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Shareholder Theory and Kant’s ‘Duty ofBeneficence’

Abstract: This article draws on the moral philosophy of ImmanuelKant to explore whether a corporate ‘duty of beneficence’ tonon-shareholders is consistent with the orthodox ‘shareholdertheory’ of the firm. It examines the ethical framework ofMilton Friedman’s argument and asks whether it necessarilyrules out the well-being of non-shareholders as a corporateobjective. The article examines Kant’s distinction between‘duties of right’ and ‘duties of virtue’ (the latter includingthe duty of beneficence) and investigates their consistencywith the shareholder theory. The article concludes that it ispossible within the ethical framework of shareholder theoryfor managers to pursue directly the happiness of non-shareholders. Furthermore, shareholders have a duty to holdmanagement to account for the moral consequences of the firm’sactivities on non-shareholding stakeholders.

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Introduction

The orthodox belief that the maximisation of financial value

for shareholders is the ultimate goal of the business

corporation, though still widely accepted, has been challenged

from a range of ethical perspectives. Since the early 1990s

the normative justifications of shareholder theory,

exemplified in Milton Friedman’s (1962, 1970) famous critique

of Corporate Social Responsibility (CSR), have been criticised

in a growing body of literature known as ‘stakeholder theory’.

Various ethical theories are employed in this literature to

demonstrate that a corporation has direct responsibilities to

stakeholders such as employees, suppliers, customers and

consumers, and not merely to shareholders. The significant

approaches here include ‘social contract’ theory (Freeman and

Evan, 1990; Freeman, 1994; Donaldson and Dunfee, 1994, 1995,

1999; Sacconi, 2004, 2006), ‘distributive justice’ (Donaldson

and Preston, 1995; Blair, 1995; McMahon, 1995; Van Buren III,

2001; Velamuni and Venkataraman, 2005) and Rawls’s (1999)

concept of ‘fairness’ (Phillips, 1997, 2003). However, this

article proposes that corporations can adhere to the same

ethical principles assumed in the strongest version of

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shareholder theory, and still pursue stakeholder interests

that are not simply reducible to maximising shareholder

wealth. It is possible, in other words, to critique the

shareholder position without needing to argue for a rival

ethical theory.

There are two main ways in which profit maximisation has been

justified as superior to the goals of stakeholder theory and

CSR. A distinction can be made between arguments based upon

consequentialist assumptions and those that have a

deontological basis.i The contrast is between arguments that

appeal to the moral value of the consequences expected from

different kinds of corporate objective (Jensen, 2002;

Henderson, 2001) and those holding that management are bound

to pursue shareholder interests by an obligation intrinsic to the

principal-agent relationship. The best known version of this

position is Milton Friedman’s (1962, 1970) critique of CSR and

recent examples can be found in the work of Sternberg (2000,

2004) and Marcoux (2003).ii However, the consequentialist

critique of stakeholder theory exemplified by Jensen (2002) is

not in fact a defence of shareholder wealth maximisation.

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Jensen is perfectly clear that: “Stockholder value

maximization has been wrong from the social viewpoint from the

start” (2008, p. 167) and “stock-holders are not some special

constituency that ranks above all others” (2002, p. 246).

Jensen believes that corporations should maximise long-term

profit because this makes the greatest contribution, not to

shareholder wealth, but to the general welfare of society

(2002, p. 255). For these reasons, this article’s point of

departure for discussing the orthodox shareholder view will be

Friedman’s critique of CSR, which is broadly deontological in

its structure. Goodpaster (1991), Sternberg (2000, 2004) and

Marcoux (2003) have produced arguments that parallel that of

Friedman in places, but for the sake of consistency (and

because Friedman’s is by far the best known of these

arguments) the article will concentrate on his work.

The key problem addressed here is whether a corporate duty to

pursue the happiness (or well-being) of any non-shareholder is

consistent with the shareholder theory. The substantive

objective associated with the shareholder view - the

maximisation of shareholder wealth - is analysed critically

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from the ethical perspective of the shareholder theory itself.

In carrying out this analysis I draw on Immanuel Kant’s moral

philosophy in The Metaphysics of Morals (1797). While little of

shareholder theory is based directly upon the work of Kant,

his classification of duties should be relevant for any

deontological theory of the corporate objective. He would

regard the contractual rights established in transactions

between the corporation and various stakeholders (employees,

shareholders, suppliers, etc.) as morally binding because

their violation contradicts the categorical imperative that

human beings are treated always as an end and never merely as

a means. However, besides the freedom secured for a person by

their rights, there always remains the question of the ends

they have a duty to pursue with the freedom they possess.

Kant distinguishes between a perfect duty to respect the freedom

of other human beings to seek their ends and an imperfect duty

to choose the happiness of others as one’s end, which he calls

the ‘duty of beneficence’. In the case of corporations with

dispersed ownership it can be argued, in keeping with the

shareholder theory, that managers have perfect duties that are

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clear and a ‘duty of beneficence’ that is not. The perfect

duty to treat shareholders and all other contractors as ends

in themselves, which encompasses Friedman’s (1970) requirement

to fulfil contracts entered into without deception or fraud,

is compatible with the idea of the corporation as a ‘network

of contracts’, and legal enforcement. However, there is the

question of how managers can fulfil a contractual obligation

to further the interests of the shareholders where these

interests ought not to include just capital gains and dividends

but also the happiness and well-being of the corporation’s

non-shareowning stakeholders. If such an ‘imperfect duty’

cannot be enforced through law because it involves the voluntary

adoption of ends, then how is a manager to know which

particular ends a shareholder wants to pursue, and to what

extent? If this is known there is still the problem that

situations may arise in which different shareholders wish to

pursue incompatible ends with the corporation’s property.

Through an engagement with these questions, the aim of the

article is to examine whether a ‘duty of beneficence’ to any

non-shareholder can exist where the ultimate purpose of the

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corporation is to serve the interests of shareholders. The

article does not engage directly with criticisms of the

shareholder theory made by stakeholder theorists. Here I am

building upon an argument made elsewhere (Author, 2013) that

the normative theories employed to defend a stakeholder theory

of the firm, including variations of ‘social contract’ theory,

distributive justice and fairness, are either inconsistent

with the rights to property and contract that underpin any

market economy, or can logically support only a shareholder

theory of the firm. By contrast, it can be demonstrated that

a deontological shareholder theory, in which a company’s

objective is reducible to realising the interests of

shareholders, is not in conflict with the basic ethical

principles of capitalism. Whilst I will not attempt here to

summarise the argument for this claim, a premise of the

article is that shareholder theory is a justifiable framework

in which to analyse the purpose of a corporation.

The argument that follows is divided into three broad

sections. First I expound the shareholder theory of Milton

Friedman (1962, 1970) so as to show the deontological

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principles on which it is based, with particular focus on the

property and contract rights of shareholders. Secondly, I

explore the distinction between ‘duties of right’ and ‘duties

of virtue’ (including the duty of beneficence) in the

philosophy of Kant. The aim here is to show the mutual

coherence of both types of duty and the clear consistency of

the former with the principles of the shareholder theory.

Whether it follows, therefore, that the latter is also

applicable to the shareholder perspective is the focus of the

third section. In addition to the conceptual consistency of

the normative arguments, the article also engages with

practical concerns such as shareholder voting on CSR policies.

The final section considers whether a Kantian shareholder

theory is in fact compatible with a ‘qualified’ version of

stakeholder theory.

Friedman’s Shareholder Theory

Friedman’s defence of the shareholder position is encapsulated

in the following celebrated (and notorious) quotation from

Capitalism and Freedom (1962, p. 133), which he repeats in an

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article for the New York Times magazine entitled The Social

Responsibility of Business is to Increase its Profits (1970):

“…there is one and only one social responsibility of business – touse its resources and engage in activities designed to increase itsprofits so long as it stays within the rules of the game, which is tosay, engages in open and free competition without deception andfraud.”

To appreciate the reasoning behind this statement, it is

necessary to reflect upon the political and ethical principles

which Friedman argues should underpin ‘the rules of the game’.

Friedman can be located in a liberal tradition which maintains

the inviolability of individuals and the existence of absolute

barriers protecting them against illegitimate coercion. There

is, for example, a strong resemblance between his ethical

principles and the libertarianism defended in Robert Nozick’s

Anarchy, State and Utopia (1974). It is only after expounding the

principles on which his argument is based can their

consistency with a duty of beneficence to non-shareholders be

examined.

