ABSTRACT: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. (shrink)

The primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization (SWM). Distinctions between SWM and the more widely examined construct of profit maximization are identified, the most significant being the central role played in SWM by the market mechanism for pricing the corporation''s securities. It is argued that empirical tests concerned with evaluating the ethical implications of SWM will almost surely involve a joint hypothesis. A (...) number of recent empirical studies aimed at testing hypotheses with explicit ethical content are reviewed. (shrink)

The seed system is a major component of traditional management of crop genetic diversity in developing countries. Seed flows are an important part of this system. They have been poorly studied for minor Andean crops, especially those that are propagated vegetatively. We examine the seed exchanges of Oxalis tuberosa Mol., a vegetatively propagated crop capable of sexual reproduction. We studied the seed exchanges of four rural communities in Candelaria district at the international and local levels, emphasizing the spread of new (...) sexually-produced genotypes through these exchanges. Interviews with 44 farmers generated socioeconomic, agronomic, crop diversity and seed exchange information, and data on the potential incorporation of new sexually-produced genotypes in the crop germplasm. We interviewed merchants to evaluate the input and output of genetic diversity in the communities studied. Results showed a positive effect of the farmers’ wealth on the diversity cultivated and on seed exchanges. Most seed exchanges occurred at market, creating a distinction between cash and self-consumption landraces. Cash landraces were intensively exchanged; self-consumption landraces were isolated at the farmer level and prone to genetic drift and complete loss. Merchants exported seeds of cash landraces across Bolivia and into Peru and Argentina. New sexually produced genotypes are less incorporated into cash landraces than in self-consumed landraces. However, new genotypes incorporated into cash landraces are diffused faster and better, being more intensively exchanged. We propose conservation strategies that can be applied to other vegetatively propagated and minor Andean crops. (shrink)

In the history of science, the birth of classical chemistry and thermodynamics produced an anomaly within Newtonian mechanical paradigm: force and acceleration were no longer citizens of new cited sciences. Scholars tried to reintroduce them within mechanistic approaches, as the case of the kinetic gas theory. Nevertheless, Thermodynamics, in general, and its Second Law, in particular, gradually affirmed their role of dominant not-reducible cognitive paradigms for various scientific disciplines: more than twenty formulations of Second Law—a sort of indisputable intellectual (...) class='Hi'>wealth—are conceived after 1824 Sadi Carnot’s original statement and a multitude of entropy functions are proposed after 1865 Clausius’ former definition. Furthermore, at the end of nineteenth century, thermodynamics extended its cognitive domain to chemistry. Mainly thanks to Gibbs, a brand new discipline—chemical thermodynamics or physical chemistry—gradually affirmed its role inside the scientific community. This paper reports the former results of collaborative research program in the History and Epistemology of Science as well as Nature of Science Teaching aimed at retracing the foundations of the physical chemistry. Specifically, the research is structured in three parts: historical-epistemic reflections on fundamental thermodynamic concepts and principles—such as reversible process, heat, temperature, thermal equilibrium and Clausius’ Second Law—that play a structural role inside modern physical chemistry; panoramic overview on the entropy, whose polysemy makes it one of the most demanding concepts for scholars, teachers and students while approaching thermodynamics; conceptualization of chemical equilibrium as complex entity according to the dual epistemological approach offered by Gibbs’ thermodynamic model and the kinetic standpoint by Guldberg and Waage. In particular, the present work details an original reading of thermodynamic principles with the aim of setting forth a rationalized multidisciplinary substrate whereon the foundational concepts of reversible process and thermal equilibrium can be set. (shrink)

In the history of science, the birth of classical chemistry and thermodynamics produced an anomaly within Newtonian mechanical paradigm: force and acceleration were no longer citizens of new cited sciences. Scholars tried to reintroduce them within mechanistic approaches, as the case of the kinetic gas theory. Nevertheless, Thermodynamics, in general, and its Second Law, in particular, gradually affirmed their role of dominant not-reducible cognitive paradigms for various scientific disciplines: more than twenty formulations of Second Law—a sort of indisputable intellectual (...) class='Hi'>wealth—are conceived after 1824 Sadi Carnot’s original statement and a multitude of entropy functions are proposed after 1865 Clausius’ former definition. Furthermore, at the end of nineteenth century, thermodynamics extended its cognitive domain to chemistry. Mainly thanks to Gibbs, a brand new discipline—chemical thermodynamics or physical chemistry—gradually affirmed its role inside the scientific community. This paper reports the former results of collaborative research program in the History and Epistemology of Science as well as Nature of Science Teaching aimed at retracing the foundations of the physical chemistry. Specifically, the research is structured in three parts: historical-epistemic reflections on fundamental thermodynamic concepts and principles—such as reversible process, heat, temperature, thermal equilibrium and Clausius’ Second Law—that play a structural role inside modern physical chemistry; panoramic overview on the entropy, whose polysemy makes it one of the most demanding concepts for scholars, teachers and students while approaching thermodynamics; conceptualization of chemical equilibrium as complex entity according to the dual epistemological approach offered by Gibbs’ thermodynamic model and the kinetic standpoint by Guldberg and Waage. In particular, the present work details an original reading of thermodynamic principles with the aim of setting forth a rationalized multidisciplinary substrate whereon the foundational concepts of reversible process and thermal equilibrium can be set. (shrink)

