The article analyses the business of business and comes to the view that the role of business is to balance all stakeholders’ interests while giving relative dominance to the interests of investors, over those of other stakeholders. Based on this understanding, we propose an economic model, which describes the nexus and interactions between the interests of stakeholders, and develops a set of functions aimed at achieving better management of risk through corporate socially responsible (i.e. CSR) investment. The model takes into account the utilities of the corporate officers, short term and long term investors. All three functions are considered by the Board of Directors, who are deemed the final arbiters with respect to firm decision-making and the body to whom executive management owes fiduciary duties. Finally, a decision rule is developed that defines the circumstances under which the Board of Directors will consider to invest corporate funds in CSR.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Adam, A. M. (2005). Effective implementation of an ethical program: Theory and Practice. Tewelveth Annual International Conference Promoting Business Ethics Proceedings, St. John’s University, New York, 26–28 October 2005.
Adam, A. M., Aderet, A., & Sadeh, A. (2007). Does ethics matter to e-customers? International Journal of Internet Commerce, 6(2), 19–34.
Adam, A. M., & Rachman-Moore, D. (2004). The methods used to implement an ethical code of conduct and employee attitude. Journal of Business Ethics, 54, 225–244.
Adam, A. M., & Shavit, T. (2008). How can a ratings based method for assessing Corporate Social Responsibility (CSR) provide an incentive to firms excluded from socially responsible investment indices to invest in CSR? Journal of Business Ethics, 82(4), 899–905.
Aguilera, R. V. (2005). Corporate governance and director accountability: An institutional comparative perspective. British Journal of Management, 16, s39–s53.
Angel, J. J., & Rivoli, P. (1997). Does ethical investing impose a cost upon the firm? A theoretical perspective. Journal of Investing, 6(4), 57–61.
Asher, A. C., Mahoney, J., & Mahoney, J. T. (2005). Towards a property rights foundation for a stakeholder theory of the firm. Journal of Management and Governance, 9(1), 5–32.
Baumol, W. J. (1991). (Almost) perfect competition (contestability) and business ethics. In W. J. Baumol & S. A. Batey Blackman (Eds.), Perfect market and easy virtue: Ethics and the invisible hand. Cambridge, MA: Blackwell Publishers.
Berle, A. A., & Means, G. C. (1932). The modern corporation and private property. New Brunswick: Transaction Publishers.
Blair, M. M. (2005). Closing the theory gap: How economic theory of property rights can help bring “stakeholders” back into theories of the firm. Journal of Management and Governance, 9, 33–39.
Blair, M. M., & Stout, L. A. (2001). Director accountability and the mediating role of the corporate board, Washington University Law Quarterly, Working Paper No. 266622. Accessed 1 February 2008, http://papers.ssrn.com/abstract-266622.
Boatright, J. R. (1994). Fiduciary duties and the shareholder management relation: Or, what’s so special about shareholders? Business Ethics Quarterly, 4, 393–407.
Braendle, U. C., & Noll, U. (2005). A fig leaf for the naked corporation. Journal of Management and Governance, 9(1), 79–99.
Bunge, M. (1989). Treatise on basic philosophy, Vol. 8. Ethics: The good and the right. Dordrecht: D. Reidel Publishing Company.
Bushman, R. M., & Smith, A. B. (2003). Transparency, financial accounting information, and corporate governance, economic policy review. Accessed 8 January 2008, http://www.biz.uiowa.edu/faculty/ddejong/Carg-june02/acctg/Transparency,%20Fin%20Acctg%20and%20Corp%20Gov.pdf.
Cowton, J. C. (2004). Managing financial performance at an ethical investment fund, accounting. Auditing and Accountability Journal, 17(2), 249–275.
Cox, P., Brammer, S., & Millington, A. (2004). An empirical examination of institutional investor preferences for corporate social performance. Journal of Business Ethics, 52(1), 27–43.
DeTienne, K. B., & Lewis, L. W. (2005). The pragmatic and ethical barriers to corporate social responsibility disclosure: The nike case. Journal of Business Ethics, 60, 359–376.
Evan, W. M., & Freeman, R. E. (1988). A stakeholder theory of the modern corporation: Kantian analysis. In T. Beauchamp & N. Bowie (Eds.), Ethical theory and business, 75–93. New Jersey: Prentice Hall.
Evan, W. M., & Freeman, R. E. (1993). A stakeholder theory of the modern corporation: A Kantian analysis. In T. L. Beauchamp & N. E. Bowie (Eds.), Ethical theory and business (4th ed.). New Jersey: Prentice Hall.
Felo, A. J. (2001). Ethics programs, board involvement, and potential conflicts of interest in corporate governance. Journal of Business Ethics, 32, 205–218.
Fischhoff, B., Nadai, A., & Fischhoff, I. (2001). Investing in Frankenfirms: Predicting unacceptable risks. The Journal of Psychology and Financial Markets, 2(2), 100–111.
Fortune Global 500, 26 July 2006.
Freeman, R. E. (1994). The politics of stakeholder theory: Some future directions. Business Ethics Quarterly, 4(4), 409–421.
Freeman, R. E., & Gilbert, D. R. (1988). Corporate strategy and the search for ethics. NJ: Prentice Hall.
Freeman, R. E., Wicks, A. C., & Parmar, B. (2004). Stakeholder theory and the corporate objective revisited. Organization Science, 15(3), 364–369.
