Shareholders and Social Responsibility

Transcription

1 Journal of Business Ethics (2008) 81: Ó Springer 2007 DOI /s Shareholders and Social Responsibility Brian P. Schaefer ABSTRACT. The article presents an analysis and critique of Milton Friedman s argument that the social responsibility of business is merely to increase its profits. The analysis uncovers a central claim that Friedman implies, but does not explicitly defend, namely that the shareholders of a corporation have no duty to direct that corporation s management to exercise social responsibility. An argument against this claim is then advanced by way of a convergence strategy, whereby multiple influential moral approaches are shown to align themselves against Friedman. The convergence strategy shows that Friedman s position lies on the lonely fringes of Western moral thought, and that at least some of Friedman s professed adherents appear to offer incoherent moral views. The convergence strategy is shown to suggest, but not entail, a stakeholder model of the corporation. The article concludes by considering two objections. KEY WORDS: corporation, investor, Judeo/Christian ethics, Kantianism, management, shareholder, social responsibility, stakeholder, utilitarianism, virtue ethics Introduction Despite the fact that it was first made well over three decades ago Milton Friedman s argument remains perhaps the most famous and influential one on behalf of shareholder theory. 1 One strategy employed by those trying to oppose Friedman has been to grant at least implicitly the strength of his argument and to go to elaborate lengths to devise a stakeholder view that meets or exceeds its quality. But this strategy has produced some well-documented stumbling blocks and has in fact conceded too much to Friedman s apologists. 2 Close analysis of Friedman s argument reveals the existence of an important implied claim, namely that shareholders have no duty to direct the management of their corporation to exercise social responsibility. I will uncover the existence of this claim, point out its centrality to Friedman s argument in favor of a certain kind of shareholder view, and demonstrate that it is incompatible with the moral commitments required by many of the most widely admired and influential moral theories in Western philosophy and religion. This yields the conclusion that Friedman should properly be regarded as residing on the moral margins, and those who support his view are similarly marginalized and often inconsistent in the moral views they hold. The result is an argument in favor of just the kind of social responsibility in business that Friedman derides, a social responsibility that presents a defeasible case for a stakeholder theory of the corporation. The shareholder/stakeholder debate is of course one that concerns the purpose of the corporation. The shareholder view holds that the purpose of the corporation is to realize the specified ends of shareholders, with the caveat that those ends are legal and basically non-deceptive. 3 In practice those ends are nearly always to maximize the corporation s profits so much so that to characterize shareholder theory by reference to the maximization of corporate profits has been accurate for all practical purposes. 4 By contrast a stakeholder theory of the corporation holds that the corporation should be run for the benefit of all stakeholders regardless of whether doing so maximizes the corporation s profits. The stakeholders of a corporation can be characterized as those persons vital to the continued survival and success of the corporation, and this is usually thought to include owners, management, suppliers, employees, and customers. 5 There is a significant moral issue at stake between the theories. Corporations often stand to profit from polluting water, overcharging customers, treating suppliers coercively, downsizing without warning, etc., and these practices often (at least arguably) fall within the

2 298 Brian P. Schaefer law and escape the charge of being deceptive. In such cases a shareholder theory such as Friedman s appears to suggest that it is at least permissible that corporations engage in these practices, while a stakeholder theory appears likely to counsel against their permissibility. Friedman expresses the shareholder theory perspective by saying that corporations have no duty to exercise social responsibility. Social responsibility here means the expending of corporate resources for socially beneficial purposes regardless of whether those expenditures are designed to help achieve the corporation s financial ends. 6 For the sake of consistency I will use the term in the same way. The complexities of the relations between shareholder and stakeholder theory are important and have not often been explored. One interesting feature of the relation is that the theories can overlap in their extensions. Even if we understand shareholder theory to demand a goal of maximizing corporate profits, a company s policies may at least sometimes satisfy both shareholder and stakeholder theories, as we see when doing good (morally) leads to doing well (financially). Friedman has no qualms with such overlaps, though he offers no reason why people should regard them as morally preferable, as they will become clearer later. Another interesting feature is that although the two theories are sometimes presented as exhausting the possibilities of corporate management such as to exclude other options, this seems incorrect. There is a conceptual gap between the requirement that the corporation be managed to realize the specified ends of shareholders on the one hand, and the requirement that the corporation be managed to benefit all stakeholders on the other. For example, the corporation might be run in such a way as to benefit some non-shareholding stakeholders, but not all. This allows the possibility of theories for the purpose of the corporation that differ from both shareholder and stakeholder theories. A gap also exists between stakeholder theory and the concept of social responsibility. A corporation might exercise social responsibility, yet fail to adhere to a stakeholder model, because its exercises in social responsibility fail to benefit all stakeholders. So social responsibility is neither identical to stakeholder theory, nor does it entail stakeholder theory. But an adherence to stakeholder theory does appear to entail the exercise of social responsibility so long as it