L’objet de la présente recherche est d’interroger les mérites de la théorie utilitariste relative aux faillites personnelles, qui est dominante dans la littérature juridique depuis que le courant Law and Economics a gagné en importance. Nous démontrons que l’argumentation utilitariste, qui est assignée aux doctrines de l’acquittement des dettes personnelles par les spécialistes de Law and Economics travaillant dans le domaine du droit des faillites, soulève des questions normatives de taille et créée des tensions quand il s’agit de décrire le (...) phénomène. Ces deux problèmes invitent les théoriciens à proposer des modèles alternatifs pour décrire les conditions dans lesquelles nos systèmes juridiques soulagent les dettes des individus qui ne sont pas en mesure de les honorer. Dans notre ouvrage à paraître, The Virtue of Bankruptcy, nous embrassons ce projet. Ici, nous proposons une étape préliminaire à ce projet plus ambitieux en démontrant que les théories utilitaristes sur lesquelles s’appuient les contributions les plus importantes de la littérature sur la question à ce jour sont perfectibles lorsqu’il s’agit de comprendre les raisons et les circonstances dans lesquelles il est possible d’offrir un nouveau départ à ceux qui n’ont pas respecté leurs obligations financières. (shrink)

The purpose of this article is to take a fresh look at the concept of wealth creation that is urgently needed, given the huge gap between the global importance of wealth creation and the attention paid to it. It is argued that its notion we encounter is often very simple (as in "making money") or extremely vague (as in "adding value"). In the first section "Need for a fresh look at the creation of wealth", the need for (...) a fresh look is highlighted by pointing to three concerns about globalization and the roles and responsibilities of corporations. In the second section "Conceptual clarifications: what is the creation of wealth?", a rich concept of wealth creation is developed that includes physical, financial, human, and social capital, encompasses private and public wealth, accounts for its production and distribution, recognizes its material and spiritual side, and places wealth in the time horizon of sustainability. Moreover, creating (wealth) as "making something new and better" is distinguished from possessing and acquiring, and different motivations required for wealth creation are explored. The third section "Challenges for business ethics" discusses several challenges of this rich concept for the understanding of business ethics. (shrink)

In the last 30 years, China has experienced an astounding economic development that calls for a differentiated understanding of this complex process of wealth creation. In the first section of this article, I present a new concept of wealth creation that goes beyond making money, maximizing profit and adding value and serves as a framework to address the article's main topic.In the second section, I investigate in what ways and to what extent this new concept might apply to (...) China's economic reform and development, particularly in the 1980s and 1990s. In the third section, I attempt to draw a couple of lessons for development ethics in general. (shrink)

Rare earth elements have become increasingly important because of their relative scarcity and worldwide increasing demand, as well as China’s quasi-monopoly of this market. REEs are virtually not substitutable, and they are essential for a variety of high-tech products and modern key technologies. This has raised serious concerns that China will misuse its dominant position to set export quotas in order to maximize its own profits at the expense of other rare earth user industries. In fact, export restrictions on REEs (...) were the catalyst for the U.S. to lodge a formal complaint against China in 2012 at the World Trade Organization. This paper analyzes possible wealth transfer effects by focusing on export quota announcements by China, and the share price reactions of Chinese REE suppliers, the U.S. REE users, and the rest of the world REE refiners. Overall, we find limited support for the view of a wealth transfer in connection with MOFCOM announcements only when disentangling events prior to and post the initiation of the WTO trial, consistent with the trial triggering changes to China’s REE policy and recent announcement to abolish quotas. We do find, however, that extreme REE price movements have a first-order effect on all companies in the REE industry consistent with recent market trends to enable hedging against REE price volatility. (shrink)

This article introduces the concept of economic medicalization where non-medical problems are transformed into medical problems in order to achieve the objective of corporate shareholder wealth maximization. Following an overview of the differences in ethical norms applicable to medical ethics and business ethics, the economic medicalization of medical research practice and publication is examined in some detail. This motivates a general discussion of the problems involved in the ethical approval process for medical research that balances the interests of (...) both business and government in the market for medical products and services. (shrink)

The role of a corporation is often debated as a mutually exclusive choice between economic responsibility to shareholders and social responsibility to society. An evolving viewpoint embraces an integrated approach focused on long-term value creation for shareholders which benefits other stakeholders. Maximizing long-term shareholder value as a corporate objective can be compatible with stakeholder theory when an enlightened shareholder maximization strategy is embraced. Firms implementing an enlightened shareholder maximization strategy are expected to make decisions and use resources which (...) achieve long-term value-creating outcomes. However, critics of enlightened shareholder maximization as a corporate goal contend this strategy conflicts with maximizing shareholder value. This study explores whether firms which embrace a balanced enlightened shareholder maximization strategy indeed create long-term value which does not sacrifice shareholder wealth. (shrink)

