Alpha Pi Mu Business Ethics PresentationWhat’s the GoalMyth # 1: The LawCorporate StructureDuty to Maximize Profits?Business Judgment RuleConstituency Statutes --- N.Y. Bus. Corp. Law § 717Myth # 2: EconomicsShareholder ValueTriple Bottom LineNovo NordiskGo Shopping in Ann ArborMyth # 3: EthicsProblems for Legal RegimesIf not Law, what?The Myth of Amoral LeadersNike Images: Child LaborWould you?Slide 1Alpha Pi MuBusiness Ethics PresentationThe Myths of Business and EthicsProf. MulliganNov. 30, 2006Slide 2What’s the GoalEconomicNormativeLegalSlide 3Myth # 1: The Law•The law requires business leaders to maximize short-term profits for shareholders, even if this means injuring other “stakeholders.”Slide 4Corporate StructureShareholder Shareholder Shareholder Shareholder ShareholderBoard of DirectorsCEOCFO COO G.C. Etc.Limited rights and duties•Voted in by shareholders to represent their interests. •Oversight Duties/Major Transactions•Accountable to Shareholders•Perform day-to-day management of Corporation directly or via subordinates.•Accountable to BoardSlide 5Duty 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 donationsSlide 6Business 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).Slide 7Constituency 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 corporation`s 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 corporation`s current employees; (iii) the corporation`s retired employees and other beneficiaries . . . . (iv) the corporation`s 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.Slide 8Myth # 2: Economics•Shareholders desire profit maximization at all costs.Slide 9Shareholder Value•Prof. Greenwood argues that shareholders are real people and care about much more than merely increased profits.Slide 10Triple 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–EnvironmentalSlide 11Novo 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 statementSlide 12Go Shopping in Ann Arbor•Note how many businesses market on a “good business” motif.Slide 13Myth # 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.Slide 14Problems for Legal RegimesChristopher Stone, some thirty years ago, leveled a critique of legally imposed corporate social performance regimes arguing that they: (1) react only after a problem had occurred, (2) cost too much in policing and enforcement, (3) attempt to frame societal values in legalese, and (4) focus upon legal duties to the detriment of moral aspirations. Christopher D. Stone, Where the Law Ends: The Social Control of Corporate Behavior (1975)Slide 15If 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 constraintsSlide 16The Myth of Amoral Leaders•Are business leaders by and large amoral or worse yet evil•Willful v. NegligentSlide 17Nike Images: Child LaborSlide 18Would you?•Business choices are human/moral decisions.•Your choices as a –Consumer–Investor–Employee–Manager–Director•All these actions are moral