## Corporate Responsibility 

### Intro The standard model involves: - individual - corporation - and society as a whole. >Individuals must "balance values... with the good of others"; corporations must balance "obligations and economic objectives." And society must understand "patterns of cultural, political, and economic forces" that drive companies in the context of global capitalism. (126)

### A Tripartite Model. - Most theorists have two categories: stakeholders and shareholders. - On one view, the corporation has a responsibility to shareholders but not stakeholders. - On another theory, corporations have a responsibility to both shareholders and stakeholders. - Goodpastor is saying stakeholder theory is better than shareholder but not the best.

### The "moral point of view" - A common refrain is the need to "Progress" past shareholder to stakeholders - Progress is a vague term. Progress toward what? - We can't *leave behind* shareholders in service of stakeholders. - There is an analogy to individual conscience: I must take care of myself and be aware of you

### The "moral point of view" - The means a "realization of one's neighbor". So I pursue my own ends and my own good with one's neighbor's good in mind. The question is how? (133) - Milton Friedman argued that "The social responsibility of business is to increase its profits." - In other words, two people might disagree about how to benefit their stakeholders but agree that their stakeholders should be benefited.

### The "moral point of view" - Can you do *well* by doing *good*? Can you do well (succeed financially) by doing good (morally)? - Executive: >"I operate in a hyper competitive global marketplace. My primary responsibility is to be profitable in order to serve my shareholders. If I do things that "make my company to be less competitive than my rivals and hence less profitable, am I doing the right thing?"

### The "stakeholder paradox" - It seems essential to guide corporate decisions by ethical values beyond stockholder considerations - It seems illegitimate to do so. - Ethics seems supposed to forbid and to demand a partial mindset. (134) - Perhaps there are two different kinds of duties: fiduciary duty (to shareholders) to make money and non-fiduciary duties (to stakeholders) to benefit them.

### Human Dignity and Just Community - The comprehensive view takes into account one's neighbor and society as a whole

### Illustrations - British American Tobacco (141) -- providing tobacco to customers - Velcisol (146) -- trying to create an international label system - Advamed (148) -- self-regulating on "hospitality" spending: meals, travel, lodging, gifts, etc. - Wells Fargo, BofA (149) -- ignoring legal immigration status in accepting IDs - Dayton Hudson Corporation DHC (149) -- underwent a hostile takeover

* Questions? * Write a short response * Read for next time, CEO Compensation

## Executive Compensation: Just or Unjust? *By John Boatright*

### Unfair or Unjust? - Critics are convinced that *something* is wrong with high CEO pay - But "seldom articulate the grounds"

### Unfair or Unjust? 

### Boatright's Thesis 1. Is high CEO pay justifiable within a capitalist, free-market framework? 2. Yes. "The principles of compensation in a free market capitalist system are easily identified and widely accepted." (162)

### Arguments - "The conditions are that the bargaining between a CEO and shareholders not involve fraud or a breach of fiduciary duty." - "If these conditions are met, then the agreements made by arm's length bargaining are not morally objectionable." - "The market for CEOs may be imperfect in ways that are not morally objectionable but are possibly socially undesirable." - "The current high level of executive pay is due to significant changes in the world economy in the past few decades." - "Once these changes are understood, then high... CEO pay can be shown to be justified by widely accepted normative principles." - "The driver of high executive compensation is the power that shareholders have in corporate governance." (163) - "Ultimately, the debate over executive compensation becomes a question of the justification of shareholder-centered system of corporate governance."

### Objections (170) - Simply too big - No correlation of pay to performance - Ratio of lowest paid to highest paid - Who enforces ratio? - Unjust increases in pay - Not the right incentive for CEOs to work hard - Too much incentive for CEOs to work hard - Determining pay is not arms-length transaction - Happenstance determines pay

### Justifying (172) P1. Each person has a right to whatever he gains by exchanging his property through voluntary transactions. P2. Each person has a right to the full value of whatever he produces.

### History (163) - Structure of CEO Pay: salary, bonuses, stocks and options, and incentives + golden handshakes and golden parachutes. - LTIP (long term incentive plans) incentive minimal performance threshold - The largest increase is the increase in stock values since 1993 - In 1993, average S&P 500 CEO pay was $4 mil, rose to $17 mil by 2000.

### Entrepreneur v Manager (186) - Pre-1963, CEOs were paid as managers not entrepreneurs. - Entrepreneurs take more risk, create value from nothing

* Is something wrong with high CEO Pay? * Or are CEOs lucky and/or skilled? * Bring discussion questions and thoughts for Friday * Groups 1 & 2 present next week