corporate ethics friedman shareholder and stakeholder theory d9c768c7 0a40 4952 8d13 57759158a7ac

What is the primary responsibility of a corporate executive according to Friedman?

To further the aims of the corporate owner, primarily to make as much money as possible.

What does Friedman argue about a corporate executive's social responsibility?

Managers have a responsibility to the business owners, not to society.

How does Friedman view social responsibility in relation to corporate actions?

He believes social responsibility is often a means to self-interested ends, such as improving a town to attract better employees.

What is a major criticism of Friedman's shareholder theory?

It lacks reference to stakeholders, who are also considered owners of the corporation.

What question does Friedman raise about corporations without owners?

If no one is the owner, then the executive is not an employee of the owner.

What is the definition of ownership according to the notes?

Ownership involves possessing a bundle of rights, including the right to use and exclude others from something.

Do shareholders have the same rights as owners of a company?

No, shareholders do not have the right to possess or use company property, and their rights are limited compared to actual owners.

What is the fiduciary duty of the board of directors?

The board has the highest decision-making authority and is responsible for major decisions, usually delegating day-to-day management.

What is a bond in the context of corporate finance?

A bond is a debt security that borrowers issue to raise money from investors for a specified period.

What is a corporate constituency?

A group closely associated with the corporation, including shareholders, creditors, suppliers, employees, and customers.

What is a dividend?

A cash distribution to shareholders representing part of the company's profit, decided by the board.

What is the role of an officer in a corporation?

A high-ranking employee responsible for some part of the day-to-day management of the corporation.

What is the definition of a stakeholder?

An individual or group with a significant interest or involvement in a corporation, essential to its success.

What does agency theory propose about corporations?

Corporations are viewed as a network of contracts among stakeholders that outline rights and obligations.

What is residual risk?

The risk of differences between a firm's revenues and promised payments to stakeholders.

Why do stockholders invest in corporations despite the risks?

Because they have a fiduciary relationship with management that helps protect their interests.

What is the main difference between stakeholder theory and stockholder theory?

Stakeholder theory advocates for equal consideration of all interests, while stockholder theory prioritizes stockholders due to their higher risk.

What does it mean for stockholders to bear residual risk?

Stockholders are not guaranteed returns and only receive what is left after fulfilling other contractual obligations.

What is the argument against the idea that shareholders own the company?

Shareholders have limited rights compared to actual owners, and corporate assets cannot be used to settle their debts.

What is the role of the board of directors in corporate governance?

Elected by shareholders, they make major decisions and oversee the corporation's management.

How does Friedman view the relationship between social responsibility and corporate profit?

He argues that social responsibility is often pursued for self-interested reasons rather than genuine concern for society.

What is a key criticism of Friedman's assertion that owners want to maximize profits?

It ignores the possibility that owners may have different goals beyond profit maximization.

What does it mean for shareholders to collectively own a corporation?

They collectively hold shares but do not control the corporation's management or operations.

What do stakeholders consent to when entering a company?

Stakeholder priorities, specifically stockholder priorities.

What is a potential criticism of voluntary agreements in corporations?

Employees may not have alternative choices to work for non-stockholder prioritized companies.

What is the residual risk argument?

It is the risk of not having a contractual claim, specifically the risk of not getting residual value after all contractual claims are fulfilled.

Who bears residual risk in a corporation?

Shareholders bear residual risk as they only receive what remains after contractual claims are fulfilled.

What is a key distinction of the residual risk argument?

It is not based on ownership.

What is a common objection to the residual risk argument?

Other stakeholders also bear uncontracted risk, such as at-will employees.

How do shareholders have protections that employees may not?

Shareholders have voting rights and can sell their shares, while employees may not have similar protections.

What is idiosyncratic risk?

The chance that something goes wrong at one particular company due to bad luck or poor decisions.

What is stakeholder theory?

The belief that the welfare of each stakeholder should be part of the ends that directors and officers pursue.

What is the core belief of stakeholder theory?

Management should treat the welfare of each stakeholder group as valuable in itself.

What is the equality argument in stakeholder theory?

Everyone's welfare matters, thus management's ends should include the welfare of all stakeholders.

What is the respect for persons argument?

People should not be treated as means to an end, and their welfare should be treated as valuable in itself.

What is a major objection to the respect for persons argument?

Using people as a means to an end is not wrong as long as it is consensual.

What is the problem of indeterminacy in stakeholder theory?

Stakeholder theory does not provide guidance when stakeholder interests conflict.

What is a rebuttal to the objection regarding indeterminacy?

The theory can still provide valuable guidance, such as not sacrificing worker safety for profit gains.

What does Mackey argue against Friedman regarding corporate purpose?

Mackey argues that corporations are not solely for maximizing profit and that social responsibility is voluntary.

What is a common argument against corporate philanthropy?

Some argue it is stealing from investors and that businesses have no responsibility to communities.

What is Friedman's view on corporate social responsibility?

Friedman believes that corporate actions should focus solely on maximizing profit for investors.

What is the rebuttal to the argument that corporate philanthropy is stealing from investors?

Corporate philanthropy can be good business and benefits investors long-term.

What is the significance of voluntary agreements in stakeholder theory?

Stakeholders enter into voluntary agreements, which implies no legal benefits and no monopoly power.

What happens when win-win situations are unavailable in stakeholder theory?

Corporations should prioritize which stakeholder needs to address.

What is the role of management as a fiduciary in protecting shareholders?

Management acts as a fiduciary to protect shareholders who bear residual risk.

Why might diversification not fully protect shareholders?

Diversification cannot protect against systematic problems affecting all corporations.

What is the argument regarding employee protections compared to shareholder protections?

Employees have certain protections, while shareholders may not receive anything from their investment.

What is the significance of consent in stakeholder relationships?

Genuine voluntary consent may not exist in many relationships, leading to potential exploitation.

What is a rebuttal to the objection that stakeholders' welfare does not need to be an end?

Just because a group's welfare matters doesn't mean it should not be treated as an end.

What is the argument against the idea that shareholders can simply vote out management?

Voting does not guarantee fiduciary protection and is difficult to coordinate among thousands of stakeholders.