ABSTRACT:Employing utilitarian criteria, Jones and Felps, in “Shareholder Wealth Maximization and Social Welfare: A Utilitarian Critique” (Business Ethics Quarterly23[2]: 207–38), examined the sequential logic leading from shareholder wealth maximization to maximal social welfare and uncovered several serious empirical and conceptual shortcomings. After rendering shareholder wealth maximization seriously compromised as an objective for corporate operations, they provided a set of criteria regarding what a replacement corporate objective would look like, but do not offer a specific (...) alternative. In this article, we draw on neo-utilitarian thought to advance a refined version of normative stakeholder theory that we believe addresses a major remaining criticism of extant versions, their lack of specificity. More particularly, we provide a single-valued objective function for the corporation—stakeholder happiness enhancement—that would allow managers to make principled choices between/among policy options when stakeholder interests conflict. (shrink)

The Epicureans advocate a moderately ascetic lifestyle on instrumental grounds, as the most effective means to securing tranquility. The virtuous person will reduce his desires to what is natural and necessary in order to avoid the trouble and anxiety caused by excessive desire. So much is clear from Epicurus' general ethics. But the later Epicurean Philodemus fills in far more detail about the attitude a wise Epicurean will take toward wealth in his treatise On Property Management. This paper explores (...) some of Philodemus' distinctive doctrines and argues that Philodemus' position on crafts is an improvement on the Socratic and Aristotelian positions that he is reacting against. Philodemus rejects both constraints on what counts as a genuine craft proposed by Socrates in the Gorgias: that a craft aims at a genuine good, and that it is based on a grasp of the nature of its subject. Philodemus also rejects the attempts of Xenophon and Theophrastus to preserve an important place for the craft of property management, conceived of as aiming at maximizing your wealth, within the Socratic and Aristotelian ethical tradition that puts virtue and virtuous activity at the center of the happy life. According to Philodemus, cultivating and exercising the traditional technê of property management is actually incompatible with being a virtuous person and obtaining happiness. (shrink)

The paper introduces a virtue-theoretic critique of recent “prosocial” revisions of shareholder primacy. The paper aims at widening the scope of virtue-based business ethics beyond its nearly exclusive focus on the character and virtue of managers, employees, and organizations. In contrast to MacIntyre-inspired research, the paper takes a “good intentions” approach that looks squarely at shareholders, regarding them as real people (not algorithms or institutions) occupying distinctive roles as principals of firms who are, ideally, virtuous moral agents. It is argued (...) that virtue ethics can play a part in questioning normative features of shareholder primacy and the objective function of the firm. Probing deeper than prudential and instrumental concerns, the paper poses normative questions about interpreting shareholder motivations: what _ought_ shareholders to prefer/want/desire?; _ought_ shareholders to desire profit maximization versus profit satisficing?; _ought_ shareholders to prefer other, prosocial goals, alongside of wealth?; should self-interested motivation in profit-seeking be considered virtuous? To lend focus, the paper taps Hart and Zingales’ recently revised “pro-social” version of shareholder primacy, as well as Munger and Russell’s analysis of “virtuous profit-seekers,” as normative frames of reference. Doing so enables a critical engagement with their respective accounts from the standpoint of virtue theory. Taking a “virtuous shareholders” perspective provides an aretaic standpoint, one that is appropriate, given that shareholders care about matters of justice and the common good. Shareholders are not simply concerned about making money. Hence it is the moral intentions and motivations of ideally virtuous shareholders which ought to modulate the profit-seeking activities of shareholders in accordance with maximizing their welfare. (shrink)

Police officers around the world must often select between equally unappealing, uncertain courses of action in an attempt to achieve the best outcome. Despite the immense importance of such decisions, there remains a lack of understanding in the study of individual differences in police decision-making. Here, using a sample of senior police officers recruited from decision-making training events across the United Kingdom (n = 96), we used the Least-worst Uncertain Choice Inventory For Emergency Responses (LUCIFER) to measure the effect of (...) maximization on both domain-specific (police) and domain-general (military) decisions. In line with a wealth of research on traditional “consumer” decisions, we found that police officers who were “maximizers” found decisions more difficult. Gender and previous military experience also influenced the process of decision-making. Specifically, police officers with military experience took more time to assess the situation but were faster to choose a course of action and commit to it. Female police officers also were slower to assess the situation. As recent events show, the outcomes of police decisions have significant consequences for the public, the officers involved, the police force as a whole, and the wider population, yet psychological research has yet to fully explore the role of individual differences in how such decisions are made. While this study does not seek to identify factors associated with “good” or “better” decision-makers, it provides strong support for the need to factor in perspectives of the individual when creating theory, or applied tools, in support of police decision-making. (shrink)

This paper shows that implicit assumptions about the numeraire good in the Kaldor-Hicks efficiency-equity analysis involve a "same-yardstick" fallacy (a fallacy pointed out by Paul Samuelson in another context). These results have negative implications for cost-benefit analysis, the wealth-maximization approach to law and economics, and other parts of applied welfare economics--as well as for the whole vision of economics based on the "production and distribution of social wealth.".