Friedman’s arguments about the social responsibility of

business follow from his libertarian philosophy. Aside from

the role of government in minimising the costs of negative

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externalities and technical monopolies (1962, p. 27), of

providing a monetary framework and supplementing private

charity and the family in protecting the irresponsible (1962,

p. 34), the basic requisite for any further government

intervention is “the maintenance of law and order to prevent

physical coercion of one individual by another and to enforce

contracts voluntarily entered into” (1962, p. 14). In

explaining why the moral necessity to uphold contracts

voluntarily reached between freely acting individuals leads to

his argument for the limited role of corporate responsibility,

it is important to note that the right to own property is

central to his concept of a free individual. As he writes in

his later article (1970):

“In an ideal free market resting on private property, no individualcan coerce any other, all cooperation is voluntary, all parties tosuch cooperation benefit or they need not participate. There are no‘social’ values, no ‘social’ responsibilities in any sense other thanthe shared values and responsibilities of individuals. Society is acollection of individuals and of the various groups they voluntarilyform.”

Following what has been said, it is possible to extrapolate

two moral axioms from which Friedman’s defence of the

shareholder position follows. First, morality ascribes to the

individual a right to use their freedom in whichever way they

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choose, provided that they do not violate this same right in

others. Secondly, part of the concept of a freely acting

individual is the right to own personal property. The freedom

to use this property within the limits set by the first

principle is therefore a fundamental right of the individual.

These principles are simplifications of Friedman’s position,

but help to illuminate the basis of his rejection of CSR.

Nevertheless, it remains to be seen how these principles imply

that the social responsibility of business is to increase its

profits.

According to Friedman, there is no such thing as ‘corporate’

social responsibility, because as the free choice of the

individual is at the basis of his moral principles only

individuals can be said to have moral responsibilities (ibid.).

In line with his premise that the right to own property is

part of the concept of a free individual, he argues that as

iNotes

? Kaler (2006, p. 253) has a similar interpretation.ii This description of a particular understanding of the manager-shareholderrelationship relates simply to the Greek verb dein ‘to bind’ and is opposed to a strictly consequentialist understanding. It is not meant to imply a necessary connection to Kant’s ethics. I do not suggest that the three authors taken here as exemplars of the deontological approach would identify themselves as Kantians.

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shareholders are owners of the business, it falls within their

free choice to decide upon the purposes for which the assets

of the business are used:

“In a free enterprise, private-property system a corporate executiveis an employee of the owners of the business. He has directresponsibility to his employers. That responsibility is to conductthe business in accordance with their desires, which will generallybe to make as much money as possible… Of course, in some cases hisemployers may have a different objective” (ibid.).

The argument here is simply that managers of a business are

agents who have a duty to the principals – the shareholders as

owners – to conduct the operations of the business in

accordance with their wishes. Here the strictly deontological

obligations arising out of the contract between managers and

shareholders can be seen.

The shareholder theory in this form is the result of three

postulates: that there exists a moral right to property; that

the relationship of the shareholders to the business is the

same as an individual to his/her property; and that the

relationship of the shareholders to management is one of a

voluntarily entered contract, whereby management take on a

delegated responsibility for the property of the owners. On

this basis there can be only one responsibility of those

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running the business: they must act in accordance with the

wishes of the property owners, which will usually be to

maximise the value of that property, or to maximise profit as

the means to achieving this end.

In the light of the principles outlined above the defence of

the shareholder position can be seen to have its starting

point in a set of rights possessed equally by all human

beings. The implication is that all individuals in business,

whether managers or other stakeholders, have a responsibility

to respect the rights of all individuals with whom they enter

into transactions. Friedman’s theory is therefore premised on

an ethic of equal rights that constrains the actions of a

corporation, whether in respect of their contractual

obligations to shareholders or the basic rights of all

stakeholders with whom they interact. The role-specific duty

of corporate managers towards their shareholders is derivable

from the same premise. It follows that management have a duty

not to run the business contrary to the desires of

shareholders, and the contractual rights of shareholders are

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violated if managers use the assets of the business to further

‘socially responsible’ causes without their consent.

It is clear on this line of reasoning that managers have a

contractual obligation to run the firm in the ‘interests’ or

‘desires’ of shareholders – but how are managers to know what

these are? Friedman (ibid.) writes that to conduct business in

accordance with the interests of shareholders will generally

mean “to make as much money as possible while conforming to

the basic rules of the society, both those embodied in law and

those embodied in ethical custom.” As Friedman points out

however, in some cases the shareholders may have a different

objective: “A group of persons might establish a corporation

for an eleemosynary purpose – for example, a hospital or a

school. The manager of such a corporation will not have money

profit as his objective but the rendering of certain services”

(ibid.). The implication is that the purposes for which the

business is established underpin the objectives which its

managers have a duty to pursue. Unless a corporation is

established with the explicit intention of pursuing ends other

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than profit, managers should generally assume that profit

maximisation is their central objective.

‘Duties of Right’ and ‘Duties of Virtue’

At this stage the distinction between ‘duties of right’ and

‘duties of virtue’ in Immanuel Kant’s The Metaphysics of Morals

(1797) becomes relevant. Kant’s distinction provides a basis

for arguing that the ethical obligations of managers to

shareholders are not exhausted by the injunction to maximise

shareholder value. Unlike the normative stakeholder theories

referred to at the start of the article, this conclusion can

be reached without contradicting the ethical principles on which

Friedman’s argument is based. Through an exposition of the

legal rights that persons ought to have and the virtues they

ought to acquire, Kant (1797) demonstrates the logical

consistency of ‘duties of right’ (Recht)iii with ‘duties of

virtue’. The former include a duty to respect rights of

property and contract, and are therefore consistent with the

principles assumed by Friedman (1970). The latter include a

iii According to Kant’s translator Mary Gregor, he uses this term to refer to a ‘system of external laws’, rather than conformity to law (recht as an adjective), or simply ‘a right’ (Recht in its substantive use) (Gregor, 1996, pp. xxxiv-xxxv).

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‘duty of beneficence’ (Wholtun) to make the happiness of others

one’s own end. The question is whether managers of a

corporation can respect the property rights of shareholders

while simultaneously exercising a duty of beneficence to non-

shareholding stakeholders.

Kant’s distinction between ‘duties of right’ and ‘duties of

virtue’ depends on his view that only the first type of duty

can be a basis for ‘external’ legislation by the state. In

discussing the principles in accordance with which a state can

coerce all its citizens, he writes: “Strict right rests… on

the principle of its being possible to use external constraint

that can coexist with the freedom of everyone in accordance

with universal laws” (1797, p. 25). Because there is a

universal right to freedom based on the categorical imperative

that rational beings are treated always as an end and never

merely as a means, according to Kant (1797, p. 30) it is

possible to ensure through legislation that the actions of all

harmonise with the freedom of all. There is, in other words,

a universal principle in accordance with which legislation can

be passed. Natural rights to property and the performance of

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contractual obligations are derived from this ‘innate’ right

to freedom.

Whereas the incentive for respecting a ‘duty of right’ need

only be aversion to punishment in accordance with law, the

incentive for acting on a ‘duty of virtue’ – such as the duty

of beneficence – is simply respect for rightful action itself.

The reason that this form of duty cannot be enforced

externally by the state is that it involves a choice of ends, a

choice which is necessarily an internal act of mind (1797, p.

31). That an end is chosen is part of the concept of an ‘end’;

according to Kant’s (somewhat inelegant) definition: “An end

is an object of the choice (of a rational being), through the

representation of which choice is determined to an action to

bring this object about” (1797, p. 146). It follows that the

duty to make the happiness of others one’s end cannot be

enforced by a law external to one’s own conscience. The

content of these different forms of duty will now be expounded

and its relevance to the shareholder theory explored.

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‘Duties of right’ arise only in the context of the external

relation of one person to another “insofar as their actions,

as deeds, can have (direct or indirect) influence on each

other” (1797, p. 24). What matters here is not the relation

of one person’s choice to the wishes or needs of the other, as

in the duty of beneficence, but specifically with the other’s

choice (ibid.). Therefore, the actual content of the choices

involved is irrelevant to this kind of duty: “no account at

all is taken… of the end each has in mind with the object he

wants; it is not asked, for example, whether someone who buys

goods from me for his own commercial use will gain by the

transaction or not” (ibid.). From this purely formal

understanding it follows that entitlements to property and

contractual agreements are capable of being settled with

absolute precision. Kant invokes Newton’s third law of motion

as an analogy – “bodies moving freely under the law of the

equality of action and reaction” (1797, p. 26) – and writes: “the

doctrine of right wants to be sure that what belongs to each has

been determined (with mathematical exactitude)” (ibid.). The

consistency of this argument with the shareholder theory can

be seen in the fact that rights to property and the

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performance of contractual obligations are taken to have this

determinate form.

