Lecture on Corporate Ethics

Introduction

• Speaker: Professor Michael Conklin, Texas A&M University School of Law
• Focus: Corporate ethics, encouraging students to think about ethical dilemmas now
• Objective: Set personal ethical standards in a safe environment to avoid justifying unethical behavior later.

Understanding Ethics

• Ethics can't provide definite answers like medicine or engineering.
• Experts in ethics don't have the authority to decide what is ethical for others.
• Avoid theoretical approaches; focus on practical understanding.

Ethical Theories

Utilitarianism

• Definition: A mathematical approach to ethics where decisions are made based on net utility increase.
• Mantra: "The needs of the many outweigh the needs of the few."
• Challenges: Difficult to quantify utility; affects people differently.
  • Example: Redistributing $50 from one student to 19 others might be net-positive but harmful to the individual.

Deontological Ethics

• Definition: Focuses on the morality of actions rather than the consequences.
• Principle: Some actions are inherently wrong, regardless of outcomes.
  • Example: Stealing $50 is wrong, regardless of benefits from redistribution.
• Challenges: Diverse beliefs on what is right and wrong; strict adherence can lead to unethical outcomes, e.g., telling the truth in dangerous situations.

Corporate Ethics

Shareholder vs. Stakeholder Models

Shareholder Model

• Goal: Maximize profits/wealth for shareholders.
• Long-term View: Ethical behavior usually aligns with profit maximization.

Stakeholder Model

• Goal: Consider interests of all stakeholders (workers, suppliers, customers, society) alongside shareholders.
• Implementation: Corporations can file as Benefits Corporations to define purpose beyond just shareholder profit.

Case Study: Dodge Brothers vs. Ford Motor Company

• Background: Ford reduced dividends to support altruistic goals.
• Outcome: Court ruled in favor of Dodge Brothers, reinforcing shareholder wealth maximization.
• Modern Context: Legal perspectives have evolved; today's courts might rule differently.

CEO Compensation

• Philosophy: Buyers and sellers make their own value judgments on transactions.
• Legislation: Efforts to control CEO pay, but mostly advisory and non-binding.
• Litigation: Shareholders rarely succeed in lawsuits against excessive CEO pay.
• Studies: Some claim CEO salaries aren't justified by performance; impacts on management motivation.

Conclusion

• Ethical behavior is usually beneficial; unethical behavior costly in the long run.
• Reflect on rare opportunities to do the right thing at personal cost.
• Key takeaway: Commit to doing right, regardless of personal cost.