In lieu of an abstract, here is a brief excerpt of the content:110 DAVID HUME'S INVISIBLE HAND IN THE WEALTH OF NATIONS THE PUBLIC CHOICE OF MORAL INFORMATION Introduction The thesis I shall defend is that there are systematic aspects of Adam Smith's economics which make little sense when read in isolation from a literature in which David Hume provides the signal contributions. Consequently, parts of Hume's own work are stripped of meaning, isolated as they are from later developments. (...) The puzzles about Smith's analysis which I find illuminated by Hume's are the following: 1. Why does Smith both defend the importance of economic growth for the material of well-being of the working class and claim that property originates as spoil, impoverishing the working class? After all, in the classical system the existence of property is one requisite for economic growth. 2. Why does Smith exalt the assumption of self-interested behavior in private activity but claim that irrationality dominates the political process? 3. Why does Smith deny the importance of benevolence in Wealth of Nations and insist on the importance of morality Sentiment morality in Theory of Moral its?3 The three questions have a common feature: they are related to the question of how public goods are provided. The particular public good in question is the institution of private property. As with all true I am obligated to the Center for Study of Public Choice for generous support of my research. Suzanne Levy gets the credit for the extent to which this approaches English. I have benefited from acute comments from Charles Rowley and Charles Griswold. The errors and obscurities which remain are solely my responsibility. Ill public goods, society considered as a whole benefits from having such an institution, but each individual considered separately can gain by anti-social behavior.4 Public goods provide a considerable difficulty for any social institution; neither competition in the market nor government requests that individuals reveal how much they wish to be taxed are certain to be efficient. There are aspects of the classical economic analysis which stress the importance of moral information as a partial solution to the public goods problem. By "moral information" I only require that the theory is employed as a guide and that if an individual acts contrary to the theory, this choice is not cited as "falsifying" the theory. Rather, something is said to be "wrong" or "wicked" about the choice.6 Much of modern economic analysis assumes that individuals have perfect information; this postulate rules out any significant role for moral information in the provision of the public goods. To avoid assuming away such a role for morality, we will drop the perfect information assumption and then examine if we can make sense of the classics' attack on the public goods problem. Of course, the specification that individuals see their own interests very poorly is consistent with Smith's general approach. The technique employed below is to look at the issue which Hume and Smith addressed as a problem in modern economics. The key difficulty is to determine under what conditions moral information could guide individuals with very imperfect perceptions to maximize their utility. In particular, suppose we find that moral guidance tells an individual how efficiently to produce. Is this morality self-enforcing or are resources required to persuade people to act in accord with these teachings? If resources are required, we will not pay much attention to just how this persuasion 112 is provided, e.g., whether we tell people that theft is "evil" or whether we hang a few thieves. General production theory tells us we probably will do both, but this is a separate issue. The argument to be advanced is that moral information has self-enforcement properties in private activities but these properties are missing in public activities. In this account, then, real resources will be required for implementing the morality. This consideration in turn raises an interesting issue. If the government expends these resources, what reason is there to believe that they will be provided to serve the public interest and not the interest of the government? Is it possible that the government can prosper by keeping people ignorant or by giving them advice... (shrink)

A short (about 1,000 words) overview of adjudication, describing the standard view (judges should just apply the law, when possible) and two goal-oriented views: wealth maximization and the maximization of well-being – i.e., utilitarian adjudication.

The main argument of this theoretical paper is that the pursuit of honest profits in a voluntary market exchange is not only moral but also ingrained in human nature, in that human beings pursue activities that benefit them and avoid those that cause them loss. Through an examination of the Kenyan business venture called Iko Toilet (which is a mix of the Kiswahili word ‘iko’ meaning ‘there is’ and the English word ‘toilet’ to literally mean ‘there is a Toilet’), the (...) paper contends that there is no inherent contradiction between doing well (engaging in honest voluntary business transactions) in order to do good (maximize legitimate profits). (shrink)

Traditional corporate finance endorses the principle of stockholder wealth maximization as the purpose of business. In light of recent scandals and legislation, businesses are increasingly expected to use financial resources in a manner which benefits society and not just the owners of the firm. This imputation of a corporate soul will necessarily reduce investor returns, which has at least two major financial implications for the firm and the economy. The first is that it may cause investors to change (...) their required rates of return and thereby change the amount of capital available to firms, and the economy. The second is that it may implicitly replace equity with debt in the capital structure of firms, with all that implies for financing and corporate governance. The purpose of this article is to examine these implications and evaluate their sometimes counterintuitive consequences. (shrink)

Firms are central to wealth creation and distribution, but their role in economic inequality in a society remains poorly studied. In this essay, we define and distinguish value distribution from value creation and value appropriation. We identify four value distribution mechanisms that firms engage in and argue that shareholder wealth maximization approach skews the value distribution toward shareholders and top executives, which in turn contributes to rising economic inequalities around the world. We call on organizational scholars to (...) study the value distribution role of firms and its consequences for society, and introduce the articles in this volume of the special issue on economic inequality, business, and society. (shrink)

We investigate the role of personal values in an investment decision in a controlled experimental setting. Participants were asked to choose an investment in a bond issued by a tobacco company or a bond issued by a non-tobacco company that offered an equal or sometimes lower yield. We then surveyed the participants regarding their feelings toward tobacco use to determine whether these values influenced their investment decision. Using factor analysis, we identified investment- and tobacco-related dimensions on which participants’ responses tended (...) to load. Two of these factors, relating to the societal impact of investment decisions and the health effects of tobacco, were highly significant in determining whether participants selected a tobacco or non-tobacco related investment. More importantly, we found that when the rate of return on a tobacco-related investment exceeds the rate of return on an investment not involving tobacco by 1%, the intensity of participant concerns about the societal effects of their investment decisions was especially important in determining investment choices. This finding indicates that traditional wealth-maximization approaches, which do not consider the personal values of the investor, omit an important factor that affects investment decisions. (shrink)