In his discussion of the part of the ‘Doctrine of Right’

(Recht) that concerns ‘private right’ Kant asks how it is

possible to have something external as one’s own (1797, p.

37). By ‘something external’ Kant refers to three types of

object that can form part of a person’s choice: “(1) a

(corporeal) thing external to me; (2) another’s choice to perform

a specific deed; (3) another’s status in relation to me” (1797,

p. 37-38). The first two objects relate directly to property

and contract rights. The necessary condition for an external

object to be ‘rightfully mine’ is that “I could be wronged by

another’s use of a thing even though I am not in possession of it”

(1797, p. 37, emphasis in original). To make this point Kant

has to distinguish two different meanings of the concept of

possession: on the one hand, sensible (physical) possession, and

on the other, intelligible (merely rightful) possession of the

same object. To illustrate the point Kant says that he cannot

call an apple, for example, his own just because he is holding

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it physically, but only if his possession continues after

putting it down (ibid.). He writes:

“For someone who tried in the first case (of empirical possession) towrest the apple from my hand… would indeed wrong me with regard towhat is internally mine (freedom); but he would not wrong me with regardto what is externally mine unless I could assert that I am inpossession of the object even without holding it” (ibid.).

Possession of a contractual right, as distinct from a property

right, is explained in a similar way. I cannot say that I own

the choice of another person to perform a specific deed unless

the time for this performance lies in the future:

“The other’s promise is therefore included in my belongings andgoods, and I can count it as mine not merely if… I already have whatwas promised in my possession, but even though I do not possess ityet. So I must be able to think that I am in possession of thisobject independently… of empirical possession” (ibid., emphasis inoriginal).

This conception of ownership as ‘intelligible’ possession is

consistent with Friedman’s view that shareholders ‘own’ the

property of a corporation across the division between

ownership and control. Friedman assumes that shareholders as

principals own the corporate assets despite the fact that they

are not in physical possession of them. In dividing the rights

that can be acquired by contract Kant lists “a contract

empowering an agent” which involves the carrying on of another’s

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affairs in his place (1797, p. 68). Again, this is formally

consistent with the idea of managers being hired as agents to

act in the interests of shareholders.

As mentioned earlier, a moral person in Kant’s theory is

subject not only to the ‘duties of right’ upon which

Friedman’s argument can be defended, but also ‘duties of

virtue’. The distinctive quality of these duties is that they

cannot correspond to a system of external laws because they

essentially concern a person’s voluntary adoption of ends.

While a person or organisation can be compelled to contribute

to an end that they have not chosen but that others deem

worthwhile, for example the public projects on which a

government might spend its tax payers’ money, if the incentive

for compliance is not the end itself but an aversion to

punishment then there need be nothing virtuous in the person’s

action. As Sullivan (1996: xxiv) puts it, according to Kant,

“those coerced by law to fulfil their ethical obligation of

beneficence tend to be moved only by prudential

considerations, so that their compliance has little or no

ethical value.”

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It is for these reasons that any ends that are also duties must

be merely duties ‘of virtue’ rather than ‘of right’, as the

latter are enforceable through external laws.iv Kant is quite

clear that virtue lies not in external freedom but in the

inner strength to withstand any dispositions that are contrary

to one’s duty. Whereas it is morally possible for one person

to constrain another to act according to a duty of right, a

duty of virtue is based only on free self-constraint (1797, pp.

146-148). These qualities distinguish ‘duties of virtue’ from

‘duties of right’, but what is significant for this analysis

of shareholder theory is that ethical action requires respect

for both types of duty, not merely the one with which

Friedman’s actual argument is most obviously consistent.

Clearly it is one thing to demonstrate a conceptual

distinction between different types of obligation and quite

another to show that ‘duties of virtue’, including a duty of

iv In an analysis of ‘perfect’ and ‘imperfect’ duties, Onora O’Neill (2001) expresses more ambiguity on this matter than Kant, writing: “duties which can actually be claimed by corresponding right holders are particularly suitable for enforcement by legal sanctions, since failure to fulfill the duty can be clearly established… It is harder to establish whether duties without corresponding rights can or ought to be enforced by law. Failure to fulfill such duties would require assessment of the entire course of an agent’s activities…”

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beneficence, exist and should be acted upon. Kant makes a

plausible argument that if there are no ends that are also

duties, then none of our ends will be of absolute worth, and

all our aims will merely be means for the realisation of

further ends. The goals of a person’s action therefore cannot

be good per se and can only possess instrumental value in

achieving other objectives. The argument that this is not the

case follows from the premise (if one accepts it) that insofar

as a human being is considered to have an inner dignity as a

person and by that very fact is owed respect from other

people, one must assume that they recognise some ends as

morally preferable to others. In other words, they can

discern a moral requirement to prioritise their goals. The

alternative is to be permitted an entirely arbitrary choice

between any ends whatsoever merely on the basis of whether

they will satisfy one’s strongest desires or appetites. The

implication is that “a categorical imperative would be

impossible. This would do away with any doctrine of morals”

(Kant, 1797, p. 149). As Sullivan (1996, p. xvii) puts it:

“Our moral reason… must be a power of ends able to oppose and

overcome the influence of any ends that are simply desired.”

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According to Kant, for there to be anything specifically moral

in a person’s action, they must have the capacity to pursue

ends that are not simply given by the various appetites and

impulses they experience. It follows that if such ends are

not contingent upon empirical experience but arise instead

from a person’s moral reason, then they are identifiable a priori

as duties not just for a single person but for all rational

beings.

The reason why these ends are considered duties ‘of virtue’ is

because “the sensible inclinations of human beings tempt them

to ends (the matter of choice) that can be contrary to duty,

lawgiving reason can in turn check their influence only by a

moral end set up against the ends of inclination” (1797, p.

146). And this self-mastery is for Kant definitive of virtue:

“the capacity to withstand a strong but unjust opponent is

fortitude (fortitudo) and, with respect to what opposes the moral

disposition within us, virtue” (ibid.). He describes virtue as

fortitudo moralis (‘moral bravery’). To the extent that these

duties concern a person’s relationships with others, it

becomes a duty to adopt the ends of these others as one’s own.

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In obeying the moral law it is insufficient to avoid treating

others as a means to an end, because this still permits

complete indifference to their well-being: instead one must

“make man as such his end” (1797, p. 157).

The arguments presented above in summary form are the most

persuasive reasons given by Kant for the existence of ‘duties

of virtue’. However, in working out the implications for the

shareholder theory, the content of these duties still requires

expounding. The specific ends one has a duty to pursue

include “one’s own perfection”, which need not be discussed

here, and “the happiness of others” (1797, p. 150). Kant does

not provide an elaborate definition of ‘happiness’, defining

it simply as “satisfaction with one’s state, so long as one is

assured of its lasting” (1797, p. 151). In considering the

duty to make the happiness of others one’s end, Kant adds the

qualification that it is up to others to decide what belongs

to their happiness, so long as it does not contravene any

duties of right. However, they can be refused things that they

think will make them happy, but their benefactor does not, as

long as they have no right to demand them as their own (ibid.).

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In particular, one is to avoid supporting actions that

undermine the ‘moral well-being’ of a person one is supposedly

trying to help: “it is my duty to refrain from doing anything

that, considering the nature of a human being, could tempt him

to do something for which his conscience could afterwards pain

him…” (1797, p. 156). A ‘duty of beneficence’ is the duty to

further the good of others by promoting their (permitted)

notion of happiness.

Why must moral duty comprise the happiness of others, rather

than being based on a principle of self-interest? Kant

argues:

“…everyone who finds himself in need wishes to be helped by others.But if he lets his maxim of being unwilling to assist others in turnwhen they are in need become public… then everyone would likewisedeny him assistance when he himself is in need, or at least would beauthorized to deny it. Hence the maxim of self-interest wouldconflict with itself if it were made a universal law, that is,contrary to duty. Consequently the maxim of common interest, ofbeneficence to those in need, is a universal duty of human beings…”(1797, p. 202).

