Lecture 11: A Brief Summary

A corporation is a legal entity or mechanism that allows individuals to contribute and pool capital in order to carry on some business enterprise. The laws of many countries confer personhood status on corporations, which means that corporations have legal rights and duties similar to those of a human person.

As a legal person, a corporation can enter into contracts, own property, incur debts, pay taxes, and sue or be sued separately from its investors and managers.

A basic assumption of business ethics is that the moral principles and theories that we use to evaluate individual’s actions can also be applied to evaluate the activities and practices of corporations.

If the corporation is a legal person, is it also a moral person If the corporation is a legal person, is it also a moral person? Can corporations act like moral agents? Can corporations be held moral accountable in the same way that individuals can be held accountable for what they do?

Peter French supports corporate moral agency by arguing that: [P1] The capacity of intentionality alone is sufficient for moral agency. [P2] The corporate internal decision (CID) structure allows a corporation to act as an intentional agent. [C] Thus, a corporation can function as a moral agent.

A corporate internal decision (CID) structure is defined by French as a system of rules and procedures specifying the respective roles and responsibilities of board members, executives, managers, and employees; and thereby allowing their intentions to be interwoven or synthesized into a corporate decision.

Critics of French’s view argue that corporations cannot be moral agents because they can only function as a result of human interactions. In other words, only those individual members comprising the corporation can possess moral agency and function as bearers of moral responsibilities.

The shareholder model of business (also known as ‘the narrow view’) assumes that the corporation is an economic institution and, as such, has no moral or social responsibilities.

Milton Friedman argues that corporations should not be concerned with issues like social responsibility or social justice because these are not the proper goals of business. The corporation, in his view, is an ‘artificial person’ (artificial entity or mechanism) that exists for economic purposes only.

The management of a corporation, according to Friedman, has a fiduciary (legal or contractual) duty to act in the best interest of shareholders, which means that the only responsibility of corporate executives is to maximize profit (or the share price).

Instead of seeing the corporation as an economic institution, the stakeholder model of business (‘the broader view’) conceives of the corporation as a social institution. As such, the corporation has a responsibility to consider the interests of everyone that it has an impact on, i.e. its stakeholders.

The stakeholders of a corporation are the individuals, groups or other organizations which are affected by, or can affect, the corporation’s business decisions and actions. They include not only shareholders and managers, but also consumers, employees, suppliers, government, communities, and the natural environment.

Corporate social responsibility (CSR) refers to a corporation’s commitment to conduct business in a socially responsible manner. A socially responsible corporation is one that takes account of its responsibilities to society that go beyond the production of goods and services at a profit.

Advocates of corporate social responsibility often draw attention to the benefits of CSR to the corporation itself, its stakeholders and society as a whole.

Nevertheless, corporations often make decisions based on short-term profitability rather than long-term benefit to society. To maximize profit, some irresponsible corporations may pollute the air, water, or land, extract resources in unsustainable ways, or engage in activities that are socially harmful.

Very often, the investors and managers of corporations pocket the profit, while society as a whole suffer the bad consequences. The bad effects of such business activities are known as ‘negative externalities’ or ‘external costs’ because the public and the environment, rather than the corporations, have to pay a heavy price.

From society’s point of view, corporations have a responsibility to avoid intentionally or accidentally causing harm to others. When such harms do occur, corporations have a responsibility to compensate those who are harmed by their intentional or negligent acts.

Corporations (and corporate executives) should take a longer, broader view of creating value for all of their stakeholders and society as a whole. There is no reason for society to allow a corporation to do business if the corporation’s business activities do more harm than good to society.