In this piece, I argue that promises need not be kept just because they were made. This is not to say, however, that unwise, unhappy, and unfortunate promises do not generate obligations. When broken promises will result either in wrongful gains to promisors or wrongful losses to promisees, obligations of corrective justice will demand that such promises be kept if their breach cannot be fully repaired. Thus, when a broken promise will constitute a deliberate loss transfer for personal gain, the (...) duty not to exact unjust enrichment will require a promisor either to honor her promise or craft a means of ensuring that the promisee’s impoverishment is not traded for her enrichment. And when a broken promise will constitute the culpable imposition of a reliance-based injury on a nonculpable promisee, the duty to make others whole when one has purposefully, knowingly, or recklessly injured them will require one either to keep one’s promise or to fashion a remedy for its breach that ensures that the promisee is left no worse off than he would be had the promise not been made. This account explicitly parts ways with normative powers theories of promising. It places no weight at all on the raw fact that a promise has been made. Instead, it locates the gravamen of a promissory violation in the harm that is caused to a promisee who nonculpably relies upon and changes her position in anticipation of the prediction about the promisor’s future conduct that is embedded in his promise. Absent any adverse reliance on the part of a promisee, there is nothing that gives rise to an obligation of performance or repair on the part of the promisor. But this account is also to be distinguished from utilitarian theories that take promises to be instruments of wealth maximization that properly give way whenever the reason for honoring them speaks in favor of violating them. On my account, the balance of reasons for action that determines the morality of performance includes deontological rights and duties, agent-relative permissions, and Hohfeldian liberties. As I shall argue, even if one rightly concludes that one has no duty either to keep a promise or to craft a remedy for its breach, one must nevertheless remember that virtue requires one to be or become the kind of person who often goes beyond the call of duty. But the fact that virtue often requires us to do what we have no duty to do should not cause us to confuse its conditions with the conditions of right and wrong action. We have a duty to keep promises or to otherwise protect the reliance interests that they generate only when failing to do so will lead either to our own unjust enrichment or to others’ unjust injury. And this means that we have a duty to keep promises in far fewer circumstances than is commonly believed. (shrink)

The concept of organizational stigma has received significant attention in recent years. The theoretical literature suggests that for a stigma to emerge over a category of organizations, a “critical mass” of actors sharing the same beliefs should be reached. Scholars have yet to empirically examine the techniques used to diffuse this negative judgment. This study is aimed at bridging this gap by investigating Goffman’s notion of “stigma-theory”: how do stigmatizing actors rationalize and emotionalize their beliefs to convince their audience? We (...) answer this question by studying the stigma over the finance industry since 2007. After the subprime crisis, a succession of events put the industry under greater scrutiny, and the behaviors and values observed within this field began to be publicly questioned. As an empirical strategy, we collected opinion articles and editorials that specifically targeted the finance industry. Building on rhetorical analysis and other mixed methods of media content analysis, we explain how the stigmatizing rhetoric targets the origins of deviant organizational behaviors in the finance industry, that is, the shareholder value maximization logic. We bridge the gap between rhetorical strategies applied to discredit organizations and ones used to delegitimize institutional logics by drawing a parallel between these two literatures. Taking an abductive approach, we argue that institutional contradiction between field and societal-level logics is sufficient, but not necessary to generate organizational stigma. (shrink)

The shareholder wealth maximization objective for corporate management can be a very effective tool for decision making. However, it can also be used to rationalize the commission of unethical or socially irresponsible actions. Overemphasis on the SWM objective by some companies can lead to dangerous or disastrous consequences for consumers, employees, or the general population. Even so, issues of business ethics and social responsibility (BE-SR) are almost totally ignored in corporate finance textbooks. If the typical coverage of corporate (...) finance courses is represented by these textbooks, then financial educators are abdicating their responsibility to help prepare future corporate managers to recognize and deal with BE-SR issues effectively. (shrink)

Shareholders assume risk by investing. Sollars and Tuluca (2018) argue that while this does not justify a managerial policy of shareholder wealth maximization, it does justify compensating shareholders at the oftencalculated cost of equity—the cost that investors require given the level of risk they assume. Here, I show that this can be unfair if the cost of equity is unfair. I then show how shareholder wealth maximization as a managerial imperative is better justified on other grounds.