is true that real-world situations will arise for corporations that force them to choose between people and profits, to use a well-worn phrase. The lesson here is that there are good reasons to argue first in favor of the need for social responsibility in business, and only then to see how far this takes us toward a stakeholder view of the corporation. That is the strategy I will employ. I will first show that Friedman s argument emphasizes the wrong concern by focusing exclusively on the duties of the corporate executive, while it should be concerned primarily with the duties of shareholders. I will then uncover his implied position on the duties of shareholders, which is that shareholders have no duty to direct management to exhibit social responsibility. I will go on to argue that this position on the duties (or lack thereof) of shareholders is incompatible with the foundations and conclusions of some of the most widely respected and influential moral theories in the Western tradition, namely utilitarianism, Kantianism, virtue ethics, and Judeo- Christian ethics. I will then briefly explore the implications of this argument for stakeholder theory and conclude by considering two objections. Putting the focus on shareholders To speak of Friedman s argument is a bit misleading since he is commonly understood to be offering multiple arguments. I am inclined to follow John Hasnas in understanding Friedman to be offering two distinct arguments, which Hasnas labels the deontological argument and the utilitarian argument. 7 It is the deontological, or duty-based argument that primarily interests me, though I will also discuss Friedman s utilitarian concerns later. 8 The deontological argument focuses on the duties of a corporation s management, particularly of the corporate executive, toward that corporation s shareholders. It says that as an employee hired to do a job by the shareholders and one who thereby has a kind of implied contract with those shareholders, the corporate executive has a general duty to do what the shareholders tell him to do. Friedman thinks that this duty will always, or at least almost always, be to maximize the corporation s profits (keeping in mind the previously mentioned caveats). The corporate executive has no duty to exercise social responsibility

3 Shareholders and Social Responsibility 299 and, since the exercise of social responsibility would often deviate from the maximization of profits, he in fact generally has a duty not to exercise social responsibility. 9 The only social responsibility the corporate executive has, Friedman says with his tongue in cheek, is to maximize the corporation s profits. Though the soundness of the deontological argument has been contested in many different ways 10 I am prepared to grant it for the sake of argument. This is not because I lack sympathy with the objections so much as that I wish to emphasize as clearly as possible the argument s surprising irrelevance to the moral issue supposedly under discussion. Let us remind ourselves of what that issue is. The issue Friedman is supposedly addressing is whether corporations have duties to exercise social responsibility, and much is riding on the outcome. If they do not, then we are led to a version of shareholder theory that will closely resemble Friedman s. If they do have such duties then new possibilities emerge, among them the option of stakeholder theory. As Friedman s comments suggest, the question of whether the corporation has a duty to exercise social responsibility is hardly nonsense, because persons have duties and corporations are understood to be fictitious persons under the law. 11 But if the question makes sense, it is nonetheless difficult, and its difficulty lies partly in identifying the party responsible for the exercise of the social responsibility performed in the corporation s name. Friedman thinks that party is the corporate executive, and this claim has some intuitive plausibility after all, it is the corporate executive who directs the day-to-day operations of the corporation. But ironically it is Friedman s own characterization of the corporate executive that reveals the incorrectness of his focus. He is correct to think that, within the power structure that exists in most corporations today, the corporate executive is hired to carry out the wishes of shareholders. Thus the corporate executive is a kind of foot soldier of the shareholders, albeit a very powerful one. It is the shareholders who have the power to direct the corporate executive to exercise social responsibility (or not). It is the shareholders, in other words, who have the power to make the decision regarding whether the corporation should exercise social responsibility, and this follows from Friedman s own characterization of the shareholdermanagement relationship. Correspondingly, it is the duties of shareholders that should be the focus of our inquiry. 12 Specifically, we must ask the following question: do shareholders ever have a duty to direct management to use corporate funds for the exercise of social responsibility? It is thus possible to grant Friedman s claim that if the corporate executive is directed by the shareholders to carry out their ends of maximizing profits (legally and non-deceptively), then he or she should do so. The important moral issue is whether the shareholders can permissibly direct the corporate executive to do this, or conversely whether they have a duty to direct the corporate executive to exercise social responsibility. Friedman s position on this issue is not explicitly stated, but it is clearly implied. His view about the moral duties of shareholders follows from his view about the moral duties of persons generally. He says that in an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no values, no social responsibilities in any sense other than the shared values and responsibilities of individuals. 13 This important passage deserves close analysis. After claiming that there is a close relation between a society s economic system and its morality, 14 Friedman specifies the content of the morality that holds in an ideal free-market capitalist society, which is one in which individual freedom and private property take on the highest priority, trumping all other moral considerations. 15 Whether we actually live in this ideal free market is not of great importance to Friedman s argument what is important is that as a society that has developed a free market system we should leave that free market unregulated. He affirms this elsewhere by referring derisively to all attempts to regulate the free market as pure and unadulterated socialism and to those who favor regulation the unwitting puppets of the intellectual forces that have been undermining the basis of a free society for these past decades. 16 Thus Friedman thinks that free market capitalism is optimal when absolutely pure and that a morality which regards individual freedom and private property as

