worthy of all happiness, and actually attain it.” (Kant 1997, p. 180).
For example, concerning human rights, the Global Compact recommends: “Companies should adopt a statement of policy as a public commitment to fulfill their responsibility to respect human rights, approved by their board or equivalent.” (UN Global Compact, n.d.)
In practice, this would usually mean at a minimum that shareholder proposals dealing with issues of ‘social’ and/or ‘environmental’ responsibility win the support of a majority of voting shareholders at a company’s annual meeting.
With this term the authors refer to attempts “to bolster the influence of shareholders (or owners) over the management of publicly listed companies through mechanisms that promote accountability and transparency, such as more equitable executive compensation, and strengthening of the independence and oversight powers of the board of directors” (Monks et al., p. 318). Their point is that CSR-related proposals tend to gain greater shareholder support if they are combined with the traditional type of shareholder activism described here, than if they are presented as stand-alone proposals.
For example, the UN Global Compact’s recommendation that business adopts a general policy of “Strategic social investment and philanthropy” as one way among others to promote human rights. (UN Global Compact, n.d.)
Kant does offer a more qualified view in the Metaphysics of Morals (1797, p. 153), simply arguing that one should bring one’s principle of complying with imperfect duty as close as possible to the strict requirements of perfect duty: “The wider the duty… the more imperfect a man’s obligation to action; as he, nevertheless, brings closer to narrow duty (duties of right) the maxim of complying with wide duty (in his disposition), so much more perfect is his virtuous action.”
The only sense in which imperfect duties could be described as ‘optional’ is if they lack corresponding rights and legal enforceability. For example, Kaler (2003, p. 80) argues that a stakeholder has no ‘right to accountability’ where the duty to them is merely imperfect.
Having the resources to pursue ‘one’s own perfection’ as an end is also relevant from a Kantian perspective but beyond the scope of this paper.
This point does not hold straightforwardly for institutional investors, although they can choose whether to commit publicly to ethical investment standards, such as the Principles for Responsible Investment (PRI). These principles commit institutional investors to being “active owners” and incorporating environmental, social and corporate governance (ESG) issues into their ownership policies and practices, for example by filing “shareholder resolutions consistent with long-term ESG considerations.” (Principles for Responsible Investment, n.d.)
As an illustration, the PRI ask institutional investors to commit to seeking “appropriate disclosure on ESG issues by the entities in which we invest”. They suggest this is possible inter alia by asking “for ESG issues to be integrated within financial reports” and supporting “shareholder initiatives and resolutions promoting ESG disclosure”. (Principles for Responsible Investment, n.d.)
To say that a company should not donate money to charity (an imperfect duty) that should have been used to pay wages or meet the interest payments on a loan (a perfect duty), is I think consistent with Friedman’s shareholder theory.
‘Ultimate’ is derived from the Latin ultimatus, a perfect participle meaning ‘ended’, ‘finished’ or ‘finalised’.
The argument is basically that for any stakeholder to enter into an act of exchange with a corporation, their subjective valuation of the good to be exchanged must differ from the value that is profitable for the corporation. Only then could a mutually beneficial exchange take place. If the subjective valuations on both sides of the trade are different, then the ends pursued through the act of exchange could not be the same. It follows that the ends a corporation ultimately pursues cannot comprise the interests of any stakeholder with whom it enters into acts of exchange (e.g. suppliers, customers, employees). Shareholders, however, do not exchange with corporations but delegate to them the authority to control the use of their investment. Shareholders are therefore the one stakeholder group whose interests can constitute, as a matter of contractual right, the ‘ultimate objective’ of a corporation. A more extensive version of this argument appears in Mansell (2013). Of course, an assumption is made here that the pursuit of shareholder interests is constrained by general perfect duties to respect the rights of others who may be affected by corporate activity (e.g. management would not have a duty to employ slave labour, even if it were the most effective way to maximise short-term profit and satisfy shareholders’ interests).
In Kant’s words this duty is to “Cultivate your powers of mind and body so that they are fit to realize any ends you might encounter” (1797, p. 155).
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Mansell, S. Shareholder Theory and Kant’s ‘Duty of Beneficence’. J Bus Ethics 117, 583–599 (2013). https://doi.org/10.1007/s10551-012-1542-9
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DOI: https://doi.org/10.1007/s10551-012-1542-9