In the wake of the most recent financial crisis, corporations have been criticized as being self-interested and unmindful of their relationship to society. Indeed, the blame is sometimes placed on the corporate legal form, which can exacerbate the tension between duties to shareholders and interests of stakeholders. In comparison, the Benefit Corporation (BC) is a new legal business entity that is obligated to pursue public benefit in addition to the responsibility to return profits to shareholders. It is legally a for-profit, (...) socially obligated, corporate form of business, with all the traditional corporate characteristics combined with societal responsibilities. Considering the history and perception of shareholder primacy in United States law, it is argued that this new business structure is an ethical step toward empowering socially committed commercial entities. The contribution of this research is to provide a fundamental base of knowledge about the new legal form of business, the BC, upon which further study may rely. First, the legal history of the corporation is briefly reviewed in order to provide context to the relationship of the corporate form to society, including exploration of the premise that shareholder wealth maximization is its best and only purpose. Second, the BC is described in detail, and state statutes are compared. Third, the BC is placed within the context of corporate social responsibility. Finally, opportunities for future research are discussed. (shrink)

Business ethics scholars have proposed strategies for mitigating the ill effects brought on by a wealth maximization business strategy by urging managers to either embrace corporate social responsibility (CSR) or to manage according to stakeholder theory. In this article I argue that these strategies are often ineffective in bringing about the behavior they promote because it is antithetical to the nature and logic of capitalism. I examine the organizing principles of capitalism and the role it assigns to capitalists, (...) and juxtapose these with the behavior prescribed by three normative frameworks: strategic management theory (SMT), the CSR initiative, and stakeholder theory. Unlike the behaviors prescribed by the CSR initiative and stakeholder management theory, the behavior prescribed by SMT is consistent with the role of capitalists as defined by the organizing principles of capitalism, and SMT's “rules” have instilled habits that have, in turn, been able to mold managers’ aspirations and purposes. CSR and stakeholder theory must not only combat the habits instilled by the entrenched SMT, they must also find some way of instilling habits that run contrary to those defined by the nature and logic of capitalism itself. (shrink)

This paper argues that there are areas of political behavior for which the usual assumption of wealth maximizing homo economicus is to narrow to generate convincing explanation of behavior. In particular, it is argued that for many political decisions, people choose according to some set of moral preconceptions while for others, people have insufficient information to make economic choices even if they were inclined to do so. This implies that normative public choice can only be part of a political (...) decision process in which non-pecuniary concerns influence choices. Finally, constitutional economics insofar as it is conceptually conceived, must presume some set of moral and informational properties of the parties to the social contract. (shrink)

The neoclassical paradigm assumes that shareholders'' utility is solely a function of their wealth, and prescribes that management should act in a manner consistent with share price maximization. The stakeholder view also assumes that shareholders'' utility derives from wealth, but prescribes that managers must balance the shareholder wealth maximization objective against the rights of other constituencies. Thus, while neoclassicists and stakeholder theorists have different prescriptives for management behavior, their definitions of the shareholders'' interest are consistent (...) — shareholders are self-interested economic agents whose utility is best served by share price maximization. However, if shareholders are other-interested, and attack importance to ethical and moral values, then both the neoclassical and stakeholder view derive from invalid assumptions. In this paper, I present evidence that much shareholder behavior is ethically motivated. As a result, the basis for both the neoclassical and the stakeholder view are weakened. (shrink)

Despite waves of privatization around the world, state ownership of enterprise remains significant. The focus of scholars and policymakers has accordingly shifted from the defense and promotion of privatization to the design and improvement of corporate governance practices in state-owned enterprises. A broad consensus has emerged suggesting that state-owned firms should be corporatized, publicly traded and subject to the greatest extent possible to the same legal regime applicable to private firms. However, by focusing exclusively on what corporate and securities laws (...) can do to increase the efficiency of state enterprise, this view ignores the other side of the problem: How does the presence of SOEs affect the efficiency of corporate and securities laws as they apply to private firms? Brazil’s long historical experience with SOEs suggests that state ownership of listed firms can have unintended consequences that go beyond the potential firm mismanagement if the state pursues political goals inconsistent with shareholder wealth maximization. The state’s financial interest as the controlling shareholder of listed firms can lead it to disfavor legal reforms that improve minority shareholder rights, thus impairing the ability of private firms to raise outside financing. In ignoring the conflicts of interest inherent in the state’s dual role as shareholder and regulator, the conventional wisdom has likely overestimated the aggregate benefits of a unitary corporate law regime for both state-owned and private firms. (shrink)

This Article analyzes the composition of the board of directors as a vehicle for state intervention in corporate governance. Such intervention is ubiquitous and often motivated by goals that stray from shareholder wealth maximization, or corporate governance more generally, to promote other national interests such as diversity. Regulating board composition thus is merely the continuation of politics by other means. After briefly discussing direct state ownership in business firms as a way to advance policy goals, the Article explicates (...) the tensions between boards’ dual responsibilities of monitoring and strategy-setting. These oftentimes conflicting missions curb the law’s ability to guide board members’ conduct through the conventional legal duties of loyalty and care or other injunctions. Although the two roles also may entail conflicting implications for board composition, regulation of board composition nonetheless may prove a superior means for promoting policy goals, especially with regard to the objective of the corporation. Composition regulation harnesses board members’ personal attributes — specifically, their values — to facilitate the attainment of these goals. Instead of telling board members what to do, the state may fare better by regulating who they are. (shrink)

“Balancing Ethics and Shareholder Returns: The Case of Google in China” provides a timely example of a well-known firm who, in their attempt to act in an ethical manner, generated tremendous financial harm to their shareholders. It provides an interesting counterpoint to the assertion in the literature that shareholder wealth maximization provides an ethical basis for all business decisions. Google is a firm that many students know and admire, and this should spark interest in the case. It can (...) be assigned in the early stages of a corporate finance class, where the topic of discussion is the goal of the firm, or in a business ethics class, where the goal of the firm is evaluated. The case provides an opportunity to evaluate the ethical basis for Google’s actions, as well as the resulting impact on shareholder returns. The case may also represent a real-life counterpoint to the oft-repeated maxim that “Good ethics is good business”. Information in the case was compiled from secondary sources. (shrink)

In a published debate between Law and Economics avatar Judge Richard Posner and Professor Robin Malloy entitled ‘Is Law and Economics Moral?’, Malloy argued that the dominant methodology of Law and Economics is immoral. Malloy likened it to the Frankenstein Monster – an unholy, undead abomination that can go berserk despite its ostensibly benign provenience. Malloy claimed that wealth maximization applied to social discourse ‘reduces people to an human existence to imaginary variables for calculation’.

