Business Ethics, Corporate Responsibility, and Libertarian Theory

Introduction: Business Ethics and the Libertarian Framework

Business ethics may not be an oxymoron, but one must be clear about what the term means in a corporate context. Ethicists cannot subsume a code of business ethics into other, more inchoate notions of social responsibility and personal virtue. In fact, allowing businesses to earn maximum profits — and thus indirectly benefit society by generating revenue — may actually be the ultimate ethical action. Or so argue libertarian economists Tibor Machan and James E. Chesher.

Thomas Jefferson suggested that the government that governs best governs least, referring to government involvement in the individual lives and wills of the American populace. Yet according to current American law, the corporation is an individual entity, and thus, Machan and Chesher argue in their Primer on Business Ethics, the best American government for business is likewise the government that governs least. Organizational, in-house ethics of profit-making should dominate corporate ethics — not the law, and not social responsibility. A government does more harm than good when it intervenes in business affairs, and ethically the only obligation a business has is to make a profit for its shareholders. A business may have to behave in ways consistent with societal norms in order to make a profit, but not because it subscribes to abstract notions of social change.

These are the libertarian tropes espoused by the authors (Boaz, 1997). But ultimately, their view of business is just as idealistic in its faith in the market's ability to correct its own excesses — such as child labor in the developing world — as the worldview of the government regulators they would critique.

Three Views of Corporate Responsibility

Machan and Chesher begin their text by offering three different views of corporate responsibility. The first is a kind of utilitarian, contract-based theory, similar to the one expressed by economist Milton Friedman (1970). This view holds that corporate executives have no ethical obligation to anyone other than the owners of the company — namely the stockholders — whom they are contracted to serve under law. The only moral duty of a corporation is profit maximization. The corporation is a collective entity that advances only the common goals of its owners.

In contrast, those who stress the social responsibility of business emphasize corporations' obligations to act ethically toward society and toward their workers — not just their stockholders — even if observing these standards of justice and propriety conflicts with immediate profit maximization. Although such duties are normally thought of as obligations of private persons, this view stresses that because corporations are legally individual entities, they should behave as ethically as individual actors. However, Machan and Chesher argue that using company resources to advance social goals — such as raising wages above market rates, implementing rigorous affirmative action programs, or pursuing social justice outside the organization — can function as a theft of corporate profits if it drains the ultimate goal of making money. Even if companies can behave ethically in their overseas employment practices, Machan and Chesher would prefer a company to pursue low-cost labor practices and remain profitable than to put employees out of work, deprive stockholders of their funds, and ultimately bankrupt the company — leaving everyone, including workers in the developing world, without jobs.

A third, popular theory of ethical corporate responsibility holds that the company is not the property of its stockholders alone, but of all those with a stake in the company's future — including CEOs, employees, and others — and that these individuals' interests must be taken into consideration in decisions about the company's direction, even if not every member of society can be consulted in every choice. This stakeholder theory suggests that companies have a genuine interest in upholding internal ethical standards.

Stakeholders, Internal Ethics, and the Limits of Self-Regulation

Rather than orienting business decisions toward society at large, this third view holds that people engaged in business have a contractual obligation to make their enterprise prosper. If executives pursue a personal agenda that is irrelevant to — or actively limits — profit, such as forms of employee discrimination that damage the company, they violate the ethics of their profession. The authors thus do not advocate an ethical free-for-all; they acknowledge that certain ethical breaches can generate corporate legal costs, thereby causing executives to violate the standards of their own profession. This professional standard, they stress, is a more important ethical benchmark than either external laws or broad social responsibility.

Conclusion

The authors' view of limited government intervention and corporate self-policing rests on an idealized image of a global society where access to accurate information is perfect, where consumers are responsive to ethical violations affecting workers abroad or the global environment, and where employees will not face discrimination because prejudice is irrational and they can always find work elsewhere. This is an appealing vision, but not a realistic picture of corporate America.

Government regulation above and beyond the protection of private property is necessary to ensure a level competitive playing field — through legal mechanisms for redressing discrimination, and through environmental regulations that prevent corporations from maximizing profits by externalizing costs onto the natural world. Although the internal ethical constraints that companies maintain in the interest of upholding shareholder value are laudable and necessary, they are, alas, only one of the many tools that must be deployed in the governance of corporate ethics.

Works Cited

Boaz, David, ed. Libertarianism: A Primer. New York: Free Press, 1997.

Friedman, Milton. "The Social Responsibility of Business Is to Increase Its Profits." New York Times Magazine, September 1, 1970. Reprinted in Ethical Theory and Business, edited by Tom L. Beauchamp and Norman E. Bowie. Englewood Cliffs, N.J.: Prentice-Hall, 1993.

Machan, Tibor, and James E. Chesher. A Primer on Business Ethics. Rowman & Littlefield, 2003.