Onora O’Neill gives a similar justification for a duty to help

others, basing her argument on a principle of mutual aidv as

opposed to indifference and neglect:

“…no vulnerable agent can coherently accept that indifference andneglect should be universalised, for if they were nobody could rely

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on others’ help; joint projects would tend to fail; vulnerablecharacters would be undermined… Those with limited and variablecapacities and capabilities must plan to rely in various ways on oneanother’s capacities and capabilities for action, so must (ifcommitted to universalizable inclusive principles) be committed todoing at least something to sustain one another’s capacities andcapabilities…” (1996, p. 194, emphases in original)

Another crucial difference from ‘duties of right’ is that one

cannot say for ‘duties of virtue’ (such as beneficence) the

extent to which the duty must be acted on in a given case.

These duties have an ‘imperfect’ quality because of the

freedom of the beneficiaries in choosing their ends (their

‘permitted’ notion of happiness) and the varying needs,

resources and personal relationships of the benefactors. The

duties are categorical as regards our maxims – the subjective

principles that guide our behaviour (e.g. that one cannot be

indifferent to everyone) – but not in the case of specific

actions. Kant (1797, p. 156) writes:

“…it is impossible to assign determinate limits to the extent of thissacrifice. How far it should extend depends, in large part, on whateach person’s true needs are in view of his sensibilities, and itmust be left to each to decide this for himself. For, a maxim ofpromoting others’ happiness at the sacrifice of one’s own happiness,

v John Rawls, in A Theory of Justice, recounts Kant’s argument for the duty of mutual aid but adds that in his view the most important argument for adopting the duty “is its pervasive effect on the quality of everyday life.The public knowledge that we are living in a society in which we can dependupon others to come to our assistance in difficult circumstances is itself of great value… The primary value of the principle is not measured by the help we actually receive but rather by the sense of confidence and trust inother men’s good intentions and the knowledge that they are there if we need them.” (1999, p. 298)

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one’s true needs, would conflict with itself if it were made auniversal law. Hence this duty is a wide one; the duty has in it alatitude for doing more or less, and no specific limits can beassigned to what should be done.”

The indeterminate extent of this duty therefore gives a person

the permission not to make exceptions to the maxim itself –

that is, to make the happiness of others their end – but

instead to “limit one maxim of duty by another (e.g., love of

one’s neighbour in general by love of one’s parents), by which

the field for the practice of virtue is widened” (1797, p.

153).

The question now is whether this categorical, but imperfect,

duty of beneficence is of ethical significance for managers of

business corporations. In other words, can managers use the

corporation’s assets to pursue the happiness of non-

shareowning stakeholders, despite the ownership claims of

shareholders? Can the agent exercise a duty of beneficence

with the property of the principal?

Shareholders and the ‘Duty of Beneficence’

29

Before giving my argument for the compatibility of a duty of

beneficence with Friedman’s shareholder theory, it is

important to consider other attempts in the literature to find

a place for this duty in the corporation. While not

necessarily an adherent of the shareholder theory, Norman

Bowie (1999, pp. 6-7) argues that corporations do indeed have

positive duties to non-shareholders, such as the duty to help

develop the rational and moral capacities of employees. He

writes that the “individual’s imperfect obligation of

beneficence” can be extended to the corporate level, which

means that all profit-making firms have “a limited, but

genuine, duty of beneficence” (1999, pp. 10-11). Bowie bases

this claim on Kant’s argument, discussed briefly above, that a

principle of pure self-interest conflicts with our need to be

helped by others. Bowie argues that ‘society’ has helped

corporations, in the form of roads, sanitation facilities,

police, fire protection, etc, and therefore corporations owe a

duty of beneficence back to society. He contends that

corporate taxes do not pay the full cost of these benefits

(1999, p. 11).

30

There appear to be two problems with Bowie’s argument,

however. First, the ‘duty of beneficence’ for Kant entails a

person making the happiness of others his/her end. The

content of this duty in part depends upon the ends (objects of

choice) that constitute the well-being of the beneficiary and

the ‘sensibilities’ of the benefactor. This is why the duty

has to be a ‘wide’ and ‘imperfect’ one. It is therefore

doubtful whether one collective entity, a ‘corporation’, has a

duty of beneficence to another, ‘society’. In Bowie’s

argument ‘society’ appears to be an aggregate of taxpayers and

it seems unwarranted to assume that notions of happiness would

not differ among members of this group.

Secondly, Bowie presents a corporate ‘duty of beneficence’ as

a solution to the problem of positive externalities between

corporations and taxpayers. However, the concern that

providers of public services receive full payment from those

who benefit from their work does not give rise to a duty of

beneficence towards them. In Kant’s justification of this

duty it is the principle of contradiction, and not mutual self-

interest, to which he appeals in keeping with the first

31

formulation of the categorical imperative.vi We cannot make

pure self-interest a universal law and ignore the happiness of

others while we require help and assistance from others if we

are in need. We therefore owe a wide duty even towards

persons who have not benefited us in any way and ‘completely

avoid’ other human beings: “benevolence remains a duty, even

towards a misanthropist” (Kant, 1797, pp. 161-162).vii To

those individuals who do indeed make it their end to do us

good we owe a duty of gratitude. Kant writes that “the degree

of obligation to this virtue, is to be assessed by how useful

the favour was… and how unselfishly it was bestowed on him”

(1797, p. 204, emphasis added). He also writes that gratitude

“is not merely a prudential maxim of encouraging the other to

show me further beneficence by acknowledging my obligation to

him for a favour he has done…” (1797, p. 203). For these

reasons the expectation of mutual benefit cannot support a

Kantian ‘duty of beneficence’ to ‘society’.

vi Kant’s first formulation is as follows: “act only in accordance with thatmaxim through which you can at the same time will that it become a universal law.” (1785, p. 31)vii Kant explains in his lectures from the mid-1770s how the ‘disposition ofbenevolence’ applies even to one’s enemies: “well-wishing love we may also have for our enemies. Such well-wishing can always be heartfelt. I wish that he may come to himself, and may thereby make himself worthy of all happiness, and actually attain it.” (Kant, 1997, p. 180)

32

David Lea (2004) employs a more precise interpretation of the

duty of beneficence in his argument that corporations should

pursue the ‘welfare’ of their stakeholders. Lea (2004)

focuses on specific stakeholders to whom managers should

exercise this duty, rather than broad groups such as the

general public: “the company has a special imperfect duty to act in

the interests of stakeholders because of the special

relationship that exists between the firm and stakeholders”

(2004, p. 207). Stakeholders in his argument are “certain

groups who are directly affected by the firm’s activities”

(ibid.). Lea’s understanding of the ‘imperfect’ nature of this

duty is consistent with Kant’s argument considered earlier:

“The fact that the duty is imperfect does not relieve the

agent of responsibility, however… the duty allows broad

latitude for discretion, judgement and choice… we also

recognise that the degree of responsibility is variable and

contingent upon the circumstances of the event” (2004, p.

214). Specifically, Lea mentions that some corporations are

better equipped financially to act on a duty of beneficence

than other firms who are struggling for survival in the market

(2004, p. 215). These imperfect duties, however, do not

33

override the ‘perfect’ duties of the corporation, such as the

contractual obligations to shareholders (2004, p. 207).

This latter point leads directly to a consideration of the

shareholder theory. Lea (2004) and Bowie (1999) give slightly

different answers to the question of who should benefit from

the corporation’s duty of beneficence. However, both assume

that it is the corporation itself (or its managers) to whom

this duty applies. According to the shareholder theory

corporate property must be used in accordance with the

interests of shareholders. It therefore cannot be the duty of

managers, as agents of the shareholders, to exercise their own

duty of beneficence in pursuing the well-being of various non-

shareholders. This is precisely the unjustified extension of

managerial power that is so heavily criticised by Friedman

(1970). If managers are to employ their judgement in such

matters then, according to the shareholder view, it should be

on behalf of the shareholders and not independently of this

relationship. In other words, it is the shareholders whose duty

of beneficence is to be determined.

34

If shareholders do indeed have this duty, then given the

separation of ownership and control, an important question is

whether managers can exercise it on shareholders’ behalf.

Are managers able to infer how shareholders wish their

investment to be spent in particular circumstances in which a

duty of beneficence is apparent? Where a duty to further the

happiness of any non-shareholder is evident, how are managers

to know whether (and if so, to what extent) a shareholder

wishes to pursue this end? In the case of a corporation with

dispersed and numerous shareholders, most of whom management

are not personally acquainted with, it is impossible for the

managers to know the ethical sensibilities of all shareholders

concerning the needs of non-shareholding stakeholders in

precise situations. If, according to Kant, the extent to

which a duty of beneficence is incumbent upon a person depends

on their own particular sensibilities and the extent to which

their needs are satisfied, then even if management knew the

ethical interests of each shareholder they would scarcely be

in a position to act in accordance with each interest

simultaneously. This would be due to the lack of uniformity

in the goals that shareholders have reason to value. From the

35

inability to assume uniformity of shareholder ends (where

these deviate from financial gain) it can be asked whether

there is an ethical and legal basis for managerial actions

that cannot be justified with respect to the financial gains

of shareholders.