This paper analyses the impact of the Law and Economics movement on legal decision making. Focussing on the position of the leading intellectual figure of this movement, Richard Posner, the author shows how his theories imply a silent revolution in American jurisprudence. Starting from the criteria of economic efficiency and wealth maximization, seen in the light of American pragmatism, Posner upholds anti‐formalist interpretation of statutor law by judges based on the principles of free market economics. His theory starts (...) from the assumption that statutor law has become more and more ambiguous and open‐ended and thus, as in the case of antitrust law, judges can freely interpret legal provisions on the basis of free market postulates. This position has broader implications in the debate about the meaning of the rule of law: Posner's position implies abandoning the emancipatory core of the liberal tradition. (shrink)

The Delaware court's decision in eBay v. Newmark has been viewed by many commentators as a decisive affirmation of shareholder wealth maximization as the only legally permissible objective of a for-profit corporation. The implications of this court case are of particular concern for the emerging field of social enterprise, in which some organizations, such as, in this case, Craigslist, choose to pursue a social benefit mission in the for-profit corporate form. The eBay v. Newmark decision may also threaten (...) companies that seek to be socially responsible by serving constituencies other than shareholders at the expense of some profit. This examination of the court decision concludes that a legal requirement to maximize shareholder value may not preclude a commitment to social responsibility and may even permit the pursuit of a social benefit objective, such as the preservation of the culture developed by Craigslist. In particular, the court's decision in eBay v. Newmark reflects unique features of the case that could have been avoided by Craigslist and by other similar companies. (shrink)

The appropriate MBA curriculum has been debated for nearly a half century. More recently, critics contend that the emphasis on functional fields in MBA education has incorrectly elevated the importance of shareholder value resulting in unethical behavior. Although some criticism of MBA programs has merit, shareholder wealth maximization should remain the dominant management objective because it is relatively easy to implement and generally consistent with the interests of stakeholders.

A great deal has been written in recent years about the justification, if any, for the current levels of executive compensation. The folk consensus is that the current levels of executive compensation are unjustifiably high from both a moral and an economic perspective. In the case of the former, the compensation level is unfair and unjust. And in the case of the latter, the compensation level is not in the broader interests of other stakeholders or of firm-value maximization.In this (...) paper I counter this folk wisdom. I argue that executive compensation is a facet of the Stockholder Model, in which the primary objective of the firm is taken to be the maximization of shareholder wealth, and as such any moral critique of executive compensation is by default a critique of the Stockholder Model. Thus a necessary and sufficient condition for a moral defense of executive compensation is a moral defense of the Stockholder Model. I provide such a defense. Once the Stockholder Model is accepted then any moral or economic defense of executive compensation rests on its compatibility with shareholder wealthmaximization. I argue that the current levels of executive compensation are consistent with the overarching corporate goal of shareholder wealth maximization. Thus the current levels of executive compensation are both morally and economically justified. (shrink)

Modern legal theory contains a wide range of approaches and topics: from economic analysis of law to feminist legal theory to traditional analytical legal philosophy to a range of theories about justice. This healthy variety of jurisprudential work has created a problem: students and theorists working in one tradition may have difficulty understanding the concepts and terminology of a different tradition. This book works to make terminology and ways of thinking accessible. This dictionary covers topics from 'the autonomy of law' (...) to the 'will theory of rights', from 'autopoiesis' to 'wealth maximization', and from 'John Austin' to 'Ludwig Wittgenstein'. The most important concepts and ideas are presented in a simple dictionary format. There are also many longer entries, where the initial definition gives an accessible explanation, but the entry goes on to give more detailed information about the history of an idea and the debates currently surrounding it. (shrink)

“Balancing Ethics and Shareholder Returns: The Case of Google in China” provides a timely example of a well-known firm who, in their attempt to act in an ethical manner, generated tremendous financial harm to their shareholders. It provides an interesting counterpoint to the assertion in the literature that shareholder wealth maximization provides an ethical basis for all business decisions. Google is a firm that many students know and admire, and this should spark interest in the case. It can (...) be assigned in the early stages of a corporate finance class, where the topic of discussion is the goal of the firm, or in a business ethics class, where the goal of the firm is evaluated. The case provides an opportunity to evaluate the ethical basis for Google’s actions, as well as the resulting impact on shareholder returns. The case may also represent a real-life counterpoint to the oft-repeated maxim that “Good ethics is good business”. Information in the case was compiled from secondary sources. (shrink)

