Week 4 Crit of stockholder - Week 4: Critiques of...

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Week 4: Critiques of Stockholder Theory SOSC 3040 Corporate Social Responsibility
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Recap of Stockholder arguments against CSR 1. principal-agent fiduciary duty argument 2. democratic process arguments: 2A: taxation without representation argument 2B: appropriation of public function/undemocratic selection argument 3. “inept custodian” arguments 4. futility argument 5. Libertarian “conformity vs unanimity” 6. Economic—utilitarian: coordination and allocative efficiency of market
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Debating the fiduciary duty argument Friedman assumes that managers have a special fiduciary duty to shareholders But, “What’s so special about shareholders?” (Boatright) Putative answers: 1. They are owners of the firm Reply : No, they own stock, they are investors, not owners
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Specialness of stockholders, cont. 2. Shareholders are unsecured investors, especially vulnerable Reply: They have other protections: Can elect board and pass resolutions Limited liabilty Laws against oppression Can diversify portfolio, divest easily, therefore less vulnerable than other contractual creditors (workers, suppliers)
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Note: shareholders are vulnerable to being cheated by management representing firm as more profitable than it really is (e.g. Enron)
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This note was uploaded on 11/16/2010 for the course NATURAL SC NATS 1505 taught by Professor Isley during the Spring '10 term at Columbia State Community College.

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Week 4 Crit of stockholder - Week 4: Critiques of...

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