Before considering a solution to this question, a brief

illustration of the problem can be found in the position taken

by the ‘Tax Justice Network’ (TJN) against corporate tax

avoidance. According to its mission statement, the TJN

“promotes tax justice and tax cooperation and resists tax

avoidance, tax evasion and tax competition” (Tax Justice

Network, 2005a). It estimates that every year governments

around the world lose as much as US$255 billion because of low

taxation of funds in tax havens and offshore centres (2005b,

p. 3). This is said to have detrimental effects on the

development prospects of poor countries and leads to an

unacceptable divide between rich and poor (ibid.). Their

ethical argument against the avoidance of taxes by

corporations (particularly transnational corporations) is

based not merely on a duty to comply with the law, but also on

36

the moral value of the ends pursued by governments with their

tax revenues.

They write that one of the duties of any taxpayer is “to

comply with the taxation law of the states that applies to

them” and “to pay the taxes they owe as defined by the spirit

of the law…” (2005b, p. 8). If this has the form of a

‘perfect duty’ that applies equally to all, they also imply a

number of less specific duties concerning the ends that

taxpayers ought to pursue through their governments. They

appeal to the welfare of the poor, writing that “the victims

of this predatory culture are the poorest and most vulnerable

people on the planet” (2005b, p. 7) and “Unjust tax practices

incur costs which fall most heavily on poor people” (2005b, p.

21). They write of the need of states for “sufficient revenue

to fund the physical and social infrastructure essential to

economic welfare, and also to enable a degree of wealth

distribution between rich and poor…” (2005b, p. 11). Clearly,

according to their position, the ethical responsibilities of a

corporation far exceed the duty simply to obey the letter of

the law.

37

It might be asked whether the TJN acknowledge a contractual

duty of managers to shareholders for the maximisation of

profits within the law. The TJN do acknowledge this

perspective (2005b, pp. 19, 34). However, they argue that if

most shareholders were consulted on the question of legal tax

avoidance, they would not wish to minimise their tax bill so as

to maximise their personal gain. Instead, they would pay

taxes out of a desire to contribute to some of the social

purposes outlined above. They write: “tax minimisation does

not necessarily reflect the views of real shareholders…” and

this is in part because “tax provides health, education,

welfare, the maintenance of peace and stability and other

benefits on which communities depend” (2005b, p. 20). They

also surmise that “investors might want to invest in companies

that are managed on an ethical basis. Many aggressive tax

avoidance practices would be considered ethically

unacceptable…” (ibid.).

The difficulty is in the ambiguity of the assumptions these

points depend upon. Writing of the views of ‘real’

38

shareholders, the TJN use phrases such as “investors might

want…” (2005b, p. 20), “it is fair to assume…” (2005b, p. 35),

and tax minimisation is “not necessarily” favoured by all

shareholders (2005b, p. 19). These phrases betray the

indefiniteness of the ends invoked and the difficulty of

determining the goals that an individual shareholder

(especially in large corporations with diverse shareholdings)

would wish to adopt. Besides a decision not to exploit a tax

loophole, other examples might include a decision to pay a

living wage to workers of developing countries without a

legally enforced minimum wage, or to invest in environmentally

sustainable but unprofitable technology.

Is this uncertainty a compelling reason not to pursue the well-

being of any non-shareholder according to the shareholder

theory? Certainly this view would be consistent with the

conclusions of Friedman and others. It can be argued that if

shareholders wish to act charitably they can do so with money

that they have not invested for business purposes. However,

if shareholders are willing to hold managers to account for

implementing policies aimed at the benefit of non-shareholding

39

stakeholders, then there is no inherent contradiction with the

Kantian principles outlined above. If it is argued, first,

that shareholders have property rights (however qualified) to

a corporation’s assets and, secondly, that for managers to

invest this property contrary to the wishes of shareholders is

an unjustified use of shareholders as mere means, then the

ethical solution is to ensure (through effective mechanisms of

accountability) that managers do indeed act according to the

wishes of shareholders. This point holds as a matter of logic

whether shareholders desire maximum financial value from their

investment or, on the other hand, approve corporate policies

aimed directly at improving the happiness of employees,

suppliers, communities, etc. If the aims pursued by corporate

managers reflect the wishes of the majority of shareholders,

then there is no question of those shareholders being used

merely as means in the pursuit of ends that are not their own.

There is still the practical question of how a corporate duty

of beneficence to non-shareholders is to be realised through

managerial action. As discussed earlier, there is no

necessary uniformity in the content of this duty for specific

40

cases where it might apply. The way in which a ‘duty of

beneficence’ is apparent to an individual shareholder is

likely to depend upon factors that vary greatly between

shareholders. Therefore, a managerial license to exercise

arbitrary judgement in spending the company’s resources

(however ethical the motivation) would probably fail to

represent the variability of ends sought by the shareholders

to whom management are accountable. It follows that if

managers are to act on behalf of shareholders in pursuing the

well-being of non-shareholders, the exercise of this duty

should not be at their sole discretion.

A way to avoid this difficulty and ensure the effective

representation of shareholders would be for corporations to

adopt formal policies or codes of conduct that encompass

ethical considerations towards non-shareholders; an example of

which can be found in the principles of the UN Global

Compact.viii If the content of such ethical policies is

transparent to shareholders, and a majority of voting

viii For example, concerning human rights, the Global Compact recommends: “Companies should adopt a statement of policy as a public commitment to fulfill their responsibility to respect human rights, approved by their board or equivalent.” (UN Global Compact, n.d.)

41

shareholders approves the implementation of these codes or

policies, then a ‘duty of beneficence’ can be exercised with

their conscious support. Examples provided by the UN Global

Compact of companies supporting human rights include provision

of “access to basic health, education and housing for the

workers and their families, if these are not provided

elsewhere”, “having an affirmative action programme to hire

victims of domestic violence”, and creating new markets

through differential pricing that “enable the poor to gain

access to goods and services that they otherwise could not

afford” (UN Global Compact, n.d.). If, following O’Neill

(1996, pp. 204-205), imperfect duties of beneficence,

sympathy, love, help, care and concern find their contrary

opposite in systematic indifference and neglect towards others,

then the consistent application of an appropriate code of

ethics in theory avoids the latter. Managers would then be

held accountable to shareholders for acting in accordance with

the adopted policies.

It can be argued from an ethical, as well as a practical,

standpoint that detailed implementation of the policies should

42

be left to employees or managers who possess specific

knowledge of the part of the business to which items of the

policy relate, as they are most likely to understand the

immediate consequences of their application. Kant writes that

“ethics, because of the latitude it allows in its imperfect

duties, unavoidably leads to questions that call upon

judgement to decide how a maxim is to be applied in particular

cases…” (1797, p. 168), and goes on to add that, contrary to

the precision of ‘duties of right’, “duties of virtue have a

latitude in their application, and judgement can decide what

is to be done only in accordance with rules of prudence

(pragmatic rules), not in accordance with rules of morality…”

(1797, p. 185). Furthermore, as Timmermann (2005) argues in

relation to ‘wide duties’:

“We must often acquire a fair amount of knowledge about suitablemeans, in Kantian terms: we must familiarize ourselves with rules ofskill, the ‘technical’ kind of hypothetical imperative, telling ushow best to put the ends we pursue into action; and quite often thereis more than one way to pursue one’s ends skilfully.” (2005, p. 20)

Illustrations can be found in the principle of the UN Global

Compact on eliminating forced and compulsory labour,

specifically with respect to child labour: the use of adequate

mechanisms “for age verification in recruitment procedures”,

43

the design of “educational/vocational training… for working

children, and skills training for parents of working

children”, the launching of “supplementary health and

nutrition programmes for children removed from dangerous work”

and providing “medical care to cure children of occupational

diseases and malnutrition” (UN Global Compact, n.d.). In each

case a ‘duty of beneficence’ on behalf of shareholders can

only be enacted by managers or employees with the requisite

knowledge to implement such initiatives. It can be assumed

that most shareholders in large publicly-owned corporations

lack the required skills for direct involvement or immediate

oversight of these projects. However, if shareholders support

the general aims of the projects and the policies on which

they are based, then the objective of the corporation is still

aligned with shareholder interests and there is no conflict

with the deontological principles of Friedman’s argument.

