Shareholders and social responsibility

Journal of Business Ethics

Volumn 81, Issue 2, 2008, Pages 297-312

  Schaefer, Brian P ^a  

^a UNIVERSITY OF NORTH CAROLINA   (United States)

Author keywords

Corporation; Investor; Judeo Christian ethics; Kantianism; Management; Shareholder; Social responsibility; Stakeholder; Utilitarianism; Virtue ethics

Indexed keywords

EID: 46449116686     PISSN: 01674544     EISSN: 15730697     Source Type: Journal    
DOI: 10.1007/s10551-007-9495-0     Document Type: Article

References (75)

1. Milton Friedman, "The Social Responsibility of Business is to Increase Its Profits" reprinted in Ethical Theory and Business, 7th Ed., ed. Tom L. Beauchamp and Norman E. Bowie (Upper Saddle River, NJ: Pearson, 2004), 50-55.
2. The piece is an extension of ideas first advanced in his Capitalism and Freedom (Chicago: University of Chicago, 1962), esp. 133-136.
3. Friedman recently said of the piece "I still hold fully with that article. I haven't seen any reason to change or add anything to it." See "Social Responsibility: 'Fundamentally Subversive'?" in Business Week on-line, 2005.
4. I think particularly of the attempts of R. Edward Freeman to argue that a stakeholder understanding of the corporation is entailed by Kantian and Rawlsian theories, respectively. For the argument concerning Kantian theory see William M. Evan and R. Edward Freeman, "A Stakeholder Theory of the Modern Corporation: Kantian Capitalism" in Contemporary Issues in Business Ethics, 5th Ed., ed. Joseph Desjardins and John McCall (Boston: Wadsworth, 2005), 76-84.
5. For the argument concerning Rawlsian theory see R. EdwardFreeman, "A Stakeholder Theory of the Modern Corporation" in Ethical Theory and Business, 55-64.
6. For convincing refutations of both see John Hasnas, "Two Normative Theories of Business Ethics: A Critique" in Ethical Theory and Business, 65-74, esp. 70-72.
7. Friedman says that, aside from the requirement of legality, those ends must conform with "ethical custom" in society. See "The Social Responsibility of Business is to Increase its Profits," 51.
8. If my argument in section "Convergence against Friedman" is correct this is a problematic requirement for Friedman, since his own views about what shareholders should and should not do diverge significantly from the mainstream, of Western "ethical custom." Friedman's requirement of legality may also present problems of greater complexity than he realizes. For this see Daryl Koehn, "The Ethics of Business: Moving Beyond Legalism," Ethics and Behavior 6 (1996), 1-16.
9. In fact, Friedman explicitly characterizes his theory in this way. We see this both in the title of the main piece under discussion, and in Capitalism and Freedom when he says "there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game." Capitalism and Freedom, 133.
10. See Freeman's "narrow definition" of stakeholders in "A Stakeholder Theory of the Modern Corporation," 58.
11. This characterization of Friedman is similar to the "narrow sense" of social responsibility discussed by Hasnas. See "Two Normative Theories of Business Ethics: A Critique," 65.
12. "Two Normative Theories of Business Ethics: A Critique," 65. Ibid., 67.
13. The intended relation between the arguments is unclear. I read them as intended to be independendy sufficient. It is possible that they are instead intended to be joindy sufficient, such that the utilitarian argument is meant to provide necessary support for the deontological argument. But if my arguments against Friedman have merit then this issue should not be very important, since neither argument would be strong enough to provide much support to the other anyway.
14. See, e.g., Capitalism and Freedom, p. 133. While it is true that the corporate executive could sometimes have a duty to spend money in such a way that exercises social responsibility, he or she has this duty not because it exercises social responsibility but because it maximizes profits. As I have mentioned, the two can overlap.
15. For example, Thomas Pogge's argument suggests that the fact that management is bound by the ordinaryclaims of morality should lead it to reject the kind of directive Friedman has in mind. See his World Poverty and Human Rights (Cambridge, MA: Polity, 2002), Chapter 3.
16. Richard Nunan argues that the implied contract between the corporate executive and shareholders need not and does not prohibit a corporate executive from exercising social responsibility. See his "The Libertarian Conception of Corporate Property: A Critique of Milton Friedman's Views on the Social Responsibilities of Business," Journal of Business Ethics, 7 (1988), 891-906.
