Toward an Ethics of Corporate Restructuring

7/22/2019 Toward an Ethics of Corporate Restructuring

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Toward an ethics of corporate

restructuring


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Corporate restructuring in the 1980s and 1990s has had a profoundimpact on the US economy. On the positive side, corporaterestructuring is said to have revitalized the US manufacturing sector,increased international competitive-ness, and created jobs thatemphasize teamwork and initiative.

However, even the most enthusiastic supporter of corporaterestructuring recognizes that the costs have been substantial formany Americans.

The stumbling-block to finding an answer to this question is the lackof a satisfactory framework for evaluating restructuring decisions.

The purpose of this essay is to develop the groundwork for anethics of restructuring. The first part of the paper examines theethical guidance provided by the standard economic theory of thefirm including a discussion of the corporate responsibility argument.


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Corporate restructuring and social

costs Certain actions are clearly outside the basic rules of

society. In the 1980s several notorious cases of unethicalbehavior by business fueled interest in ethics amongacademics, the business community and the public. One ofthe more shocking examples involved the Johns ManvilleCorporation (Gellerman, 1986).

These situations occur with sufficient frequency, that theydeserve careful consideration. However, there is no ethicaluncertainty here. The key issue in these cases is notwhether the action is ethical or unethical. The centralquestion is whether it represents misconduct by anindividual in violation of company policy, or whether themisconduct was sanctioned by upper management.


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Conti The firm runs a relatively small chance of a lawsuit which it may

well win. In many cases, the firm risks only an adverseadministrative decision that imposes negligible penalties. However,

unless we believe that corporations should engage in civildisobedience, there is also no ambiguity regarding the appropriatedecision in these cases. If ethical considerations are not a sufficientguide, individuals and corporations can simply obey the law.

However, urging corporations to do the right thing is easier saidthan done. The problem is not that managers do not consider theconsequences of their actions on the community.

The next section discusses the role of ethics in the standardeconomic theory of the firm. Orthodox economic theory does notaddress ethical questions directly, but the philosophicalunderpinning is utilitarianism. For purposes of developing an ethics

of restructuring, the main drawback of utilitarianism is that itprovides either a clear guide to rational action or an ethical guide tosocially responsible behavior.


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Rationality and ethics in economics

Decision making in mainstream economics is based on the notion ofrationality, not ethics. Rationality and ethics are on either side ofthe well-known economic dualism, positive/normative. Economics,as most introductory textbooks are careful to point out, is a positivescience.

In the theory of the firm, this view of decision making means thatrational managers will maximize profits.

Alternative theories have argued that managers do not maximizeprofits but focus on something else such as market share, sales, orstock price (Baumol, 1983). Berle and Means (1932) suggested thatmanagers may not maximize profits, since their own wellbeing may

not be represented by maximum corporate profits. In contrast to theories that posit a different measure of wellbeing,

Friedman, in his often cited 1970 article in the New York Times,goes much further.


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This is the flip side of Friedmans argument. Instead of thenegative argument that not maximizing profits is unethical,we have the affirmative argument that maximizing profits is

ethical. This view can take two forms: Maximizing profits is ethical; or

Acting ethically will maximize profits.

This last conclusion is true only for unethical behavior thatis costly, however. Unethical behavior is costly only for firms

that get caught and suffer legal sanctions, are vulnerable tolawsuits, or suffer loss of reputation.

In this case unethical behavior is not costly. The good forbusiness approach to ethics is entirely consistent with therecommendation that managers undertake unethical

behavior only when there is a relatively low risk of beingfound out. One could certainly eliminate ethical riskaltogether by behaving ethically, but no business decision isrisk-free.


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Corporate restructuring and

consequentialism

From an ethical standpoint, economic theory isconsequentialist. That is, a decision is judged ethicalor unethical solely on the basis of its outcome. Thedistinction between a decision and the consequences

of that decision is an important one in economics.