If one surveys evidence on the likelihood of shareholder support

for resolutions that implement a duty of beneficence to non-

shareholders,ix the results admittedly are not particularly

promising. Buchanan et al (2010, p. 7) find that only 2% of

44

shareholder proposals in the UK concern social and

environmental issues, and these proposals “garner the lowest

vote support and have the lowest passing rate compared to

other types of proposals” (2010, p. 8). Examples they give

include proposals for preparing a sustainability report,

implementing International Labour Organization (ILO) standards

and making AIDS drugs affordable in poor countries (2010, p.

21). Likewise, Ertimer et al (2011, p. 537) find that of all

shareholder proposals aimed at executive compensation, those

which target the objective (rather than the process) of executive

pay, for example by tying it to social and environmental

criteria, have very little voter support and the lowest

success rate. In a study by Thomas and Cotter (2007), 402

social responsibility proposals on average were approved by

just 10.75% of shareholder votes cast, and not a single one

gained the support of a majority of shareholders (2007, p.

376). The authors conclude that their broader findings

support “the claim that shareholders view corporate governance

proposals as connected to firm value and therefore worthy of

support, whereas beliefs about social responsibility proposals

are precisely the opposite” (2007, p. 389). Even Monks et al

45

(2004, p. 318), in what is otherwise quite an optimistic

study, write that it is disappointing for CSR shareholder

activists that “voter support for CSR-oriented proposals,

although showing some year-on-year growth, typically falls

below the average level of voter support for shareholder

resolutions generally.”

These findings suggest that if managers are unwilling to sign

up to CSR policies then there is little chance that

shareholders will impress upon them the need to do so. On the

other hand, not all of the evidence cited is cause for

pessimism. Buchanan et al (2010, p. 7) find that, compared to

shareholder proposals in the UK, a much greater percentage in

the US target social and environmental issues (2% and 30%

respectively). They point out that shareholder proposals in

the US which are not related to ‘normal business operation or

director elections’ are funded at the corporation’s expense,

whereas in the UK the expense is carried either by individual

or institutional shareholders. Given the difficulty in both

ix In practice, this would usually mean at a minimum that shareholder proposals dealing with issues of ‘social’ and/or ‘environmental’ responsibility win the support of a majority of voting shareholders at a company’s annual meeting.

46

countries of gaining majority support for the proposals, this

difference probably explains the much higher proportion of

social responsibility proposals in the US. In a similar

finding, Monks et al (2004, p. 317) show in their sample of 81

large US corporations that 45% of shareholder resolutions

relate to CSR, and that those proposals which also relate to

“traditional corporate governance activism”x have a higher

chance of successful resolution.

On the basis of this crossover with traditional governance,

Monks et al argue that reforms strengthening shareholder rights

and corporate governance in general “will also benefit CSR

activists and the environmental policies they promote in

particular” (2004, ibid.). Notwithstanding the date of their

sample (2000-2003), it is worth noting the authors’

conclusion: “With almost half of all proposals filed being

either CSR or crossover, SRI [socially responsible investing]

x With this term the authors refer to attempts “to bolster the influence ofshareholders (or owners) over the management of publicly listed companies through mechanisms that promote accountability and transparency, such as more equitable executive compensation, and strengthening of the independence and oversight powers of the board of directors” (Monks, et al, p. 318). Their point is that CSR-related proposals tend to gain greater shareholder support if they are combined with the traditional type of shareholder activism described here, than if they are presented as stand-alone proposals.

47

is clearly a central feature of shareholder activism” (2004,

p. 324). A much more recent study by Institutional

Shareholder Services (2011, p. 3) also finds that engagement

between US corporations and investors is expanding to include

more environmental and social issues.

In addition to their empirical conclusions, Monks et al (2004,

p. 327) make the normative assertion that: “Corporate

shareholders must assume responsibility for the activities of

the company that they have invested in. This applies also to

activities with social and environmental implications.” They

go on to claim that “shareholders, particularly if they are

large institutions, have a key role to play… in reorienting

management practices towards courses of action that are more

socially and environmentally beneficial” (2004, p. 328). The

authors acknowledge that the ownership rights of individual

shareholders “do not oblige these shareholders to participate

actively” and that “encouraging more involvement can amount to

no more than an appeal to an ethical sense” (2004, p. 327).

However, they suggest that the obligation of institutional

investors extends beyond the financial gain of their plan

48

participants and includes “a commitment to represent all the

interests of the beneficiaries, including social and

environmental interests” (2004, ibid.).

Assertions about the obligations of shareholders, considered

in the light of the meagre success of social responsibility

proposals, raise the question of whether shareholders ought to

support policies that enact a ‘duty of beneficence’.

Empirical evidence on the likelihood of them doing so

notwithstanding, a moral argument can still be made about the

duties they have in keeping with the shareholder theory.

According to the deontological theory claimed here to be

consistent with Friedman’s argument, the ‘duty of beneficence’

potentially applies to any of a person’s activities affecting

other people. In theory this categorical duty is relevant to

the full scope of a person’s life. However, as practical

beneficence to everyone is impossible, the individual has to

make a judgement about who is most deserving of their active

care and support. As O’Neill (1996, p. 195) puts it:

“Although many ethical traditions extol universal benevolence, lovefor all mankind, or concern for all, their rhetoric misleads… Sincenobody can provide help or care for all others, or even for someothers at every time, the rejection of indifference and neglect

49

cannot be expressed in action for all others… The social virtues makeselective demands: they leave open to whom, or when or in what waysvirtue is to be expressed.”

Duties of virtue make ‘imperfect’ and ‘selective’ demands but

they are still categorical and limited only by ‘perfect’ duties

(e.g. one cannot refuse to pay back a debt to one person so as

to afford an expensive gift for another). Across the breadth

of one’s actions, and within the constraints of perfect duties

(including ‘duties of right’), one must decide to whom one can

give help, care, generosity and support. And this is what the

duty of beneficence requires of shareholders, as of anyone

else.

Now, it can be taken as axiomatic that the activities of a

business corporation of any size have consequences, however

slight, for all of its stakeholders (customers, suppliers,

employees, shareholders, communities, etc). According to the

shareholder theory, a firm is supposed to be run primarily in

the interests of one of these groups – the shareholders. It

can be argued that this group is obliged at least to take an

interest in the moral consequences of the firm’s activities for

the happiness and well-being of the other stakeholders. This

50

is particularly relevant for shareholders with considerable

investment in a company and relatively high voting power.

Only then can these investors decide if they wish to accept the

known consequences of the firm’s behaviour and if they will

support or oppose policies that commit the company to a

certain kind of treatment of non-shareholders.xi To argue that

this is not the case is to say that there is an area of one’s

activities, power and influence in which a duty of beneficence

cannot arise.

Whether one should accept that some areas of life can be

unaffected by the duty of beneficence seems to depend upon the

strictness of the duty. If, as suggested earlier, the duty is

categorical and imposes a strict requirement to make the

happiness of others one’s end, then there is every reason for

shareholders to take an interest in how their investments

ultimately affect the happiness of others. On the other hand,

if the duty is merely optional and not morally ‘required’,

then it is at least permissible for shareholders to look no

xi For example, the UN Global Compact’s recommendation that business adopts a general policy of “Strategic social investment and philanthropy” as one way among others to promote human rights. (UN Global Compact, n.d.)

51

further than the legality and profitability of their

investment.

On this question, different answers exist in the relevant

literature. Chryssides and Kaler (1993, p. 102) describe

duties of benevolence as “merely optional” and contrast them

to “‘perfect’ duties which have to be fulfilled” because the

latter have corresponding rights, whereas the former do not.

This interpretation finds support in Kant’s Lectures on Ethics from

the mid-1770s, where he contrasts “duties of good-will and

benevolence” that are “kindly” with “duties of indebtedness,

or rectitude” which are “righteous and required of us” (Kant,

1997, p. 177). This setup is potentially misleading, however,

as Kant immediately distinguishes “well-wishing from

inclination” and “well-doing by reason of obligation”: the

first is desirable but not a duty, whereas the second is

“benevolence on principle” and “always a compulsion” (ibid.).

Kant goes so far as to assert that, because people do not have

an instinct for justice, ‘providence’ has implanted in them an

instinct for benevolence so that injustices of which the

individual is not aware are rectified. Kant recasts the

52

strictness of the duty of beneficence in terms of the rights

(and injustices suffered) of the disadvantaged:

“One may take a share in the general injustice, even though one doesnobody any wrong by civil laws and practices. So if we now do akindness to an unfortunate, we have not made a free gift to him, butrepaid him what we were helping to take away through a generalinjustice… Thus even acts of kindness are acts of duty andindebtedness, arising from the rights of others.” (Kant, 1997, p.179)

Kant suggests that ‘moralists and teachers’ should ensure that

“they represent acts of benevolence to be acts of obligation,

and reduce them to a matter of right” (1997, p. 180).

