PHIL 1273 1st Edition Lecture 25 Outline of Last Lecture I. Ethics in MarketsA. Firms and those affectedB. Stone (Response to Friedman)C. Freeman – Stakeholder TheoryOutline of Current Lecture I. Freeman – Stakeholder Theory (continued)A. Managerial CapitalismB. Alternative View: “Stakeholder Theory”Current LectureI. Freeman – Stakeholder TheoryA. Explicitly denies that shareholders (stockholders) have priority1. Denies that purpose of firm is to create profit for shareholders2. Denies that moral purpose of managers is to work to that purposeB. Consider his argument and underlying moral viewC. Calls standard view “managerial capitalism” (MC)1. “in return for controlling the firm, management vigorously pursues the interests o stockholders. Central to the managerial view of the firm is the idea that management can pursue market transactions with suppliers andcustomers in an unconstrained manner” (Freeman 264)2. MC false as a matter of law, which imposes various constraints3. MC false as a matter of economicsa. Supporters of MC claim it gets best results for societyi. Invisible handii. Utilitarian argumentb. Freeman: three ways unconstrained actions get bad results (Freeman 265)D. Alternative View: “Stakeholder Theory”1. Stakeholder: someone who can be affected (harmed or benefitted) by a firm2. Yields a right to make claims on the firm3. Stockholders (shareholders) are one such group that has a particular kind of claimThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.4. Reading Diagram explaining various groups relations stemming for the corporation: suppliers, employees, customers, management, local community, owners (Freeman 267)5. What is the purpose of a firm?a. Not simply to earn a profit for shareholdersb. No to benefit one set of stakeholders over othersc. Broadly, serve the interest of stakeholders overall (complicated)6. What is the responsibility of the managers?a. Not exclusively to shareholders; rather, to balance interests of all stakeholders (difficult concept)b. “the task of management in today’s corporation is akin to that of King Solomon. The stakeholder theory does not give primacy to one stakeholder group over another, though there will surely be times when one group will benefit at the expense of others. In general, however, management must keep the relationships among stakeholders in balance. When these relationships becomeimbalanced, the survival of the firm is in jeopardy” (Freeman 268)c. Generali. How to handle inevitable conflictsii. Need guidance from moral ideas – “normative core” idea7. Moral motivation for stakeholder viewa. “each of these stakeholder groups has the right not to be treated as a means to some end” (Freeman 264)b. Study of successful firms “found multiple applications of Kant’s dictum, ‘Treat persons as end unto themselves,’ and it should come as no surprise that persons respond to such respectful treatment, be employees, or members of the local community” (Freeman 267)c. Deontological pattern of argumentd. Implicationsi. Say managers run firm to benefit one particular group of stakeholders (shareholders exclusively)ii. This would be using others as a means; therefore, it would be morally wronge. Arguments about Freeman’s view as