There are a number of difficulties associated withutilitarianism. In the first place, there is the problem ofwhich consequences to take into account. Conventional

economic theory states that the task of the manager isto maximize profits.


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The expressive theory of rational

action The previous section discussed some of the drawbacks of

consequentialism. In order to avoid falling prey to the sameproblems, an alternative approach to an ethics ofrestructuring must rely on a theory of rational action that isvery different from the one used in the conventional theoryof the firm.

In Value inEthics and Economics (1993), Anderson setsforth an expressive theory ofrational action that offers amore fruitful foundation for an ethics of restructuring thanthe rational maximization of economic theory.

First, Andersons expressive theory of rational action is notconsequentialist. Using Sensterminology, Andersonstheory fully recognizes the importance of agency as wellas wellbeing.


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The dual nature of a decision

Andersons expressive theory of rational action recognizes the dual aspect of a decision. This is akey difference between consequentialism and her expressive theory:

What matters in a decision is not only the outcome or the effect on well-being, but also whetherthe decision, itself, reflects expressive norms.

Expressive norms are intentional. They tell people to intend or aim at certain things .Consequentialist norms, by contrast, simply tell people to achieve certain consequences, whetherthey intend them or not

This second aspect of a decision is found in everyday language and in law in the recognition of theimportance of intent. We make a distinction between an accident, carelessness, andpremeditation. The Johns Manville case mentioned above was notorious, because it representeda breach of the agency aspect of ethics. The issue was not whether asbestos is harmful to humanbeings, but whether the managers at Johns Manville knew it was harmful and intentionallywithheld this information from employees.

Agent-centered restrictions

An ethical framework is, by its very nature, evaluative and normative. In economic theory,normative criteria are eschewed, and economic decisions are viewed as value-free. Thisavoidance of value judgments presents obvious difficulties for the development of an ethics ofrestructuring. For example, in the corporate responsibility argument discussed above managers areurged to take all stakeholders of a corporation into account.


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Finally, the most important advantage of a theory thatallows for agent-centered restrictions is that it isuseful. The concept is not necessary as long as oneadheres strictly to the self-interested behavior

recommended by economic theory and maximizes onlyones own wellbeing. However, most businesses arenot in a position to ignore the various otherstakeholders with interests in the behavior of the firm.In his book on stakeholder management Carroll (1989)

develops stakeholder maps for several specific casesincluding the case of Hooker Chemical Company, asubsidiary of Occidental Petroleum.


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Conclusion

This paper has thus far focused only on the advantages of Andersonsexpressive theory of rational action and the disadvantages ofconsequentialism as a foundation for an ethics of restructuring.

Consequentialism promises to provide a single, simple, precise, anddeterminate procedure of justification that employs objective calculationto overcome disputes about what to do. The pluralist-expressive theory

calls for action to be guided by norms described in terms of ideals andevaluative concepts such as respect, friendship, and charity.

This is also the advantage found in the conventional theory of the firm.The profit maximization rule provides a a single, simple, precise, anddeterminate procedure that does not require interpretation to be used. Itis an absolute rule that is not historically or socially relative.

A managers decision is always either rational or irrational with norestrictions, caveats, or explanations. In contrast, normative criteriatypically rely on a particular context unless they are regarded as moralabsolutes.


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Conti

This change in social norms does not mean that the old standardwas wrong and the new standard is right. It simply means thatpriorities shift with changing circumstances. Anderson uses theexample of using school figures to judge ice skating competitions.

Formerly, this standard was considered important in determining a

skaters artistry. Now ice skating places more emphasis onathleticism, and the school figures were dropped. No one claimedthat artistry was an unauthentic standard, that past awardsinformed by this standard were fraudulent.

Anderson recognizes that the same decision may be evaluateddifferently in different contexts. This level of variability means that

decision making is more difficult. There is no simple decision rulethat will apply to all cases of restructuring.

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Toward an Ethics of Corporate Restructuring