4 300 Brian P. Schaefer trumps is something like a logical corollary of this purity. The above passage suggests that we have very strong moral duties of non-interference (sometimes called negative duties ) toward one another, but no moral duties of mutual aid (sometimes called positive duties ). Negative duties are necessary to respect one another s individual freedom and private property, while positive duties are by their nature coercive in a way that disrespects the values associated with these goods. This moral view correlates closely with the political view of libertarianism, and I will follow the convention of referring to Friedman s moral views as libertarian. 17 Friedman s views about the moral duties of shareholders are consistent with his libertarian foundations. There is no question that shareholders are morally permitted to direct management to use corporate funds for ends other than maximizing profits. Thus he says of the corporate executive of course, in some cases his employers have a different objective [than the maximization of profits]. A group of persons might establish a corporation for an eleemosynary purpose for example, a hospital or school. 18 Similarly, the corporate executive himself, acting outside of the corporate context, may have many other responsibilities that he recognizes or assumes voluntarily to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. 19 The general impression Friedman leaves is that persons who happen to possess certain values might consider particular altruistic activities worthwhile and appropriate. There is no indication, though, that they have any duties to engage in such activities. It is apparently in this spirit of rugged moral individualism that Friedman himself, in Capitalism and Freedom, advocates a negative income tax to help the poorest member of society. 20 Admirable though this position may be, nothing in his moral framework indicates that he does, or even can, provide others a reason to share it. It is perhaps because he realizes this that he omits his rationale for holding it. 21 If the foregoing discussion may seem a bit abstract, it has a straightforward consequence for Friedman s views on the duties (or lack thereof) of shareholders. Friedman s libertarianism commits him to holding that shareholders both exercise their individual freedom and utilize their private property permissibly when they direct management to maximize corporate profits. Consequently they have no duty ever to direct management to exercise social responsibility, for this duty would be a positive, not a negative one. Such an action would unduly interfere with the freedom of shareholders and neglect the importance of their private property (e.g., their money). Thus we can identify what I will subsequently refer to as Friedman s Shareholder Claim: the claim that shareholders never have a duty to direct management to exercise social responsibility. Indeed, Friedman s more recent comments on this matter serve as a strong confirmation of this inference. He suggests that the exercise of social responsibility within the corporate context is generally foolish and imprudent, for such corporations will get competed out of existence. 22 While Friedman s foundations for the Shareholder Claim are libertarian, the claim is also compatible with ethical egoism. Ethical egoism holds that selfinterest should be the sole guide to action. Clearly such a view would endorse the Shareholder Claim, as shareholders are free on that claim to follow their self-interest wherever it might lead. Indeed, as an empirical matter it is probably true that many of Friedman s adherents are attracted to his view for reasons that have more to do with egoism than with libertarianism. But a further discussion of egoism is not worth pursuing here, first because Friedman is himself not an egoist, as is brought out by well in a recent piece by Harvey S. James, Jr. and Farhad Rassekh. 23 Also, the Shareholder Claim appears equally vulnerable to the objections leveled against it in the following section whether its basis is libertarian or egoistic. This section has tried to accomplish two tasks. The first was to identify the correct moral question to ask given that we wish to know whether a corporation ever has a duty to exercise social responsibility, and given the fact that the power structure of most corporations is such that shareholders are ultimately responsible for such decisions. We identified the correct question to be one that asks whether shareholders ever have a duty to direct management to exercise social responsibility. The second task was to uncover Friedman s own position on this issue. Given his adherence to very strong libertarian premises I argued that he is committed to what I have called the Shareholder Claim: the claim that shareholders never have a duty to direct

5 Shareholders and Social Responsibility 301 management to exercise social responsibility. The following section will present an argument against this claim. Convergence against Friedman I will oppose the Shareholder Claim by employing what I call the convergence strategy. This strategy utilizes multiple moral theories and seeks areas of convergence or agreement in the normative foundations and the substantive conclusions of the theories. I will argue that some of the most widely respected and influential theories in Western philosophy and religion converge in a clear opposition to Friedman s Shareholder Claim. This use of the convergence strategy should be particularly attractive to those who share the following assumptions about moral theories: (1) All other things being equal, the more widely admired and influential a moral theory has been, the more respect it should be accorded, and (2) The major moral theories of the Western tradition are to some extent incompatible and incommensurable such that they cannot be reduced to a single theory without loss or incoherence. If these assumptions are both