17. John R. Boatright argues that there is no basis for a contract, implied or otherwise, between shareholders and the corporate executive. See his "What's So Special About Shareholders?" reprinted in Beauchamp and Bowie, 75-83.
18. "The Social Responsibility of Business Is to Increase Its Profits," 51.
19. A similar point is made for somewhat different purposes in an excellent recent piece by David Rodin. For example, Rodin says "the principal [the shareholders] is responsible for setting morally appropriate terms under which an agent [the corporate executive] will manage his affairs." See Rodin, "The Ownership Model of Business Ethics," Metaphilosophy 36 (2005), 163-181, esp. 173. While Rodin uses this point for the purpose of supporting a new theory of the purpose of the corporation, my own view is that the point is more useful as a way of setting up an argument against Friedman, and is by itself neutral on the question of whether we should support a revised version of shareholder theory, a stakeholder theory, or a different kind of theory altogether.
20. "The Social Responsibility of Business Is to Increase Its Profits," 55.
21. The relation is explained in more detail in Capitalism and Freedom. There Friedman says that capitalism is a necessary, but not a sufficient, condition for political freedom. See p. 10.
22. I take the image of "trumps" from Ronald Dworkin's famous account of rights as trumps. The idea is that the considerations in question are of such great importance that no aggregate of competing considerations can defeat them. See Dworkin, "Rights as Trumps" reprinted in Tlieories of Rights, ed. Jeremy Waldron (Oxford: Oxford University Press, 1984), 153-167.
23. "The Social Responsibility of Business is to Increase Its Profits," 50-51.
24. Friedman's view is of course only one version of libertarianism, and a rather simple one at that. An argument against Friedman's version thus may not serve as an effective argument against other forms of libertarianism.
25. "The Social Responsibility of Business Is to Increase Its Profits," 51.
26. "The Social Responsibility of Business Is to Increase Its Profits," 51. ibid.
27. See Capitalism and Freedom, 191-195.
28. He says only that he "accepts...this line of reasoning," then moves immediately to discussing some of its practical implications. Capitalism and Freedom, Ibid., 191.
29. "Social Responsibility: 'Fundamentally Subversive?'" Speaking of Home Depot's supposed exercise of social responsibility such as building playgrounds for children, Friedman says "Come to the bottom line: Is Home Depot spending directly or indirectly any substantial fraction of its profits on such social activities? If so, it would get competed out of existence." Since this claim, does not depend on any features particular to Home Depot as a corporation I think it can. be characterized as a statement about corporations generally.
30. See Harvey S. James, Jr. and Farhad Rassekh, "Smith, Friedman, and Self-interest in Ethical Society," Business Ethics Quarterly 10 (2000), 659-674, esp. 666667.
31. See Adam Smith, The Wealth of Nations (Chicago: University of Chicago Press, 1776/1976), especially Books I and IV.
32. "A Stakeholder Theory of the Modern Corporation," 57-58.
33. Friedman acknowledges that private monopolies are undesirable, but thinks they are usually best left unregulated. The difference between his position and one that does not acknowledge the existence of monopolies thus seems, for present purposes, not very great. See Capitalism and Freedom, 128-132.
34. "Two Normative Theories of Business Ethics: A Critique," 67-68.
35. "Two Normative Theories of Business Ethics: A Critique," Ibid, 67.
36. "The Social Responsibility of Business is to Increase its Profits," 52-53.
37. See also Capitalism and Freedom, 133-134.
38. A similar point is made by Sean McAleer in "Friedman's Stockholder Theory of Corporate Moral Responsibility," Teaching Business Ethics 7 (2003), 437-451, esp. 447.
39. There is a logical gap here since the Shareholder Claim says that shareholders never have a duty to direct management to exercise social responsibility, while Friedman's more recent comments speak of spending a "substantial fraction of...profits." But I think the comment can still serve as a basis for a utilitarian defense of the Shareholder Claim of sufficient plausibility to be worth consideration.
40. Aside from Home Depot, which Friedman mentions, one could cite such highly profitable and socially responsible corporations as Hewlett-Packard, Motorola,Timberland, Johnson & Johnson, General Mills, Starbucks, and many more. See "100 Best Corporate Citizens 2006" in Business Ethics 20 (2006).
41. Friedman's recent comments suggest that he thinks that these companies are not really exhibiting social responsibility, but are only cleverly engaging in good public relations in their pursuit of profits. But he presents no evidence for this rather cynical speculation. See "Social Responsibility: 'Fundamentally Subversive'?"