Contemporary economic analysts of the law argue that certain legal institutions, such as contract law, ought to be designed to promote wealth maximization, while different legal institutions ought to seek to achieve non-wealth maximizing aims, such as distributive justice. In order to preserve the normative claim that the sole aim of any single legal institution should be the promotion of wealth maximization, economists rely on the “specialization principle”: each legal institution must be organized around a (...) single normative criterion, partitioned from and without regard to the normative aims of other legal institutions. I argue that this idea of a strict normative division of labour between institutions is problematic. On any instrumentalist view, the normative justification of the ends of a particular legal institution cannot ignore the normative aims of the legal system of which it is a part. I develop this argument by critically examining the economic analyst’s claim that commercial contract law should be limited to helping firms maximize profit. (shrink)

We investigate the role of personal values in an investment decision in a controlled experimental setting. Participants were asked to choose an investment in a bond issued by a tobacco company or a bond issued by a non-tobacco company that offered an equal or sometimes lower yield. We then surveyed the participants regarding their feelings toward tobacco use to determine whether these values influenced their investment decision. Using factor analysis, we identified investment- and tobacco-related dimensions on which participants’ responses tended (...) to load. Two of these factors, relating to the societal impact of investment decisions and the health effects of tobacco, were highly significant in determining whether participants selected a tobacco or non-tobacco related investment. More importantly, we found that when the rate of return on a tobacco-related investment exceeds the rate of return on an investment not involving tobacco by 1%, the intensity of participant concerns about the societal effects of their investment decisions was especially important in determining investment choices. This finding indicates that traditional wealth-maximization approaches, which do not consider the personal values of the investor, omit an important factor that affects investment decisions. (shrink)

Recent scandals at Enron, WorldCom and Global Crossing have put the ethical spotlight on corporate malfeasance as never before. However, these are the situations in which management knew that they made the wrong choice. As professor Joseph Badaracco of Harvard Business School points out, the real ethical dilemmas arise when people must choose between right and right — where both choices can be justified, yet one must be chosen over the other. Whether or not to reprice stock options represents one (...) such ethical dilemma. Repricing can help exodus of talented employees and motivate them to improve firm performance. However, it alienates shareholders and other workers of the company who are left unprotected from the adverse economic consequences of a stock price decline.In this paper we examine the ethics and the economics of stock option repricing. We find that repricing runs counter to two key tenets of business ethics — distributive justice and ordinary decency. To examine the economics of repricing, we draw upon agency theory to identify situations where repricing has the potential to benefit shareholders. However, a survey of empirical research reveals that these benefits do not translate into reality. Repricing does not improve employee retention or firm performance. In addition, managers benefit by opportunistically timing the repricing. Due to weaknesses in corporate governance such as lack of independence and conflicts of interest, the current repricing practice seems to be at odds with the objective of shareholder wealth maximization, and at a more fundamental level, a violation of board's fiduciary duty to shareholders. We offer suggestions that mitigate the ethically undesirable effects of repricing in the wider context of prevailing corporate governance and regulatory environment. We believe that these suggestions, if properly implemented, can transform repricing from a greed-inspired evil to a valuable compensation tool to retain employees, boost their morale, and enhance stockholder wealth. (shrink)

This chapter contains section titled: Introduction A Characterization of Economic Analysis of Law Normativity Preference and Obligation Concluding Remarks Note References.

Machiavelli consistently advises that well-ordered republics must ‘keep their citizens poor’. Although this maxim recurs throughout the Discourses, Machiavelli never directly elaborates on what this prescription for civic poverty requires. To the limited extent that this maxim has received critical examination, it is commonly regarded as contending that citizens must live in a condition of material austerity. Through an analysis of Machiavelli's writings on the German free cities, this article challenges this interpretation and argues that rather than requiring that citizens (...) live at some particular level of poverty, the maxim instead requires only that citizens maintain certain attitudes towards poverty and wealth. (shrink)

Scholars have long debated the appropriate balance between efficiency and redistribution. But recently, a wave of critics has argued not only that efficiency is less important, but that efficiency analysis itself is fundamentally flawed. Some say that efficiency is incoherent because there is no neutral baseline from which to judge inefficiency. Others say that efficiency is biased toward those best able to pay (generally, the rich). This essay contends that efficiency is not meaningfully incoherent or biased. The most widely discussed (...) forms of efficiency do not require any particular baseline, and even those that do require a baseline can still serve as useful approximations of more theoretically sound but computationally demanding measures. Moreover, arguments of bias do not account for the source of funds in public projects, produce unintuitive results, and draw an arbitrary cutoff between bias and non-bias that elides important distributional details. Ultimately, the tradeoff between efficiency and redistribution remains the most useful frame for policy debate. (shrink)

Many business practices focus on maximizing material affluence, or wealth, despite the fact that a growing empirical literature casts doubt on whether money can buy happiness. We therefore propose that businesses consider the possibility of "time affluence" as an alternative model for improving employee well-being and ethical business practice. Across four studies, results consistently showed that, even after controlling for material affluence, the experience of time affluence was positively related to subjective well-being. Studies 3 and 4 further demonstrated that (...) the experience of mindàulness and the satisfaction of psychological needs partially mediated the positive associations between time affluence and well-being. Future research directions and implications for ethical business practices are discussed. (shrink)