true, then perhaps a convergence among widely respected moral theories is the closest we can (currently) come to establishing moral truths. But readers need not share these assumptions in order to find the following discussion worthwhile, for any adherents of the individual theories discussed might take the discussions of those theories to be independently valuable. I will argue that utilitarianism, Kantianism, virtue ethics, and Judeo-Christian ethics all present moral frameworks and reach moral conclusions that are incompatible with Friedman s Shareholder Claim. Though I also believe them to be incompatible with the libertarian basis of the Shareholder Claim, I will touch on this matter only in passing. An exhaustive discussion of each theory would be impossible, but fortunately it is also unnecessary for our purposes. It will be sufficient to identify central and essential characteristics of each theory as pertains to their foundations and their substantive conclusions. Consider each in turn. Utilitarianism can be understood to hold most generally that we must do those actions that bring about the best overall consequences. For classical theorists such as Bentham and Mill this was understood hedonistically as a requirement to bring about the greatest amount of overall happiness. For some other theorists it takes the form of satisfying the greatest number of individual preferences. What remains constant among utilitarians, though, is that the best consequences must be brought about not just for oneself, but for everyone overall. Utilitarianism is at its core an extremely selfless theory because I may count myself as only one potential experiencer of happiness, equal in value to each separate individual potentially affected by my actions. This core element of utilitarianism would seem to present at least a prima facie case against the Shareholder Claim. While it may not be true on utilitarianism that shareholders must always direct management to exercise social responsibility, it seems extremely unlikely that they would be morally permitted never to do so. Surely the use of corporate funds for the promotion of social goods would at least sometimes result in better overall consequences than the use of those funds to maximize the corporation s profits. But so far this is only a prima facie case, and it will be strengthened if we can defend it against objections. Consider three objections that employ utilitarianism in defense of the Shareholder Claim by arguing that it is only by maximizing their own profits that corporations can effect the best overall consequences for society. The first argument is one associated with Adam Smith. 24 Smith famously argued that by pursuing their own gain, individual laborers were led by an invisible hand to promote society s interests. This is because a society that features everyone pursuing their own gain becomes generally more prosperous than does one in which other arrangements hold, and that prosperity is inevitably dispersed throughout the society by means of the normal mechanisms of trade. Supply-side or trickle-down economics is thus favored for utilitarian reasons. If Smith is right, then it is clear that the Shareholder Claim is justified, and justified for altruistic reasons at that. But there are well-known problems with this line of thought. As Freeman notes, the Smithian argument fails to take into account common features of free market economies such as externalities, the tragedy of the commons, the free rider problem, and monopoly power. 25 Hasnas adds that our current economic system is far enough

6 302 Brian P. Schaefer away from Smith s theoretical picture to render Smith s argument moot, as a business can gain competitive advantages by attaining government subsidies, tax breaks, protective tariffs, and stateconferred monopoly status. 26 If Hasnas is correct that few contemporary business ethicists have the kind of faith in the invisible hand of the market that neoclassical economists do, 27 then perhaps we need to look elsewhere for a utilitarian defense of the Shareholder Claim. Friedman provides the material for two more such defenses. His first version of a utilitarian defense suggests that corporate executives should not try to spend shareholder funds in the exercise of social responsibility because they are not sufficiently knowledgeable about how to do so effectively. 28 The implication, to complete the utilitarian line of thought, is that if shareholders try to exercise social responsibility their actions will lead to worse overall consequences than if they had not tried. Even if this utilitarian argument currently has some merit, which is debatable, it does not seem to pose a deep problem and can be met with some common-sense remedies. It is true that expertise in the effective exercise of social responsibility is not a criterion by which many corporate executives are currently hired, but this is a contingent empirical matter that could easily be changed. The ability to distribute funds effectively for social purposes, and perhaps also some experience in doing so, could become highly desired traits on a corporate executive s résumé. Alternatively a specialization could develop in the effective exercise of corporate social responsibility, and these specialists could be hired to work closely with corporate executives. 29 Friedman provides a basis for another utilitarian defense of the Shareholder Claim in his more recent comments when, as noted previously, he suggests that corporations that spend a significant amount of money on social responsibility will get competed out of existence. 30 The utilitarian argument that can be constructed from this statement is that corporations that engage in social responsibility will ultimately fail financially, resulting in worse consequences overall through costs like the employees loss of jobs, suppliers loss of customers, customers loss of buying options, shareholders loss of funds, etc. But this utilitarian defense of the Shareholder Claim would, like its predecessors, have problems. As an empirical matter there are corporations that currently exhibit a great deal of social responsibility, and such corporations have often survived and even thrived. 