Chryssides and Kaler (1993) and Kaler (2003, p. 76) are

therefore correct that the strictness of Kantian duties is

demonstrated by the existence of a corresponding set of

rights.xii However, it does not necessarily follow that the

‘imperfect’ duty of beneficence is merely optional and not

obligatory.xiii

xii Kant does offer a more qualified view in the Metaphysics of Morals (1797, p.153), simply arguing that one should bring one’s principle of complying withimperfect duty as close as possible to the strict requirements of perfectduty: “The wider the duty… the more imperfect a man’s obligation to action;as he, nevertheless, brings closer to narrow duty (duties of right) themaxim of complying with wide duty (in his disposition), so much moreperfect is his virtuous action.”xiii The only sense in which imperfect duties could be described as ‘optional’ is that they lack corresponding rights and legal enforceability.As Kaler (2003, p. 80) argues, a stakeholder has no ‘right to accountability’ where the duty to them is merely imperfect.

53

This interpretation is mirrored in a recent argument by

Timmermann (2005) that Kantian ethics contains no

supererogatory demands at all. In other words, there are no

Kantian duties that are ‘good’ but not ‘required’. He writes:

“Wide or imperfect duties are less binding than perfect duties

only because they are restricted by the former… but if and

when they apply they are just as binding as the other kind of

duty” (2005, p. 23). If one accepts that imperfect duties are

not optional then the activity of any firm in which one has a

significant investment cannot lie beyond one’s moral

consideration. Specifically, a shareholder with considerable

voting power should not be indifferent to the effects of a firm’s

policies on the happiness of others.

If the obligations generated by imperfect duties are not

‘optional’ then it can still be asked how they differ, if at

all, from the obligations of perfect duties. The difference is

that unlike perfect duties and all ‘duties of right’, a

person’s imperfect obligations cannot be determined with

precision through application of an abstract principle. The

principle that one should make the happiness of others one’s

54

end is a general duty: it does not tell a person exactly what to

do when more than one possible action is consistent with the

principle. For example, an individual shareholder may have

the following mutually exclusive options: to vote for a

proposal that commits a company to paying its workers a wage

above the legally required minimum; to vote for a competing

proposal that would commit the same company to publishing an

annual sustainability report, though this may lead to the

closure of polluting factories and subsequent redundancies; to

reject both proposals in favour of maximising dividend

payments, which will then be donated to a charity working to

help the victims of a natural disaster. The general ‘duty of

beneficence’ tells this shareholder that any one of these

courses of action may be morally good, but it does not tell

him/her exactly which option to choose.

The above dilemma for the shareholder can be described in

Kantian terms as a conflict between ‘grounds of obligation’.

Kant (1797: 16-17) argues that it is possible for the same

general duty to produce in the same person conflicting

‘grounds of obligation’ (or ‘obligating reasons’), only one of

55

which is sufficient to put a person under obligation to act.

Kant writes that “the stronger ground of obligation prevails”

(1797: 17) leaving just a single obligation prescribing what

is to be done. As the very concept of an ‘obligation’

expresses the practical necessity of an action, a collision

between genuine obligations is impossible, according to Kant.

What can be seen when corporate activity has the capacity to

benefit a range of non-shareholders is a potential collision

between different ‘grounds of obligation’ or possible reasons

to act. Whether a ‘ground’ will generate a concrete

obligation is dependent on a range of empirical factors that

could differ greatly between shareholders, meaning that

individual shareholders may be obligated to support different

courses of action.

The contingency of imperfect obligations on circumstance is

elucidated well by Timmermann (2013):

“[Duties of virtue] are contingent in the sense that to be relevantat all they depend on several conditions. If no one requires mysupport, or if for whatever reason there is nothing I can do to helpsomeone in need, I am under no obligation to be beneficent. Ethicalduties in the abstract are insufficient to command determinateaction.” (p. 10)

56

On the relationship between obligations and grounds of

obligation, he writes that the latter arise “when an agent

correctly applies an ethical principle to a concrete case.

This ground, though genuine, can still fail to produce an

actual obligation if the agent lacks the means to further the

ethical end in question” (p. 13); and furthermore: “Grounds of

obligation depend on the precarious availability of means to

generate duties” (p. 20). This interpretation suggests that

the actual obligation of a given shareholder actively to

pursue the interests of any non-shareholder cannot be derived

simply from the fact that they have a ‘duty of beneficence’ to

further the happiness of others. However, it does not imply

that the application of the duty is random or arbitrary: the

variety of ways in which corporations interact with non-

shareholding stakeholders provides a plethora of situations in

which potential obligations of beneficence may arise.

If such a position calls for the active engagement of

shareholders who can, for example, make informed decisions

about whether to support CSR proposals or oppose them, then an

implication of competing ‘grounds of obligation’ is that not

57

every shareholder will be required to support every policy

aimed at the happiness of other stakeholders. Individual

shareholders with negligible investment and voting power in a

company are less affected by this duty, with respect to that

particular company, than larger (often institutional)

investors with higher levels of voting power. Furthermore, it

is not a violation of any duty for an investor to oppose a CSR

proposal that they believe would reduce the financial value of

their investment and harm their ability to benefit others.xiv

Examples for individual investors might include spending

dividends or capital gains on their children’s education, or

covering the cost of private medical insurance for a close

relative, etc.xv How an individual shareholder is obligated to

act is to be determined by them alone, once they are familiar

with the relevant circumstances and possible consequences of

the corporate activity in question.

xiv Having the resources to pursue ‘one’s own perfection’ as an end is also relevant from a Kantian perspective but beyond the scope of this paper.xv This point does not hold straightforwardly for institutional investors, although they can choose whether to commit publicly to ethical investment standards, such as the Principles for Responsible Investment (PRI). These principles commit institutional investors to being “active owners” and incorporating environmental, social and corporate governance (ESG) issues into their ownership policies and practices, for example by filing “shareholder resolutions consistent with long-term ESG considerations.” (Principles for Responsible Investment, n.d.)

58

However, it still follows that where a shareholder has a

significant investment in a firm then moral judgement will

have to be exercised. Decision-making of this kind can only

occur if an investor is engaged in following the moral

consequences of the firm’s activities on others. Examples of

relevant situations are not hard to find: tax avoidance and

evasion, the exploitation of ‘sweatshop labour’ in developing

countries, environmental pollution, ‘predatory lending’ during

the sub-prime crisis, etc. A range of governance mechanisms

may be suitable in facilitating the informed involvement of

shareholders, including the use of social and environmental

accounts,xvi and improving the oversight powers of non-

executive directors and their accountability to shareholders.

Even if corporate activity complies with Friedman’s principles

of legality, adherence to ‘ethical custom’ and avoidance of

fraud and deceit, there is still an ethical decision to be

made about the contribution of the corporation to the ends of

the people it benefits or harms. In this argument, noxvi As an illustration, the PRI ask institutional investors to commit to seeking “appropriate disclosure on ESG issues by the entities in which we invest”. They suggest this is possible inter alia by asking “for ESG issues to be integrated within financial reports” and supporting “shareholder initiatives and resolutions promoting ESG disclosure”. (Principles for Responsible Investment, n.d.)

59

conflict is entailed with the principles of the shareholder

theory, as the firm is still run primarily in the interests of

shareholders, and rights of property and contract are strict

constraints on the ends a corporation may have.xvii However,

the compatibility of duties of right (including property and

contract rights) with a duty of beneficence shows that if a

corporation is to be run ‘in the interests of shareholders’ on

the basis of the former, then it can in accordance with the

latter embrace a variety of ends beyond the financial wealth

of shareholders.

Imperfect Duty and the Corporate Objective

If a corporate ‘duty of beneficence’ means that the interests

of shareholders and non-shareholders can both be part of the

corporate objective, then it may appear that the application

of the duty results not in an extension of the shareholder

position, but in a stakeholder theory of the firm. This would

especially be the case for what Kaler (2003, p. 79-80)

describes as a ‘qualified and weak’ stakeholder theory, in

xvii To say that a company should not donate money to charity (an imperfect duty) that should have been used to pay wages or meet the interest paymentson a loan (a perfect duty), is I think consistent with Friedman’s shareholder theory.

