3 - Stakeholder theory & Corporate accountability - Canvas (3)

Stakeholder vs. Stockholder Theories

• Two main theories in business ethics:

  • Stockholder Theory

  • Stakeholder Theory

Milton Friedman (1970)

• Argued that the sole social responsibility of business is to increase profits while operating within the rules (competition, honesty).

Government Intervention

• Friedman expressed skepticism on government solutions, suggesting they can worsen problems.

Stockholder Theory Overview

• Core Principle: Business exists primarily to maximize stockholder profits.

  • Friedman stated that only individuals carry responsibilities, not businesses as entities.

  • Corporate executives must follow the directives of stockholders.

Costs of Social Responsibility

• Spending on social responsibility can lead to increased costs for consumers.

• Friedman argued that social responsibility could undermine capitalism.

Justifications for Stockholder Theory

I. Argument of Principle

• Social responsibility is seen as a socialist viewpoint.

• The market should dictate the allocation of resources.

II. Argument of Consequences

• Difficulties in identifying how corporate actions contribute to social goals.

• Advocated that social responsibility could lead to market failure.

Conclusion on Stockholder Theory

• Society is a collection of individuals and voluntary groups.

• The only true social responsibility of business is profit maximization within the law.

Ethical Considerations of Stockholder Theory

• Managers are expected to operate within legal bounds and ensure honest dealings.

• Pursuing unauthorized social goals may conflict with stockholder agreements.

Stakeholder Theory Overview

• Developed by Edward Freeman (1988).

• Advocates for corporate management to consider all stakeholder interests (customers, employees, etc.).

• Management functions as an agent for all stakeholders.

Stakeholder Theory Principles

Corporate Legitimacy Principle

• Corporations should prioritize the interests of stakeholders.

Fiduciary Principle

• Management must act in the interests of stakeholders and the corporation.

Types of Stakeholders

• Internal: Employees, Managers, Owners.

• External: Suppliers, Customers, Society, Government, Creditors.

Stakeholder Management

• Corporate management must balance interests of various stakeholders.

Conclusion on Stakeholder Theory

• Managers have a fiduciary duty to run corporations for the benefit of all stakeholders, not just shareholders.

Corporate Moral Accountability

• Importance of determining corporate culpability in ethical violations.

Cases of Corporate Culpability

• Notable cases include Ford Pinto, Johnson and Johnson, and the Challenger disaster.

Federal Sentencing Guidelines

• Created to impose fair corporate punishment and accountability.

Case Examples of Corporate Culpability

• Daiwa Bank case: Significant fines for concealing trading losses.

• Hoffman-LaRoche: Fines for anti-competitive practices in the vitamin market.

Theories of Corporate Culpability

1. Respondeat Superior Doctrine

• Culpability assigned to the corporation for employees' criminal acts without need for directly linking management.

2. Model Penal Code Doctrine

• Culpability based on management knowledge and involvement in the crime.

3. Corporate Character Theory

• Focuses on corporate policies, systems, and prior history of violations in determining responsibility.

Conclusion on Corporate Culpability

• Corporations can be held accountable but are not culpable in the same way individuals are.

Views on Corporate Moral Responsibility

Collectivist View

• Corporations as collective moral agents, with responsibility shifting from individuals to the organization as a whole.

Individualist View

• Responsibility lies with individuals within the organization; institutions cannot act independently of the people who comprise them.

Case Study: National Semiconductor (1984)

• Charged for selling untested chips and falsifying records, but no individuals were held accountable, only the company as a whole.