31 Even if a corporation were to suffer some financial loss on account of its social generosity, Friedman s claim seems too extreme. Corporations suffer many kinds of losses for various reasons independent of their exercise of social responsibility, and these losses are not usually fatal. It is difficult to see what would make a loss incurred by the exercise of social responsibility any different. In fact, a wellmanaged corporation that minimizes other losses could overcome even a consistently incurred loss due to the exercise of social responsibility. As a result I take the third objection to have little force. The prima facie incompatibility of utilitarianism with the Shareholder Claim has been boosted by the refutation of multiple objections along utilitarian lines. Kantian moral theory is a deontological, or a duty-based one that emphasizes the value of our status as rational beings, and the requirements that bear upon us all as rational beings. Kant famously holds in his first formulation of categorical imperative that we must act only by rules, or maxims, which can be universalized. He also holds in his Principle of Humanity formulation of the categorical imperative we must treat ourselves and others as ends, not as mere means, for which it is crucially important that we respect one another s capacities to make free, rational decisions. 32 Realizing that these formulations are necessarily quite general, Kant provides some examples to demonstrate their application to particular moral situations. One such example is of a person who is himself flourishing, but he sees others who have to struggle with great hardships (and whom he could easily help); and he thinks What does it matter to me? Let every one be as happy as Heaven wills or as he can make himself; I won t deprive him of anything; I won t even envy him; only I have no wish to contribute anything to his well-being or to his support in distress! 33 Kant holds that this person s maxim would fail on both formulations of the categorical imperative. The maxim cannot be universalized because

7 Shareholders and Social Responsibility 303 a will which decided in this way would be in conflict with itself, since many a situation might arise in which the man needed love and sympathy from others, and in which, by such a law of nature as sprung from his own will, he would rob himself of all hope of the help he wants for himself. 34 It is also an insufficiently robust notion of what it is to treat oneself and others as ends: the natural end which all men seek is their own happiness. Now humanity could no doubt subsist if everybody contributed nothing to the happiness of others but at the same time refrained from deliberately impairing their happiness. This is, however, merely to agree negatively and not positively with humanity as an end in itself unless every one endeavors also, so far as in him lies, to further the ends of others. For the ends of a subject who is an end in himself must, if this conception is to have its full effect on me, be also, as far as possible, my ends. 35 In these passages Kant rejects the kind of libertarianism that we have identified as Friedman s deep moral view. He suggests that the view that we have duties only of non-interference, and non-duties of mutual aid, is incompatible with the categorical imperative in both of its major formulations. The passages quoted above demonstrate that there is a strong Kantian case to be made against the Shareholder Claim. The duty to share in the ends of others so far as we can is one that applies to us all as rational beings. As a duty that follows from the categorical imperative, it shares that rule s categorical nature it applies at all times to all moral agents, whether they operate in business or in some other context. It indicates that shareholders, like the rest of us, have a general duty to share in the ends of others on whom their actions have an effect. This appears to entail the falsity of the Shareholder Claim on Kantian premises, since that claim suggests that shareholders have no duty to share in the ends of others involved in, or who are affected by, a corporation s activities. While it might be argued on behalf of Friedman s position that the end of others at stake here is simply the end of living one s life without interference, this cannot be the case on Kantian morality. We see in the passage most recently quoted above that Kant s picture of the ends of rational beings, and thus his understanding of our duties to share in those ends, is more robust than this. This difference between Kant and Friedman can be easily overlooked due to the fact that Friedman s libertarianism might be understood to share the deontological structure of Kantian ethics. But the similarity in structure must not lead us to exaggerate the similarity of the two theories content. Aristotelian virtue ethics holds that eudaimonia (happiness or flourishing) is the greatest good for human beings and that we achieve this state by becoming virtuous. Becoming virtuous entails acting according to the virtues and doing so for the right reasons, habituating the virtues within oneself until they are fully a part of one s character. There are many virtues that must be acquired and must be properly balanced once possessed; a few examples are courage, temperance, pride, honor, good temper, truthfulness, tactfulness, and justice. 36 As this list suggests, the virtues are largely altruistic and otherregarding. We might wonder why it is on Aristotle s account that virtuous activity and the acquisition of virtues are of essential importance in achieving eudaimonia. The habituation of virtues, after all, appears to be a coercive demand made upon moral agents. Aristotle s answer lies in his foundational claim that man is a social animal. It is our nature as human beings to need one another and to be fulfilled by helping one another. This is true to such a great extent that the truly virtuous person does not need sources of pleasure other than a virtuous life. 37 As such the moral development of the individual is intertwined with her relation to the broader community, and her own interests are bound up in the community s interests. Robert Solomon puts the point this way: According to Aristotle, one has to think of oneself as a member of the larger community, the Polis, and strive to excel, to bring out what was best in ourselves and our shared enterprise. What is best in us our virtues are in turn defined by that larger community, and there is therefore no ultimate split of antagonism between individual self-interest and the greater public good. 38 Aristotle is what we would call today a communitarian. He believes that an agent s identity is defined or constituted largely by that agent s communal attachments and that an agent s character will be

