Should Companies Worry About Anyone Other Than Their Shareholders?
Statement
A public company’s first and only responsibility is to its shareholders.
Q1 Analysis
This is a Q1 violation if you think that companies have any responsibility to their customers, employees, neighborhood, or society in general, and may be a violation if you think that certain public companies are exceptions to this rule.
Q2 Analysis
This is not a Q2 violation.
Discussion
Should public corporations donate to charities? Should they attempt to improve the communities in which they do business? Should they favor shareholders over employees? This statement holds that when answering these questions, shareholder value should be the only priority. After all, the shareholders are the company’s owners, and companies exist purely for the benefit of their owners.
Or do they? Are there certain moral principles that apply to companies even if they do not increase profits? For example, is it wrong in and of itself for a company to attempt to defraud its customers, or is customer fraud only wrong because, in the long run, it will likely cause the company — and, by extension, its shareholders — to lose money?
You might argue that an expense (such as a donation to a prominent charity) that improves a company’s image benefits shareholders indirectly. Or you might argue that such expenses are only justified if it can be shown that the return on investment is positive.
Which of the following would you say are good things for a company to do? Do they only benefit shareholders? Are they moral?
- Donating money to arts and other charities in the cities in which they do business.
- Donating money to schools in the cities where they recruit skilled employees.
- Donating products or services to the poor.
- Actively recruiting for new employees among groups that are underrepresented in the employee population.
- Advertising on television shows that are popular with their customers, but that may be objectionable to some people who are not their customers.
- Pulling advertising from a radio show that is being threatened with a boycott of advertisers because it is perceived as racist.
- Pulling advertising from a radio show that is being threatened with a boycott of advertisers because it is not Christian.
- Speaking only in friendly terms about their competition.
- Being honest and up-front with employees, even when news is bad and morale might be damaged.
- Making high profits in the short term in a way that might damage the company’s brand in the long term.
- Lobbying for lower taxes, favorable zoning, and other laws that protect the company’s interests, even if they may not be in the best interest of other companies.
- Lobbying for laws that protect the company from competition.
- Lobbying against laws that require the company to generate less pollution.
- Lobbying for laws that have a political or social agenda not related to the company’s business.
- Fighting lawsuits seeking damages caused by the company’s products or practices.
- Operating a facility in a high-unemployment area, even though the facility does not make a profit.
- Preferring domestic operations to overseas outsourcing.
- Keeping the ratio between executive and employee compensation low.
You are encouraged to leave your answers to the questions posed in this post in the comments section. This post is based on an excerpt from Ask Yourself to be Moral, by D. Cancilla, available at LuLu.com and Amazon.com. See the 2Q system page for details of the philosophical system mentioned in this post.
