Alpha Pi Mu Business Ethics Presentation

1
Alpha Pi MuBusiness Ethics Presentation

• The Myths of Business and Ethics
• Prof. Mulligan
• Nov. 30, 2006

2
Whats the Goal
Economic
Legal
Normative
3
Myth 1 The Law

• The law requires business leaders to maximize
  short-term profits for shareholders, even if this
  means injuring other stakeholders.

4
Corporate Structure
Shareholder
Shareholder
Shareholder
Shareholder
Shareholder
Limited rights and duties

• Voted in by shareholders to represent their
  interests.
• Oversight Duties/Major Transactions
• Accountable to Shareholders

Board of Directors

• Perform day-to-day management of Corporation
  directly or via subordinates.
• Accountable to Board

CEO
CFO
COO
G.C.
Etc.
5
Duty to Maximize Profits?

• American Law Institutes Principles
• with a view to enhancing corporate profit and
  shareholder gain. In the long term
• Must follow law
• May consider ethical considerations
• May make charitable donations

6
Business Judgment Rule

• As the Delaware Supreme Court puts it
• An acknowledgment of the managerial
  prerogatives of . . . directors . . . . It is a
  presumption that in making a business decision
  the directors of a corporation acted on an
  informed basis, in good faith and in the honest
  belief that the action taken was in the best
  interests of the company. Aronson v. Lewis, 473
  A.2d 805, 812 (Del. 1984).

7
Constituency Statutes --- N.Y. Bus. Corp. Law
717

• (b) In taking action . . . a director shall be
  entitled to consider, without limitation,
• (1) both the long-term and the short-term
  interests of the corporation and its shareholders
  and
• (2) the effects that the corporations actions
  may have in the short-term or in the long-term
  upon any of the following
• (i) the prospects for potential growth,
  development, productivity and profitability of
  the corporation
• (ii) the corporations current employees
• (iii) the corporations retired employees and
  other beneficiaries . . . .
• (iv) the corporations customers and
  creditors and
• (v) the ability of the corporation to
  provide, as a going concern, goods, services,
  employment opportunities and employment benefits
  and otherwise to contribute to the communities
  in which it does business.

8
Myth 2 Economics

• Shareholders desire profit maximization at all
  costs.

9
Shareholder Value

• Prof. Greenwood argues that shareholders are real
  people and care about much more than merely
  increased profits.

10
Triple Bottom Line

• John Elkington coined this term
• The idea is that stakeholders (and thus the firm
  itself) will value a firm via three functions
• Economic
• Social
• Environmental

11
Novo Nordisk

• How might this be done in a firm?
• Novo Nordisk (diabetes cures) sees its business
  model this way.
• Thus it issues Social and Environmental
  statements like a financial statement

12
Go Shopping in Ann Arbor

• Note how many businesses market on a good
  business motif.

13
Myth 3 Ethics

• East is East and West is West and never the
  tween shall meet. --- Kipling
• Business decisions are not moral decisions and
  moral decisions are always anti-business.

14
Problems for Legal Regimes

• Christopher Stone, some thirty years ago, leveled
  a critique of legally imposed corporate social
  performance regimes arguing that they
• react only after a problem had occurred,
• cost too much in policing and enforcement,
• attempt to frame societal values in legalese, and
  
• focus upon legal duties to the detriment of moral
  aspirations.
• Christopher D. Stone, Where the Law Ends The
  Social Control of Corporate Behavior (1975)

15
If not Law, what?

• What really governs relationships in the world
  of sale of goods?
• Reputation
• Leverage
• Need to make future sales
• Wanting to be an honest broker
• Ethical constraints

16
The Myth of Amoral Leaders

• Are business leaders by and large amoral or worse
  yet evil
• Willful v. Negligent

17
Nike Images Child Labor
18
Would you?

• Business choices are human/moral decisions.
• Your choices as a
• Consumer
• Investor
• Employee
• Manager
• Director
• All these actions are moral choices