8 304 Brian P. Schaefer insufficiently developed if these attachments are insufficiently strong. Aristotle is clear from the outset that virtue ethics features an ineliminable vagueness. He holds that the truth about ethics and politics can be indicated only roughly and in outline, 39 and this belief is manifested in a moral theory that gives us many virtues to balance but little in the way of general principles. But if we may be permitted to transfer Aristotle s standard of precision to our own discussion then a strong case can be made for the incompatibility of virtue ethics with the Shareholder Claim. The altruistic and communitarian foundations of virtue ethics are clearly in considerable tension with Friedman s libertarian ones. It is difficult to see how someone as profoundly concerned as Aristotle with the role of community could endorse the claim that shareholders never have a duty to direct management to exercise social responsibility. This seems especially true in light of the failure of the Smithian utilitarian defense of the Shareholder Claim, which might have offered ammunition to those who wish to argue that Friedman s position represents what is best for the community in the long run. Given the clash between Aristotle s and Friedman s moral foundations it is perhaps not surprising that Aristotle s discussion of particular virtues also tells against the Shareholder Claim. Take for example the virtue of liberality. He says this virtue is the mean with regard to wealth; for the liberal man is praised with regard to the giving and taking of wealth, and especially in respect of giving. 40 Aristotle expounds upon this last point: it is more the mark of the liberal man to give to the right people than to take from the right sources and not to take from the wrong. 41 The abundance of a man s wealth determines how much he should give: the term liberality is used relatively to a man s substance; for liberality resides not in the multitude of the gifts but in the state of the giver, and this is relative to the giver s substance. 42 Needless to say, many shareholders have much they could give in the exercise of social responsibility, and their duty to do so directly conflicts with the Shareholder Claim. Furthermore, a sufficiently nuanced corporate policy of exercising social responsibility could take into account at least some of the differences that exist between shareholders ability to contribute, thus preserving some of the individual relativity of liberality and related virtues. Admittedly, the demands of Aristotelian virtue ethics are not as categorical as those of Kantian ethics, and the possibility thus exists that one might be justified in de-emphasizing virtues like liberality in the business sphere due to some special feature of business as a realm of moral action. But a consideration of the nature of the business realm appears to counsel in the opposite direction. Business activities enjoy a prominent, economically unrivaled importance in modern life, and those activities profoundly affect a wide range of people. If anything, the flourishing of human beings would appear to require that virtues like beneficence, liberality, and even generosity receive greater emphasis in the business sphere than in other realms. This argument, like one given above, could be opposed effectively if utilitarian arguments in defense of the Shareholder Claim had merit, but we have already seen significant problems associated with them. 43 Meanwhile, Aristotle s requirement that a man who manifests the virtue of liberality give only to the right people is undoubtedly good advice for shareholders and does not cut against the line of argument presented here. No sensible person would advocate wasteful attempts to exercise social responsibility, for these would be fruitless for everyone. The last moral theory I will consider, Judeo- Christian ethics, might come as a surprise since discussions of religious bases of morality are often excluded from philosophical arguments. But I think a discussion of this moral tradition is at least as valuable as a discussion of the other theories we have examined. Judeo-Christian ethics is many-faceted and sometimes contradictory, but it features core elements that unify the narratives of the Old and New Testaments, and distinguish Judeo-Christian ethics from other moral theories. And empirically this may be the most important moral tradition to discuss because of the great number of people inside and outside the business community (at least in the U.S.) who claim to adhere to it and because of the particular lessons many claim to draw from it. The Hebrew Bible, or Old Testament, is at its core a story of freedom from slavery and the formation of community to remember this and to honor God. The central message can be read as a kind of analogy: just as the Israelites were redeemed

9 Shareholders and Social Responsibility 305 from slavery by God, so they have a duty to honor God by helping or freeing others. Their otherregarding actions should be entirely committed, as they are commanded you shall love your neighbor as yourself. 44 They are particularly enjoined to help the less fortunate. In Isaiah it is made clear that the Israelites must cease to do evil, learn to do good: seek justice, rescue the oppressed, defend the orphan, plead for the widow. 45 Similarly, Deuteronomic law commands that the Israelites share among one another as they can and include the Levites, because they have no allotment or inheritance with you, as well as the resident aliens, the orphans, and the widows in your towns. 46 All of these people are equal in the eyes of God, 47 and all must be helped as they can be. These themes continue in the New Testament through the portrayal of Jesus Christ. Upon his birth his mother Mary, a woman of modest social standing, rejoices that the Lord has looked with favor on the lowliness of his servant. 48 Jesus echoes the Old Testament command to love one s neighbor as oneself by characterizing it as a distillation of the Ten Commandments given to Moses. 49 It is of course central to the ministry of Jesus that special attention is paid to helping those in greatest need. As he says, the Spirit of the Lord is upon me, because he has anointed me to bring good news to the poor. He has sent me to proclaim release to the captives and recovery of sight to the blind, to let the oppressed go free, to proclaim the year of the Lord s favor. 