chapter  4
22 Pages

Business ethics

In Section 3.2.3, we named economic action morally just that does not unjustifiably hinder another in the use of his liberties. Acquisition of property that took place without colliding with the non-prioritization principle, and increasing such property by an increasing mode that conforms with the initializing mode, exemplify morally just economic actions. Accordingly, it is up to the owner to invest his property in economic activities. As long as he sticks to the conforming increasing mode, his economic actions are just in terms of our definition. Shareholders, buying or selling shares, and managers making use of their freedom and closing management contracts with publicly traded companies agreed to by all contracting parties, do exactly that. If, for whatever reason, the owners and the manager signed a contract that, contrary to common practice, would entail that the manager should minimize, rather than maximize profits, their doing would be just, and every action by the manager that included the opposite would be unjust. However, such agreements should rather be the exception to the rule. In the regular case, a manager is hired to maximize profits. Nonetheless, it is difficult to test whether the manager’s activities are to this effect, the reason being, that his activities are not sufficient to achieve the intended result.4 It is up to business ethics as an empirical discipline to develop appropriate test methods to find out whether management activities are morally just with respect to the agreed arrangement. In spite of this, we can already name the criteria by which we judge whether such economic actions are just or unjust: each economic action conforming to the contract, implying non-creative prioritization and being logically compatible with the initializing mode, is morally just, while economic actions violating at least one of these principles (contract conformity, non-creative prioritization, implications compliance) is morally unjust. Given that shareholder value is understood in terms of the stock price of a company, and an agreement, implying just economic actions, is settled between the owner(s) and the manager(s), then we face the regular case, which was once described, boldly and exactly, by Milton Friedman, saying: ‘The social responsibility of business is to increase its profits.’5 Consequently, economic acting aiming to increase the shareholder value is morally just, according to our definition. Things are different when it comes to the increase of the ‘stakeholder value’. To show this, one has to clarify what is meant by stakeholder value, in the first place. We note consent among business ethicists that individuals and groups, not necessarily identical with shareholders, belong to stakeholders, but dissent when it comes to the question, which individuals and groups, apart from shareholders, should belong to the stakeholders. Should only groups (or

individuals) be considered who are in direct exchange with the company (beside owners, employees, clients, victualers, etc.), or shall others, being only in indirect contact with the company (the state, interest groups, media, public), be rubricated as well? Leaving that question unanswered for the moment – simply because we have no criterion ready at hand to decide it –, we address another question first. To which extent, if at any, can claims and expectancies in terms of morally just actions be addressed to a company, apart from the justified claims of shareholders? Claims to a company, emanating from contracts between the claimant and the company (employment contract, delivery contract, for instance) are just claims, according to our reflections, requiring each party to fulfill its obligation upon demand of the right holder. Things are different when it comes to exceeding claims. A necessary restriction, already deriving from our previous reflections, is that any exceeding claim, which includes a violation of one the abovementioned criteria (contract conformity, non-creative prioritization, implications compliance), would imply a morally unjust economic action. For example, if a labor contract is closed that entails no specifications concerning termination (reason of termination, notice period, etc.) at all, then the enforcement of claims, such as to terminate the contract only in face of strong reason, would include an unjustified restriction of individual liberty. In such a case, neither employer nor employee would be permitted to make use of their freedom to terminate a contract at will. Demanding the enforcement of such claims, obviously, implies to ask for a morally unjust action, violating contract conformity as well as the ideas of noncreative prioritization and implications compliance.6 Somewhat different are things, when it comes to claims from groups that have only indirect exchange with a company, for instance, when a neighbor of a factory asks the factory to lower its emissions. Those demands do not collide with contracts between the two, unless those contracts would exist. Hence it is up to the neighbor to justify his demand.7 If he fails to provide reasons for it, his claim is unjustified, and, therefore, its enforcement morally unjust. However, claims by stakeholders are not necessarily limited to unjustified restrictions of economic liberties. Justified restrictions of economic liberties, claimed by stakeholders, are conceivable too. Sticking to the previous example, if the neighboring factory would use the neighbor’s acre to deposit temporarily its waste, without prior consent by the neighbor, the action would collide with the implication compliance rule.8 If the neighbor proves the unauthorized use of his land, the collision becomes evident, the economic action morally unjust, and the demand for restitution justified. If he fails to prove it, the status quo asks for no change.