Module 3 131

Milton Friedman

Shareholder priority

• Fiduciary reponsibility

• long term interest of stakeholders

• Profit maximization

agents must act in the best interest of the shareholders by seeking profit not personal goals/interests (PA Problem)

fiduciary duty

firms owe profit to shareholders

Edward Freeman

Firms require consent from society

Must consider all stakeholders

better for society

Still capitalism

• requires social contracts and satisfying consumers

stakeholder capitalism - ppl want to innovate a create not simply bc of competition

Responsibility chain

everyone is responsible for their own actions

business roundtable 2019

commit to deliver value to all of stakeholders

Porter & Kramer

doing well by doing good

win win opportunity

CSV

king and pucker

real trade offs between profits and CSR

• can exacerbate income and wealth inequality

• ignoring negative externalities

• potential to erode ethical standards

• potential to undermine interest of other vital stakeholders (e.g., customers,
  suppliers, and communities)

• potential to contribute to systemic risks in the financial system

• may undermine democratic processes by concentrating economic power in hands
  of few

types of stakeholder capitalism

• instrumental stakeholder capitalism

• classic stakeholder capitalism

• beneficial stakeholder capitalism

• structural stakeholder capitalism

role of ESG in stakeholder capitalism

B-Corps and Benefit Corporations

critiques of Stakeholder Capitalism

• risk of managerial opportunism

• balancing competing interests of various stakeholders

• potential for inefficiency and reduced competitiveness

• greenwashing or superficial adoption of stakeholder capitalism principles (ESG as
  public relations)

• potential to undermine shareholder rights

‘win-win’ approaches as overly optimistic claims about combining profit and social &
environmental good

typically overpromise & underdeliver

• Negawatt revolution (profits from energy efficiency)

• circular economy (cost-
  effective recycling and reuse)

• Base of the Pyramid (profiting while uplifting the poorest
  populations)

Perspectives on Business Ethics

• Deontology

• Utilitarianism

• Virtue Ethics

• Social Justice Ethics (aka, ‘Social Contract Theory’)

utilitarianism

aligned with free market economics

• focuses on results not rules

• maximizing happiness and pleasure for society

‘act utilitarianism’

which action will create the most utility

‘rule utilitarianism’

which rule followed regularly will create the greatest good for society

Deontology

Moral intent is the better path to ethical conduct

• Immanuel Kant

• duties are defined by rational thought

• duties are universal and equal before god

• any law or action must be universal

  • consistent- must be good if applied to everyone

  • reversible- good if you consider the other party

Liberatarianism

individuals have rights which should not be infringed

humans should pursue their own happiness

Social Justice Theory and Social Contract Theory

people want gov and are willing to exchange certain rights for security and common benefits

• balancing human desire for freedom and human desire for order

• dynamic- allows for change

• basic vs non basic rights

positive vs negative rights

positive- right to bote right to bear arms

negative- right to be free of unwanted searches

Aristotle and Virtue Theory

AKA Virtue ethics

• values virtuous qualities rather than formal rules

• the goal of human existence is the rational search for excellence

Ethical breakdowns

• Ethical fading

  • no longer considering ethics as a part of decision making

• motivated blindness

  • people see what they want to see

  • solution- root out conflicts of interest

• ill-conceived goals

  • e.g. hour padding

  • solution- must brainstorm unintended consequences

• indirect blindness

  • outsourcing unethical behavior

  • solution- must evaluate 3rd parties

• slippery slopes

  • gradual increasing unethical behavior

  • solution- pay attention to trivial infractions

• overvaluing outcomes

  • valuing outcome more than means

  • solution reward solid decision processes

bounded ethicality

systematic cognitive barriers that prevent us from being as ethical as we wish to be

system 1 vs system 2 thinking

system 1- intuitive, fast, emotional

system 2- logical, slow

Carter Racing

Deciding whether to race or not- risk of engine faliure

Apple case study

• FBI wanted to unlock a terrorist’s iPhone and apple denied request

• later increased security even more