50 The death of Jesus is widely interpreted as a sacrifice made to all mankind. And after his death his disciple Paul makes clear that we are to emulate Jesus in his life and teachings: bear one another s burdens, and in this way you will fulfill the law of Christ. 51 Again, the purpose of pointing out these passages has not been to capture every nuance of Judeo-Christian ethics, but rather to identify an essential and consistent line of thought that runs throughout the Christian Bible, a line of thought that is clearly of the greatest importance. The central message of these passages is that we all have a duty to love and care for one another, and particularly for those less fortunate. We should do so not just moderately or haphazardly or when it is convenient, but rather love them as we love ourselves. It is very difficult to see how this message could be reconciled with the Shareholder Claim. Money is not only the financial currency of stakeholders but also a kind of moral currency, as it presents them with a clear and useful opportunity to help others. A decision to refrain from using one s financial currency to help others is a moral decision with moral implications. It is a decision that generally appears to contravene both the spirit and the letter of the commands of God in the Old Testament and the teachings of Jesus in the New Testament. The fact that many Americans who profess to be adherents of the Jewish and (especially) Christian faiths also consider themselves to be whole-hearted advocates of the kind of shareholder theory advanced by Friedman is a sociological curiosity of considerable magnitude. Unfortunately, though, the theological rigor and even basic scriptural understanding that underlies these views seems not to reach the same heights. If this is correct then advocates of what the comedian Al Franken has called Supply Side Jesus may wish to reconsider the coherence of their position. In this section, I have employed a convergence strategy to argue that Friedman s Shareholder Claim is opposed by some of the most widely respected and influential theories of Western philosophy and religion. Utilitarianism, Kantianism, Aristotelian virtue ethics, and Judeo-Christian ethics all appear to be independently incompatible with the Shareholder Claim. While their incompatibility with the Shareholder Claim does not prove that claim false, it does present a strong case for regarding the claim with skepticism. This is especially true in light of the fact that these theories appear not only to counsel in favor of some corporate social responsibility, but a great deal of it. Virtue ethics and Judeo-Christian ethics, especially, suggest that the more social responsibility exercised in the corporate world the better. The incompatibility of all four theories with the Shareholder Claim shows that within the intellectual terrain of the Western tradition Friedman s views lie much further on the moral margins than has been commonly acknowledged. It also serves to encourage adherents of the theories mentioned who find Friedman persuasive to think more closely about the coherence of their moral views.

10 306 Brian P. Schaefer From social responsibility to stakeholder theory? Although social responsibility does not entail stakeholder theory I will try in this section to establish a weaker connection, namely that the existence of a duty for corporations to exhibit social responsibility generally favors a stakeholder model of the corporation over a shareholder one. To put the point in somewhat more technical terms, I will suggest that there exists a general defeasible reason to prefer a stakeholder model of the corporation to a shareholder one. My remarks on this subject will necessarily be more a sketch than a full portrait, and their purpose is more to gesture at future projects than to offer any kind of final word. With this in mind consider two points of convergence in the moral theories discussed above that appear to counsel at least provisionally in favor of stakeholder theory. First, it is clear from our discussion of the moral theories of the last section not only that they argue in favor of the kind of mutual aid and generosity that is featured in corporate social responsibility, but that this duty to share in one another s ends plays an essential and prominent role in each theory. As such it seems appropriate that the prominence and central importance of this kind of giving be adequately reflected in the corporate setting. Social responsibility should not be merely a peripheral part of a corporation s activities but should occupy a central role in the corporation s planning and actions. This is generally better fulfilled on a stakeholder model, for several reasons. For one, it is only on stakeholder theory that the exercise of social responsibility is unavoidable. This is because even though stakeholder theory is not entailed by a duty to be socially responsible, socially responsible action is entailed on stakeholder theory. Looking after a corporation s own stakeholders is, after all, a social good. Furthermore, social responsibility is entailed in a suitably prominent way on stakeholder theory, as it is built into the very fabric of the corporation, profoundly affecting its power structure. Compared to the shareholder model, power is in some way, and to some degree taken away from shareholders on the stakeholder view and given to other stakeholder groups. The case for stakeholder theory is further enhanced in this context by the fact that it is the very purpose of the corporation, not merely a tangential feature of it, that it benefits all stakeholders. The cumulative effect of these points is that social responsibility enjoys a centrality in corporate life on stakeholder theory that mirrors the centrality enjoyed by the underlying concern of mutual aid in the theories already discussed. By contrast a corporation that operates on shareholder theory, even if it has the intention of making social responsibility a prominent part of its mission, cannot prioritize social responsibility as profoundly. Social responsibility is not entailed on shareholder theory, nor does it centrally affect a corporation s power structure even when it is prioritized. This may be a problem, because socially responsible corporations that adopt a shareholder model will always have to fight against powerful temptations of self-interest. They will have to try to avoid in piecemeal fashion a steady stream of opportunities to neglect social responsibility in the name of increasing profits. In such circumstances many corporations will fall prey to the temptations of neglectful or avaricious self-interest, their attempts to rationalize it notwithstanding. Another important feature of the moral theories we examined in the previous section is that they all hold that each human being possesses a fundamental worth. 