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 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 2001; Velamuri 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 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.Footnote 1 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 Friedman’s (1962, 1970) critique of CSR and recent examples can be found in the work of Sternberg (2000, 2004) and Marcoux (2003).Footnote 2 However, the consequentialist critique of stakeholder theory exemplified by Jensen (2002) is not in fact a defence of shareholder wealth maximisation. 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 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 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 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 (Mansell 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 Friedman (1962, 1970) so as to show the deontological 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 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 – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception and fraud.

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 Nozick’s Anarchy, State and Utopia (1974). It is only after expounding the principles on which his argument is based that their consistency with a duty of beneficence to non-shareholders can 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 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 individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no ‘social’ values, no ‘social’ responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form.

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 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 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 executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which will generally be to make as much money as possible… Of course, in some cases his employers 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 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 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 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 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)Footnote 3 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 ‘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 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.

‘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 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, pp. 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 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) to wrest the apple from my hand… would indeed wrong me with regard to what is internally mine (freedom); but he would not wrong me with regard to what is externally mine unless I could assert that I am in possession 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 and goods, and I can count it as mine not merely if… I already have what was promised in my possession, but even though I do not possess it yet. So I must be able to think that I am in possession of this object independently… of empirical possession (ibid., emphasis in original).

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 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, p. 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.”

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.Footnote 4 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 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.” 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. 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.). 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 turn when they are in need become public… then everyone would likewise deny him assistance when he himself is in need, or at least would be authorized to deny it. Hence the maxim of self-interest would conflict with itself if it were made a universal law, that is, contrary to duty. Consequently the maxim of common interest, of beneficence 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 aidFootnote 5 as opposed to indifference and neglect:

…no vulnerable agent can coherently accept that indifference and neglect should be universalised, for if they were nobody could rely on others’ help; joint projects would tend to fail; vulnerable characters would be undermined… Those with limited and variable capacities and capabilities must plan to rely in various ways on one another’s capacities and capabilities for action, so must (if committed to universalizable inclusive principles) be committed to doing at least something to sustain one another’s capacities and capabilities… (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 this sacrifice. How far it should extend depends, in large part, on what each person’s true needs are in view of his sensibilities, and it must be left to each to decide this for himself. For, a maxim of promoting others’ happiness at the sacrifice of one’s own happiness, one’s true needs, would conflict with itself if it were made a universal law. Hence this duty is a wide one; the duty has in it a latitude for doing more or less, and no specific limits can be assigned 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’

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, 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).

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 formulation of the categorical imperative.Footnote 6 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).Footnote 7 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’.

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 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.

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 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 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.

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’ 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 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 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.Footnote 8 If the content of such ethical policies is transparent to shareholders, and a majority of voting 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 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 suitable means, in Kantian terms: we must familiarize ourselves with rules of skill, the ‘technical’ kind of hypothetical imperative, telling us how best to put the ends we pursue into action; and quite often there is 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”, 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,Footnote 9 the results admittedly are not particularly promising. Buchanan et al. (2010, p. 7) find that only 2% of 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, Ertimur 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. (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 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”Footnote 10 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] 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 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, love for all mankind, or concern for all, their rhetoric misleads… Since nobody can provide help or care for all others, or even for some others at every time, the rejection of indifference and neglect cannot be expressed in action for all others… The social virtues make selective demands: they leave open to whom, or when or in what ways virtue 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 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.Footnote 11 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 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 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 does nobody any wrong by civil laws and practices. So if we now do a kindness to an unfortunate, we have not made a free gift to him, but repaid him what we were helping to take away through a general injustice… Thus even acts of kindness are acts of duty and indebtedness, 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.Footnote 12 However, it does not necessarily follow that the ‘imperfect’ duty of beneficence is merely optional and not obligatory.Footnote 13

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 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, pp. 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 which is sufficient to put a person under obligation to act. Kant writes that “the stronger ground of obligation prevails” (1797, p. 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 relevant at all they depend on several conditions. If no one requires my support, or if for whatever reason there is nothing I can do to help someone in need, I am under no obligation to be beneficent. Ethical duties in the abstract are insufficient to command determinate action.” (p. 10)

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 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.Footnote 14 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.Footnote 15 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.

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,Footnote 16 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, no 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.Footnote 17 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, pp. 79–80) describes as a ‘qualified and weak’ stakeholder theory, in 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.Footnote 18 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 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 (Mansell 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.Footnote 19

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”. 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 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 fulfilment of other imperfect duties (for example, self-improvement)Footnote 20. Where shareholders have competing ‘grounds of obligation’ some of these varying circumstances may determine the concrete obligations they face. Therefore, if its ‘ultimate objective’ is consistent with shareholder interests, a company with beneficent shareholders will not necessarily pursue the interests of all non-shareholders in every foreseeable context.

What is provided here is a justification for shareholders to monitor the actions of corporations in which they invest—so that they can reach an informed judgement about the obligations they face with regard to their investment. However, this dependence upon shareholder perception means that not every stakeholder can assume that their well-being should be part of the corporation’s objective. If this were the case, then there would be no obligation for shareholders to judge which non-shareholder(s) should be the recipient of support from their corporation. A theory in which the interests of all stakeholders are pursued simultaneously therefore cannot be based on the theory offered here.

A more compatible stakeholder theory would be one which allowed a particular corporation in specific circumstances to pursue as an end the interests of some non-shareholders, and thus permitted the objective to vary according to shareholder discretion. This understanding of stakeholder theory is close to the definition given by Mitchell et al. (1997, p. 855), who write that the stakeholder approach is “intended to broaden management’s vision of its roles and responsibilities beyond the profit maximisation function to include interests and claims of non-stockholding groups” (emphasis added). Furthermore, Kaler (2003, p. 78) writes that if responsibilities to stakeholders are defined as the ultimate corporate objective, then “the objective is completely fulfilled only in so far as it is attained to the maximum degree possible under prevailing conditions (whatever they might be at the time)”. In the case of what he calls a ‘qualified’ stakeholder theory where the relevant duties are imperfect these ‘prevailing conditions’ would have to include the empirical conditions that shape the application of the duty.

If a stakeholder theory with these qualifications can be seen as equivalent to a Kantian shareholder theory then this is to move beyond the stark contrast that is usually drawn between the two perspectives, and marks a clear departure from the typical perception of the shareholder approach. For example, Kaler gives the following characterisation of shareholder theory:

…any serving of non-shareholder interests is an incidental by-product: something that has to be done in the course of pursuing the ultimate objective of serving shareholder interests… it follows that serving the interests of non-shareholders is something that should be done 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 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 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 quotation 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 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.