42. The relation between, these two aspects of the Categorical Imperative, expressed in different formulations, is controversial. Kant appears to have believed them to be equivalent. Others have thought that they cannot be. But the fact that, according to Kant, both are expressive of the moral requirements that bear upon all rational beings is not in dispute. My argument is neutral between seeing the two formulations as equivalent or as non-equivalent but independently binding.
43. Immanuel Kant, Groundwork of the Metaphysic of Morals, trans. H.J. Paton (London: Routledge, 1948), 86.
44. Immanuel Kant, Groundwork of the Metaphysic of Morals, (1948), 86 Ibid.
45. Kant, 92-93.
46. See Aristode, "Nichomachean Ethics", Book IV,
47. reprinted, in The Complete Works of Aristotle, Vol. 2, ed. Jonathan Barnes (Princeton, NJ: Princeton University Press, 1.984), 1767-1781.
48. Aristotle says "the lovers of what is noble find pleasant the things that are by nature pleasant; and excellent actions are such, so that these are pleasant for such men as well in their own nature. Their life, therefore, has no further need of pleasure as a sort of adventitious charm, but has its pleasure in itself." Aristotle, 1:8, 1737.
49. Robert Solomon, "Corporate Roles, Personal Virtues: An Aristotelian Approach to Business Ethics" reprinted in Ethical Issues in Business: A Philosophical Approach, 7th Ed., ed. Thomas Donaldson, Patricia Werhane and Margaret Cording (Upper Saddle River, NJ: Prentice Hall, 2002), 71.-83, esp. 73.
50. Aristotle, 1:3, 1730.
51. Ibid., IV:1, 1767.
52. Aristotle, IV:1, 1768.
53. Ibid., IV:1, 1769.
54. Utilitarian arguments would generally seem more effective against virtue ethics positions than Kantian arguments would because utilitarianism shares the teleological structure of virtue ethics, even if it differs in the content of the telos and the means by which it is reached. Kantian morality is, in this respect, a very different animal.
55. The Holy Bible, New Revised Standard Version, Leviticus 19:18.
56. The Holy Bible, New Revised Standard Version, Ibid., Isaiah 1:16.
57. The Holy Bible, Deuteronomy 14:29.
58. See also Deuteronomy 14:11-12, where it is not just some people who should rejoice in the presence of the Lord but everyone, including slaves, strangers, orphans, and widows.
59. The Holy Bible, Luke 1:48.
60. The Holy Bible, Ibid.,
61. Matthew 22:34-40.
62. It is coupled with the commandment to love God completely, and Jesus says "on these two commandments hang all the law and the prophets." Matthew 22:40.
63. The Holy Bible, Luke 4:18.
64. The Holy Bible, Ibid., Galatians 6:2.
65. It might be helpful here to think of the distinction between worth and merit made by Gregory Vlastos. Vlastos holds that each human being has equal worth, or fundamental value, even if it is false that each person has equal merit, or value deriving from particular talents and abilities. See Vlastos, "Justice and Equality" reprinted in Waldron, 31.-72.
66. The different explanations of human worth offered by these theories appear to lead to different delineations of scope regarding the class of beings that possess this worth. Kantians, for example, face a challenge of explaining how it is that non-rational human beings have basic worth. While this may be a concern for the argument that follows, it seems a rather peripheral one.
67. See Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1977).
68. This recalls Hasnas's reply to Freeman's Kantian argument. Of course the reply would not work against my Kantian argument since mine depends on different Kantian resources. See "Two Normative Theories of Business Ethics: A. Critique," 70-71.
69. This point may actually be supported by Friedman's own account of voluntary exchange. He says "exchange is truly voluntary only when nearly equivalent alternatives exist." Capitalism and Freedom, 28. He neglects to mention, though, that discrepancies in bargaining power often effectively eliminate such alternatives for lesspowerful economic actors.
70. For example see "A Stakeholder Theory of the Modern Corporation," 60-61.
71. For example see Kenneth Goodpaster, "Business Ethics and Stakeholder Analysis," Business Ethics Quarterly 1 (1991), 53-73.
72. See Albert Z. Carr, "Is Business Bluffing Ethical?" reprinted in Beauchamp and Bowie, 443-447.
73. For a reply see Thomas Carson, "Second Thoughts About Bluffing," Beauchamp and Bowie, Ibid., 448-153, esp. 451-452.
74. Rodin, 180.
75. I would like to thank Joslyn Ogden, Dennis Earl, and two anonymous referees for their helpful comments on drafts of this paper.