52 The theories advance this thesis by reference to various considerations: for the utilitarian each person is valuable because she can experience happiness; for the Kantian each person is valuable because each person is rational; for the virtue ethicist the value of each person is intertwined with the role he plays in his community; for the Judeo-Christian ethicist each person is valuable because she is created and loved by God. Nonetheless all agree on, and crucially depend upon, the notion that each person has a fundamental value. 53 This essential feature of all four moral theories seems better captured on stakeholder theory than on shareholder theory. Recall that on stakeholder theory it is the corporation s purpose to benefit all stakeholders, not just some. The fact that the corporation s very purpose is to benefit everyone vital to its survival and success is a profound acknowledgment of the fundamental value of these persons. Admittedly this is not the only way these persons might be said to be valued in a corporate setting, but I suggest that it is better than alternatives. It forms a kind of middle road between two other possibilities of honoring human worth in

11 Shareholders and Social Responsibility 307 the business context that have been explored in the literature. A brief exploration of these roads reveals their shortcomings. To our right the conservative claims that our account of honoring human worth is too robust. From libertarian premises that resemble those of Friedman and Robert Nozick, 54 it says that the basic worth of the individuals involved is honored in the corporate context as long as they have voluntarily consented to a given arrangement. Thus the worth of employees fired from a company that engages in sudden downsizing is adequately honored so long as the employees voluntarily signed contracts of employment that did not expressly forbid such treatment, and as long as such treatment is within the bounds of the law. 55 But this view assumes that the applicable laws are just and complete, and it neglects the fact that the coercive nature of the free market itself means that the consent of some parties (e.g., Wal- Mart executives) is considerably more free than the consent of others (e.g., Wal-Mart suppliers). 56 To our left another critic says that our account of honoring human worth, far from being too robust, is actually inadequate. This is because we have committed only to the idea that the purpose of the corporation is to benefit all stakeholders, while this critic wishes to claim that the purpose of the corporation should be to benefit all stakeholders equally. 57 Our present critic might accuse us of settling for a kind of equality lite, since we hold that the corporation should be run from the benefit of each stakeholder, yet stop short of claiming that this equality of worth should be manifested in the equal distribution of benefits. Now it is clear that the weaker version of stakeholder theory, which requires benefits but not equal benefits for all stakeholders, is not incoherent or contradictory. It is clear also that it does not lead inevitably to the stronger version. The objection, therefore, must be that the stronger version is nonetheless to be preferred on its substantive merits. But the problem here is that the stronger version appears to feature inadequate respect for the concept of private property. One need not engage in a Friedman-like worship of private property to think that private property is of some importance, and the fact that shareholders provide the money for the corporation would appear to give them a right to greater benefits from it than, say, the local community or employees have. The implication of the stronger stakeholder view that private property (e.g., shareholder money) is of negligible moral importance may even be incompatible with a free market economy. While Friedman s view that any deviation from unregulated capitalism constitutes pure and unadulterated socialism is false and even a bit hysterical, some theorists have subsequently advocated versions of stakeholder theory that actually are rather socialist. They may need to be reminded of the merits of free market capitalism just as libertarians need to be reminded of the merits and perhaps even the possibility of its regulation. From this brief discussion, we can draw three conclusions about stakeholder theory. First, given the duty of the corporation to exhibit social responsibility it seems generally preferable to the shareholder model. This is to say that there exists a defeasible reason to prefer stakeholder theory to shareholder theory. Corporations that operate on a shareholder model have good reason to seriously consider replacing it with a stakeholder model. Second, we must nonetheless allow for the possibility that social responsibility might be adequately fulfilled on the shareholder model. Though doing so would be difficult, there is no reason to think it would be impossible. Thus we must leave open the possibility that some kind of shareholder theory will represent a morally acceptable framework for at least some corporations. The point to emphasize, though, is that the shareholder model they adopt would have to differ significantly from Friedman s, particularly in a rejection of the Shareholder Claim. Third, upon choosing a stakeholder model of the corporation we should think carefully about which stakeholder model is best. Moderate and nuanced versions of stakeholder theory may well be preferable to more radical ones. It is certainly possible to conceive of stakeholder theory as claiming that the purpose of the corporation is to benefit all stakeholders, but that the benefits should be at least somewhat unequal. Indeed attempts to do so have already been made in the literature 58 and further exploration along these lines would be welcome. Objections I will close by making a few brief remarks concerning two objections. The first objection is that