Stakeholder Theory of the Modern Corporation R. Edward Freeman • Management has a fiduciary responsibility to stakeholders • Corporations a tool for immortality • Corporations status changed – “Privity of Contracts – Employment Law – Public Policy and Law CORPORATE BEHAVIOR FORCING CHANGE • EXTERNALITIES – “Tragedy of the Commons” “Freerider” • MORAL HAZARD – Passing on the cost of pollution • MONOLOPLY – Strive to avoid competition REASONABLE PLURALISM • MEASURE AFFECT ON STAKEHOLDERS BY – Doctrine of Fair Contracts – Feminist Standpoint Theory – Ecological Principles • Ask Questions – Corporation ought to be governed by… – Managers ought to act. • WHERE DO WE FIND BACKGROUND DISCIPLINES: Business, Social Science, Religion DOCTRINE OF FAIR CONTACTS • • • • • • The Principle of Entry and Exit – Clearly defined entry, exit and renegotiations conditions The Principle of Governance – Rules of the game set by unanimous consent The Principle of Externalities – If effected person want can be renegotiated The Principle of Contracting Costs – Shared cost of contracting The Agency Principle – Must act in the interest of all stakeholders Principle of Limited Immortality – Continued existence of Corporation is in all stakeholders interests CRITICAL QUESTION WHO IS A STAKEHOLDER? IS THERE RANKING OF STAKEHOLDER INTERESTS? Business Ethics and Stakeholder Analysis Kenneth Goodpaster • • Stakeholder Paradox – Fiduciary duty to stockholders – Make stakeholders quasistockholders in their own right Stakeholder Analysis – Fact Gathering – Analysis (Strategic Stakeholders) – Synthesis (Multi-fiduciary – Choice(Why Chosen) – Action Challenges of Stakeholder Perspective • Ruder: Decide based on the decent thing to do and what ought to be done. • Public obligations takes away from private nature of the corporation • Agent-Principal relationship CRITICAL QUESTION Can Morality Be Legislated? The “New” U.S. Sentencing Commission Guidelines: A Wake-up Call for Corporate America Dalton, Metzer, and Hill • Formula used to determine justice. A multiplier used to establish penalty – Nature of the Crime • Amount of Loss • Amount of Planning – Culpability Score • Size of Organization • Level in Organization – (Officer/Janitor) • Past Crimes • Past History MITIGATION • • • • • • • Policy in Place Assigned Responsibility for Enforcement Control of Deviants Communicated to Organization Control (Audits/Monitoring) Appropriate Discipline Respond Appropriately if Violation Occurs …a society without any objective legal scale is a terrible on indeed. But a society with no other scale but the legal one is not quite worthy of man either.. Life organized legalistically has shown its inability to defend itself against the corrosion of evil.” Alexander Solzhenitsyn The Parable of the Sadhu Bowen H. McCoy • Once in a lifetime trip to the Himalayas. Travel a well used trail • Found a half naked holy man in the snow • Do you take him back to a village? Do you care for him? Both option would cause you to loose the opportunity to make your once in a life time climb. QUESTIONS RAISED? • Is no single person responsible when there is a group? • Do we make decisions based on ethnic considerations? • Can a superordinate goal allow for moral slippage? • Is their an institutional or group ethic strong than an individual ethic? • How much effort is enough to satisfy your moral obligation? AUTHOR’S OBSERVATIONS • Organizations without a history of mutually accepted shared values tend to come apart during stress. • People in touch with core values can deal with change, ambiguity, stress, and tough times. • People tend avoid the ambiguous yet that is what tends to be the most rewarding • Individuals need organizational support to act morally.