60

which managers owe perfect duties to shareholders and

shareholder interests have priority. However, in Kaler’s

account of stakeholder theory it is crucial that the ‘ultimate

objective’ includes the interests of shareholders and non-

shareholders. By comparison, “what stockholder theory has to

deny is that role-specific responsibilities to non-

shareholders are ultimate objective fulfilling” (Kaler, 2003,

p. 77).

Given these characterisations of the two approaches, the key

question is whether a corporate duty of beneficence provides a

basis for stakeholder theory through the inclusion of non-

shareholder interests in the ultimate objective of a

corporation. To answer this question it is important to see

what could be meant by an ‘ultimate objective’. Both

etymology and current usage suggest a goal, aim, or object to

be achieved, which is ‘furthest’ or ‘final’ and not pursued

for the sake of any further end.xviii The summary given above

of Friedman’s argument makes it clear that if any objective is

an ‘ultimate’ or ‘final’ end of corporate activity, then for

xviii ‘Ultimate’ is derived from the Latin ultimatus, a perfect participle meaning ‘ended’, ‘finished’ or ‘finalised’.

61

deontological reasons it ought to be consistent with

shareholder interests. If the objective harmed shareholder

interests, or was pursued as a means to an end that is

contrary to those interests, then the property and contract

rights of shareholders would be violated. According to Kant,

the ‘duty of right’ to respect the property and contract

rights of others has the form of a perfect duty that allows no

exceptions. The deontological framework offered here could

not therefore support an ‘ultimate objective’ that excluded

the interests of shareholders. Furthermore, I have argued

elsewhere (Author, 2013) that no stakeholder group other than

the shareholders can claim a ‘duty of right’ to have their

particular ends considered in the ultimate objective.xix

xix The argument is basically that for any stakeholder to enter into an act of exchange with a corporation, their subjective valuation of the good to be exchanged must differ from the value that is profitable for the corporation. Only then could a mutually beneficial exchange take place. If the subjective valuations on both sides of the trade are different, thenthe ends pursued through the act of exchange could not be the same. It follows that the ends a corporation ultimately pursues cannot comprise the interests of any stakeholder with whom it enters into acts of exchange (e.g. suppliers, customers, employees). Shareholders, however, do not exchange with corporations but delegate to them the authority to control the use of their investment. Shareholders are therefore the one stakeholder group whose interests can constitute, as a matter of contractual right, the ‘ultimate objective’ of a corporation. A more extensive version of this argument appears in (Author, 2013). Of course, an assumption is made here that the pursuit of shareholder interests is constrained by general perfect duties to respect the rights of others who may be affected by corporate activity (e.g. management would not have a duty to employ slave labour, even if it were the most effective way to maximise short-term profit and satisfy shareholders’ interests).

62

However, if shareholders have a ‘duty of beneficence’ to make

the interests of non-shareholders their end, then ipso facto

these interests become part of the corporate objective even

without a corresponding right. It would therefore seem that a

‘qualified’ stakeholder theory is consistent with the position

advocated here, as shareholder and non-shareholder interests

come together in the corporate purpose. On the other hand,

this conclusion depends upon the level of generality at which

the argument is made. Does stakeholder theory require the

ultimate objective of every corporation to include the

interests of all stakeholders, or merely that the interests of

any non-shareholder might temporarily form part of the

objective of any corporation?

A clear preference is displayed for the former definition in

the stakeholder theory literature. For example, according to

Donaldson and Preston (1995, p. 68): “Stakeholder analysts

argue that all persons or groups with legitimate interests

participating in an enterprise do so to obtain benefits and…

there is no prima facie priority of one set of interests”.

63

Freeman et al (2010, p. 28) contend that the central aim of

business should be to create value for all stakeholders

without resorting to trade-offs, and Kaler (2003, p. 71) holds

that stakeholder theory “makes serving the interests of all

those identified as ‘stakeholders’ in a company the ultimate

purpose”. Moreover, in a study of 179 articles on stakeholder

theory, Laplume et al (2008, p. 1153) find that “A fundamental

thesis of stakeholder-based arguments is that organisations

should be managed in the interests of all their constituents”.

These authors suggest that for ‘stakeholder theory’ the

ultimate objective of business activity can be stated

generally: every business should pursue the interests of all

its stakeholders.

However, an implication of these definitions is that

stakeholder theory cannot be justified on the basis of a duty

of beneficence, insofar as the duty is merely imperfect. As

discussed earlier, the ‘wide’ or ‘imperfect’ nature of a duty

implies that its applicability depends upon the empirical

circumstances of a given case. The factors that may cause the

concrete obligations of beneficence to vary in different

circumstances have been noted and include access to the

64

necessary means for helping others, the ‘sensibilities’ of the

benefactor (e.g., a closer attachment to the happiness of

close friends and family than that of strangers), and the

fulfillment of other imperfect duties (for example, self-

improvement)xx. Where shareholders have competing ‘grounds of

obligation’ some of these varying circumstances may determinexx In Kant’s words this duty is to “Cultivate your powers of mind and body so that they are fit to realize any ends you might encounter” (1797, p. 155).

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74

serving the interests of non-shareholders is something that should bedone to the minimum degree possible.” (ibid.).

My argument is not that non-shareholder interests are to be

pursued to the minimum degree possible, merely as an

‘incidental by-product’ of serving shareholders. When the

duty of beneficence applies, so that an obligation is

apparent, there is nothing incidental about the end it

prescribes. Indeed, if a majority of shareholders support a

proposal that commits a company to pursuing the interests of

at least some non-shareholders, then if stakeholder theory is

understood in this qualified form, they would in effect be

switching the firm’s objective to a stakeholder approach.

Conclusion

The aim of this article has been to explore whether a ‘duty of

beneficence’ to non-shareholders is a justifiable development

of the shareholder theory. To answer this question the

principles of Friedman’s (1962, 1970) argument were elucidated

and then placed in the context of Kant’s ‘duties of right’ and

‘duties of virtue’. It was demonstrated that the principles

on which Friedman based his shareholder theory can largely be

75

assimilated into ‘duties of right’. The question of whether

‘duties of virtue’, particularly the duty of beneficence,

could by extension be reconciled with the shareholder theory

was then examined. The aim was to see if an objection is

possible on the basis of Friedman’s argument to a firm

investing its resources in the well-being of non-shareholders.

A significant conclusion is that, without contradicting the

ethical principles of the shareholder theory in its most

convincing form, it is possible for managers to pursue

directly the well-being of non-shareowning stakeholders.

However, there remains the practical question of how managers

can actually represent the interests of numerous shareholders

across a wide range of moral issues. This article suggests

that the adoption of CSR policies with a standardised approach

to the relevant moral issues for each company is the most

effective way forward. This would seem to work best where the

content of the ethical code or policy is transparent to

shareholders, practical implementation is left to managers

while shareholders are provided with information that enables

them to hold management to account (which might include social

76

and environmental reports), and independent non-executive

directors oversee management accordingly and are in turn held

accountable to shareholders. Of course, these conjectures

about corporate governance can only be substantiated with

further research that lies beyond the predominantly

philosophical scope of this article. However, I am making the

definite claim that shareholders with a significant investment

in a company have an obligation to exercise their judgement

with respect to the moral consequences of the firm’s

activities. I am happy to agree with the earlier citation

from Monks et al (2004), and insist on “the informed involvement

of ownership, that is, by shareholders. Corporate shareholders

must assume responsibility for the activities of the company

that they have invested in. This applies also to activities

with social and environmental implications” (2004, p. 327).

The central contribution here is to demonstrate that this

moral position does not conflict with the best-known argument

for the shareholder theory. The stakeholder theorists cited

at the start of the article employ a range of ethical theories

to oppose the orthodox shareholder view; however, it appears

77

that by extending the shareholder theory rather than by

rejecting it outright, the well-being of non-shareholders can

be part of the corporate objective, and in many cases ought to

be.

Besides the questions mentioned above for corporate

governance, future research on the philosophical issues

covered here could also proceed in at least two areas. First,

the practical application of a corporate policy on ethics

raises the question of the relationship between casuistry and

the intellectual virtue of practical wisdom (phronesis in

Greek); in other words, how the application of ethical

principles to specific cases of corporate conduct is dependent

on the moral experience and character of the employees in

question. Secondly, the question of what exactly it means to

further the ‘interests’, ‘well-being’, ‘happiness’, etc, of a

given stakeholder has been left as vague in this article as

Kant’s (1797, p. 151) own definition cited above. In both

cases, the Aristotelian field of virtue ethics holds fruitful

resources for further enquiry.