Business Ethics Quarterly 23 (2):207-238 (2013)

Many scholars and managers endorse the idea that the primary purpose of the firm is to make money for its owners. This shareholder wealth maximization objective is justified on the grounds that it maximizes social welfare. In this article, the first of a two-part set, we argue that, although this shareholder primacy model may have been appropriate in an earlier era, it no longer is, given our current state of economic and social affairs. To make our case, we employ a utilitarian moral standard and examine the apparent logical sequence behind the link between shareholder wealth maximization and social welfare. Upon close empirical and conceptual scrutiny, we find that utilitarian criteria do not support the shareholder model; that is, shareholder wealth maximization is only weakly linked to social welfare maximization. In view of the dubious validity of this sequential argument, we outline some of the features of a superior corporate objective—a variant of normative stakeholder theory. In the second article, we will advance and defend our preferred alternative and then discuss some institutional arrangements under which it could be implemented.
Keywords Applied Philosophy  Business and Professional Ethics  Social Science
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ISBN(s) 1052-150X
DOI beq201323215
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References found in this work BETA

Capitalism and Freedom.Milton Friedman - 1962 - Ethics 74 (1):70-72.
Stakeholder Theory and A Principle of Fairness.Robert A. Phillips - 1997 - Business Ethics Quarterly 7 (1):51-66.

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Citations of this work BETA

Efficiency and Ethically Responsible Management.Jeffery Smith - 2018 - Journal of Business Ethics 150 (3):603-618.
Shareholder Primacy and Deontology.Hasko von Kriegstein - 2015 - Business and Society Review 120 (3):465-490.

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