Heath_Norman_final_preproof - (This is the final version...

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(This is the final version before page-proofs. The definitive version is published in the Journal of Business Ethics 53, pp 247-265, 2004 .) Stakeholder Theory, Corporate Governance and Public Management What can the history of state-run enterprises teach us in the post-Enron era? Joseph Heath Department of Philosophy University of Toronto Wayne Norman Department of Philosophy Université de Montréal Abstract This paper raises a challenge for those who assume that corporate social responsibility and good corporate governance naturally go hand-in-hand. The recent spate of corporate scandals in the United States and elsewhere has dramatized, once again, the severity of the agency problems that may arise between managers and shareholders. These scandals remind us that even if we adopt an extremely narrow concept of managerial responsibility – such that we recognize no social responsibility beyond the obligation to maximize shareholder value – there may still be very serious difficulties associated with the effective institutionalization of this obligation. It also suggests that if we broaden managerial responsibility, in order to include extensive responsibilities to various other stakeholder groups, we may seriously exacerbate these agency problems, making it even more difficult to impose effective discipline upon managers. Hence our central question: is a strong commitment to corporate social responsibility institutionally feasible? In searching for an answer, we revisit the history of public management, and in particular, the experience of social-democratic governments during the 1960s and '70s, and their attempts to impose social responsibility upon the managers of nationalized industries. The results of this inquiry are less than encouraging for proponents of corporate social responsibility. In fact, the history of public-sector management presents a number of stark warnings, which we would do well to heed if we wish to reconcile robust social responsibility with effective corporate governance. Keywords Agency problems, corporate governance, corporate social responsibility, multitask agency problems, multiprincipal agency problems, public management, stakeholder theory.
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2 For supporters of the “stakeholder theory” (SHT) of the firm, shareholders are but one of a number of important stakeholder groups. Like customers, suppliers, employees, and local communities, shareholders have a stake in, and are affected by, the firm’s success or failure. According to one typical formulation of the claim, “ In the same way that a business owes special and particular duties to its investors…it also has different duties to the various stakeholder groups.” 1 The firm and its managers have special obligations to ensure that the shareholders receive a “fair” return on their investment; but the firm also has special obligations to other stakeholders, which go above and beyond those required by law. In cases where these interests conflict, the demands and interests of some stakeholders, including shareholders, must be
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This note was uploaded on 09/02/2011 for the course SOCIO 201 taught by Professor Johnsmith during the Spring '11 term at Rutgers.

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Heath_Norman_final_preproof - (This is the final version...

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