Friedman, M. (1962). Capitalism and freedom. Chicago: University of Chicago Press.
Friedman, M. (1970). The social responsibility of business is to increase its profit. New York Times Magazine, 13, 32–33.
Gallie, W. B. (1968). Philosophy and the historical understanding (2nd ed.). NY: Schocken.
Hart, S. L., & Milstein, M. B. (1999). Global sustainability and the creative destruction of industries. Sloan Management Review, 41(1), 23–33.
Harte, G., Lewis, L., & Owen, D. (1991). Ethical investment and the corporate reporting function critical perspectives on the practice of theory (pp. 27–41). Oxford: Oxford University Press.
Hasnas, J. (1998). The normative theories of business ethics: A guide for the perplexed. Business Ethics Quarterly, 8, 19–42.
Herrigel, G. (2008). Corporate governance: History without historians. The Oxford Handbook of Business History. Oxford: Oxford University Press. Accessed on 8 January 2008 in http://www2.e.u-tokyo.ac.jp/~sousei/Herrigel.pdf.
Husted, B. W., & Salazar, J. D. J. (2006). Taking Friedman seriously: Maximizing profits and social performance. Journal of Management Studies, 43, 75–91.
Kim, K. A., & Nofsinger, J. R. (2007). Corporate governance (2nd ed.). NY: Prentice Hall.
Kanter, R. M. (1999). From spare change to real change. Harvard Business Review, 77(3), 122–132.
Lawrence, A. T., Weber, J., & Post, J. E. (2005). Business and society (11th ed.). Boston: McGraw-Hill.
Lee, D. (2006). Stakeholder theory and imperfect duties. In G. J. D. Rossouw & A. J. G. Sison (Eds.), Global perspectives on ethics and corporate governance. New York: Palgrave Macmillan.
Levi, M. (2003). Fair trade: A cup of time. Politics and Society, 31(3), 407–432.
Li, Y., Richardson, G. D., & Thornton, D. B. (1997). Corporate disclosure of environmental liability information: Theory and evidence. Contemporary Accounting Research, 14(3), 435–474.
Marcus, A., & Geffen, D. (1998). The dialectics of competency acquisition: Pollution prevention in electric generation. Strategic Management Journal, 19, 1145–1168.
Marcus, A., Geffen, D., & Sexton, K. (2002). Reinventing environmental regulation: Lessons from Project XL. Washington, DC: Resources for the Future.
McBarnet, D. (2006). Toward ethical compliance: Lessons from Enron. In G. J. D. Rossouw & A. J. G. Sison (Eds.), Global perspectives on ethics and corporate governance. New York, NY: Palgrave Macmillan.
McDonough, W., & Braungart, M. (1998, October). The next industrial revolution. Atlantic Monthly, pp. 82–92.
McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127.
OECD Principles of Corporate Governance. (2004). Accessed on 24 September 2008, http://www.oecd.org/DATAOECD/32/18/31557724.pdf.
Perrini, F., Pogutz, S., & Tencati, A. (2006). Developing corporate social responsibility. London: Edward Elgar Publishing.
Reinhardt, F. (1999). Market failure and the environmental policies of firms: economic rationales for “beyond compliance” behaviour. Journal of Industrial Ecology, 3(1), 9–21.
Richardson, A. J., Welker, M., & Hutchinson, I. R. (1999). Managing capital market reactions to corporate social responsibility. International Journal of Management Reviews, 1(1), 17–43.
Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40(3), 534–559.
Ryan, L., & Schneider, M. (2002). The antecedents of institutional investor activism. Academy of Management Review, 27, 554–573.
Scherer, A. G., Palazo, G., & Baumann, D. (2006). Global rules and private actors: Toward a new role of the transnational corporation global governance. Business Ethics Quarterly, 16(4), 505–532.
Sternberg, E. (2000). Business ethics in action: Just business (2nd ed.). Oxford: Oxford University Press.
Stout, L. A. (2002). Bad and no so bad arguments for shareholder primacy. Southern California Law Review, 75 (5), 1189–1209. Accessed on 8 January 2008 in http://www-rcf.usc.edu/~usclrev/pdf/075504.pdf.
The Business Roundtable. (1997). Statement on corporate governance, a white paper. Accessed on 8 January 2008 in http://188.8.131.52/pdf/11.pdf.
Van Marrewijk, M. (2003). Concepts and definitions of CSR and corporate sustainability—between agency and communion. Journal of Business Ethics, 44, 95–105.
Waddock, S. A., & Graves, S. B. (1997). The corporate social performance-financial performance link. Strategic Management Journal, 18(4), 303–319.
Wieland, J. (2006). Business ethics and corporate governance. In G. J. D. Rossouw & A. J. G. Sison (Eds.), Global perspectives on ethics and corporate governance. New York, NY: Palgrave Macmillan.
Zeghal, D., & Ahmed, S. A. (1990). Comparison of social responsibility information disclosure media used by Canadian firms. Accounting Auditing and Accountability Journal, 3(1), 38–53.
About this article
Cite this article
Adam, A.M., Shavit, T. Roles and responsibilities of boards of directors revisited in reconciling conflicting stakeholders interests while maintaining corporate responsibility. J Manag Gov 13, 281–302 (2009). https://doi.org/10.1007/s10997-008-9076-3
- Stakeholders’ interests
- Corporate Socially Responsibility (CSR)
- Risk management
- Decision making
- Long term investors
- Short term investors