1. Ethics Theory and Business Practice 10.1 The Responsibilities of Business Executives – Part One Shareholder Theory Rationales

2. aims to explain how shareholder theory and normative stakeholder theory offer contrasting approaches to executive responsibilities to outline Milton Friedman’s agency, free- market and usurpation arguments in support of shareholder theory to highlight some characteristics of shareholder theory rationales

3. executives people who hold senior positions in companies and who are usually their primary decision makers often also act as directors are usually separate from owners carry an onerous ethical responsibility but to whom are they responsible: in whose interests should they run their company?

4. two contrasting perspectives shareholder theory: business executives’ prime responsibility is to their shareholders normative stakeholder theory: business executives have responsibilities to all the stakeholders who are associated with their company

5. shareholders (USA: stockholders) may be individual entrepreneurs, who founded and still own a company may be families or groups of private investors, who jointly own a company more often thought of as people and institutions, who hold shares in publicly quoted companies and who are able to buy and sell those shares on stock markets

6. the primacy of shareholders traditional expectation in Anglo-American firms that shareholder-value maximization will be pursued above all else international convergence towards the Anglo- American model supported by law in many nations

7. Milton Friedman a staunch advocate of shareholder theory ‘The Social Responsibility of Business is to Increase its Profits’ (Friedman, 1970)

8. Friedman: some supporting rationales for shareholder theory 1.agency argument 2.a free-market argument 3.usurpation argument

9. 1. agency argument separation of ownership and control acting as a principal and acting as an agent business executives act as the agents of shareholders shareholders wish to maximize the value of their investment business executive therefore have an ethical responsibility to maximize share value

10. theory in practice energy company executives: guilty of ‘cold- blooded profiteering’ or fulfilling responsibilities as shareholders’ agents?

11. agency argument and the primacy of property rights if I own something I have a right to do whatever I want with that thing, as long as I do not break the law implies that any other ethical obligations on my part to use that property in a considerate manner take second place to my right to use my property as I choose moreover, if I give my property to someone else to look after, that person has an overriding obligation to do with it as I ask since that person is acting as my agent, they also should not feel constrained by any other ethical obligations to use that property in a considerate manner

12. 2. a free-market argument economic activity as voluntary exchanges involving various stakeholders who act of their own free will executives should not interfere with these voluntary exchanges they should let market forces determine economic activity without imposing their personal ethical agendas

13. free-market argument and the primacy of property rights economic transactions are essentially exchanges of property for executives to allow considerations of social and environmental responsibility to shape economic activity would be to interfere with the exercise of these vitally important property rights corporate social responsibility is therefore a ‘fundamentally subversive doctrine’ (Friedman, 1970) which strikes at the heart of a free society www.youtube.com/watch?v=KNKzYIs28pI&list=PLv WoMVGdsAKawOFs58r9Xo6oD6eccdqd0

14. 3. usurpation argument usurpation: the act of taking up a position or a role that rightfully belongs to somebody else social and environmental spending constitutes a form of taxation only the government has the right to impose and spend taxes therefore, in directing corporate resources to social and environmental agendas executives would be usurping the right of government

15. usurpation argument and rights a rights-based rationale which highlights the right of government to levy taxes and decide how they are to be spent and the democratic right of citizens to choose governments based on their taxation and public-spending policies

16. theory in practice making the world a better place while making money from selling healthcare products

17. summarizing shareholder rationales conceive of business activity in terms of transactions between independent, rights- bearing individuals executives should define their responsibilities in relation to the rights of distinct sets of stakeholders property rights occupy an especially privileged position in this rights-oriented evaluation

18. key points shareholder theory and normative stakeholder theory offer contrasting accounts of executive ethical responsibilities shareholder theory proposes that executives’ prime responsibility is to maximize share value, which they will do by focusing their attention of building long-term profit Milton Friedman offers some compelling arguments to support shareholder theory these arguments place a great deal of emphasis on rights; particularly on property rights

19. references Friedman, M. (1970) ‘The Social Responsibility of Business is to Increase its Profits’, The New York Times Magazine, September 13.