The Editors (pp. 64-76) on
The Corporation as a Social Institution
1. Editors argue that the corporation is a social institution as opposed to a private enterprise, serving private purposes, without society’s input into its nature and legitimate activities
2. Evidence that the corporation is a social institution
a. Chartered by the states (corporate charters)
b. Governed by norms of property and law (which are socially created)
c. Legal persons
i. Can sue and be sued
ii. Can own property
d. Limited liability
i. Owners of corporations (shareholders) financial liability for corporate harm is limited to the amount of their investment
ii. Ordinarily, if you cause harm with your property, your liability is not limited to the value of the property with which you cause the harm but extends to the full extent of the harm caused
(1) $200 VW causes $2000 damage to Mercedes
iii. A real benefit society has given corporations and for which it can respect much in return (e.g., responsible behavior)
3. Social contract between corporations and society (explain and justify corporate social responsibility)
a. Implicit (assumed agreement)
i. Can society change the terms of this agreement as times change?
b. Explicit (e.g., corporate charters of incorporation)
4. Corporate responsibilities might be different depending on (relative to) the society in which they operate (context matters in ethics)
a. Some societies might want corporations to house and educate their workers
b. Are “hypernorms”, that is, basic moral rights that must be observed by all corporations in all societies.
5. Shareholder versus stakeholder theories of corporate responsibility
a. Shareholder view: Managers’ sole job is to benefit the shareholders
i. Editors argue that managers must not only provide a return on investment to shareholders, but also adopt policies that guarantee a supply of productive workers and adequate demand for products
b. Stakeholder view: Managers’ job is to benefit all those who have a stake in the corporation (shareholders, creditors, employees, consumers, suppliers, community, environment)
6. Critics of stakeholder view
a. Why do stakeholders (other than shareholders) deserve consideration beyond what they negotiated with the company
b. “Agency problem:” How can we align the interests of managers (“agents”) and shareholders if we tell the managers they have responsibilities other than to maximize shareholder wealth? Only clear yardstick for evaluating manager performace is the value of shares. Manager who runs a corporation to enrich him/herself, can always say they were trying to benefit other stakeholders.....
i. But if long-term profits are the correct goal, this too can be used as a cover by managers seeking to enrich themselves.
7. Defense of stakeholder view
a. Paradoxically, best way to maximize profits for shareholders is not to look out solely for shareholders but to try to benefit all the corporation’s stakeholders.
8. Can the corporation be a morally responsible agent?
a. Can corporations act (as opposed to the persons in them acting)?
b. Are corporations type of entity that possess obligations and be responsible?
c. Who punish for corporate misdeeds?
i. Can’t put the corporation in jail
ii. Jail the managers?
iii. Fine the corporation? This might hurt employees and shareholders who might not be responsible?
9. How should corporations be governed and controlled and for what reasons?
a. Regulations to prevent anti-competitive practices between businesses
b. Regulations to protect consumers, employees and society at large
c. Regulations to protect investors by requiring, for example, honest corporate finance records