Professionalism, Agency, and Market Failures

Abstract

According to the market failures approach to business ethics, beyond-compliance duties can be derived by employing the same rationale and arguments that justify state regulation of economic conduct. Very roughly, the idea is that managers have a duty to behave as if they were complying with an ideal regulatory regime ensuring Pareto-optimal market outcomes. Proponents of the approach argue that managers have a professional duty not to undermine the institutional setting that defi nes their role, namely the competitive market. This answer is inadequate, however, for it is the hierarchical fi rm, rather than the competitive market, that defi nes the role of corporate managers and shapes their professional obligations. Thus, if the obligations that the market failures approach generates are to apply to managers, they must do so in an indirect way. I suggest that the obligations the market failures approach generates directly apply to shareholders. Managers, in turn, inherit these obligations as part of their duties as loyal agents.

Weeding Out Flawed Versions of Shareholder Primacy: A Reflection on the Moral Obligations That Carry Over from Principals to Agents

“…Is this what shareholders who abide by moral norms would do if they were directly administrating the business and had the information, know-how, expertise, and competencies that the manager has? A corollary follows: the fiduciary obligations that an agent has to the principals do not give the agent moral immunity to pursue immoral activities; fiduciary obligations do not override the principal's moral obligations or license behavior by the agent that would be prohibited to the principal Kriegstein 2016). It is natural to infer from this that agents inherit all the obligations of principals.…”

“…One can divide the positions taken in the literature into three categories that differ according to how ethically demanding they are: Minimal : Minimal versions of shareholder primacy, by far the most widespread in the literature, argue that the moral obligations that constrain the activities of businesses are minimal: businesses are required to, at most, comply with the law and respect basic obligations such as fulfilling contracts and avoiding deception, theft, and coercion (Friedman 1962, 1970; Hasnas 1998; Sternberg 2000, 2010). 6 Maximal : Maximal versions of shareholder primacy propose that the moral obligations of businesses are equivalent to the moral obligations of shareholders (Goodpaster 1991; Kriegstein 2016; Mansell 2013, 2015; Ohreen and Petry 2012). Encompassing : Encompassing versions of shareholder primacy assert that the obligations of businesses extend significantly beyond what is required by minimal versions of shareholder primacy but are still less demanding than the obligations that are imposed on shareholders and human beings in general.…”

“…Maximal : Maximal versions of shareholder primacy propose that the moral obligations of businesses are equivalent to the moral obligations of shareholders (Goodpaster 1991; Kriegstein 2016; Mansell 2013, 2015; Ohreen and Petry 2012).…”

“…Minimal versions of shareholder primacy—the most well-known—require managers to conduct business within the law, avoid violating the most basic negative obligations, and prohibit transactions that involve coercion, deception, or fraud (Friedman 1962, 1970; Hasnas 1998; Sternberg 2000, 2010). Maximal versions of shareholder primacy hold that managers’ ethical obligations to external business parties are coextensive with the obligations that shareholders have towards these parties (Goodpaster 1991; Kriegstein 2016; Mansell 2013, 2015). Encompassing versions of shareholder primacy contend that managers are required to fulfill all nonelective obligations that bind shareholders, but they are not always required to fulfill (and are sometimes actually forbidden from fulfilling) discretionary obligations that bind shareholders as shareholders.…”

Corporate social responsibility strategies in Nigeria: a tinged shareholder model

“…In both cases, there were negative externalities experienced by stakeholders that had no input in creating the problems. As such, both cases raise concerns about economic actors and their leaning towards shareholder primacy (von Kriegstein, 2016) without responsibility for externalities. Besides, there are various instances of unethical pursuit for profit -a proxy for shareholder valuewhich dominates the shareholder model of the firm (Davies, 2002).…”