Abstract
The question whether the maximization of shareholder value is the criterion for the working of a firm has become one of the major topics of the discussion in economic science. In July 1998, the German president, Roman Herzog, contended that “it is not acceptable that the price of the shares of a firm rises with the number of employees laid off”1, and admonished German business firms thereby not to maximize the shareholder value only but to look at the purpose of the firm in a broader perspective. On the other hand, there is the Neo-classical theory of the firm contending that the firm works best when it fulfils the task of maximizing the shareholder value only. According to the financial theory of the firm, the firm is a union of investments the return on which it must maximize.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Notes
Interview with Bild-Zeitung, 28 July 1998, p. 2.-There is evidence that the shareholders ‘reactions to lay off s of firms changed. In former days, shaerholders took larger lay offs as the indicator of a weak performance and reduced investment in these firms with the consequence of falling share prices of the firm. Nowadays, the publication of lay offs is taken as an indicator of increasing the efficiency of the firm with the consequence that investment in and share prices of the firm increase.
Cf. E. Gaugler: “Shareholder Value und Unternehmensführung” (Shareholder Value and Managing the Firm), in: P. Koslowski (Ed.): Shareholder Value und die Kriterien des Unternehmenserfolgs (Shareholder Value and the Criteria of the Success of the Firm), Heidelberg (Physica) 1998.
A. A. Alchian and H. Demsetz: “Production, Information Costs, and Economic Organization”, in: A. A. Alchian: Economic Forces at Work, Indianapolis (Liberty Press) 1977, pp. 73–110.
This point is also stressed in Lee A. Tavis: “The Moral Issue in Allocating Corporate Resources. Shareholders Versus Stakeholders”, in: M. Naughton (Ed.): The Nature and Purpose of the Business Organization within Catholic Social Thought, forthcoming.
Luis DE Molina: De iustitia et iure, Madrid 1602.-Cf. P. KOSLOWSKI: Ethik des Kapitalismus, Tübingen (Mohr Siebeck) 1982, 6th ed. 1998. English translation: Ethics of Capitalism and Critique of Sociobiology. Two Essays with a Comment by James M. Buchanan, Berlin, New York, Tokyo (Springer) 1996.
Gustav Radbruch: Rechtsphilosophie (Philosophy of Right), Stuttgart (Koehler) 8th ed. 1973, p. 114.
R. E. Freeman: Strategic Management: A Stakeholder Approach, Boston (Pitman) 1984, and R. E. FREEMAN: “The Politics of Stakeholder Theory: Some Future Directions”, Business Ethics Quaterly, 4 (1994), pp. 413ff.-Compare also DAVID W. LUTZ: “Kritik des Shareholder-Ansatzes und des Stakeholder-Ansatzes” (Critique of the Shareholder Approach and of the Stakeholder Approach), in: P. KOSLOWSKI (Ed.): Shareholder Value und die Kriterien des Unternehmenserfolgs, op. cit., pp. 187-200.
M. C. Jensen and W. H. Meckling: “The Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure”, in: K. Brunner (Ed.): Economics and Social Insitutions, Boston (Martinus Nijhoff) 1979, pp. 163–231.
Cf. P. Koslowski: Ethik der Banken und der Börse (The Ethics of Banking and the Stock Exchange), Tübingen (Mohr Siebeck) 1997. Abridged English version: P. KOSLOWSKI: “The Ethics of Banking”, in: A. ARGANDOÑa (Ed.): The Ethical Dimension of Financial Institutions and Markets`, Berlin, New York, Tokyo (Springer) 1995.
Cf. for this principle G. Schmoller: “Die Gerechtigkeit in der Volkswirtschaft” (Justice in the Economy), Jahrbücher für Gesetzgebung, Verwaltung und Volkswirtschaft im Deutschen Reich, 5 (1881), pp. 19–54.-Cf. for the Historical School of economics P. KOSLOWSKI: Gesellschaftliche Koordination. Eine Theorie der Marktwirtschaft (Societal Coordination. A Theory of the Market Economy), Tübingen (Mohr Siebeck) 1991; P. KOSLOWSKI (Ed.): The Theory of Ethical Economy in the Historical School. Wilhelm Röscher, Lorenz von Stein, Gustav Schmoller, Wilhelm Dilthey and Contemporary Theory, Berlin, New York, Tokyo (Springer) 1995, reprinted 1997; and P. KOSLOWSKI (Ed.): Methodology of the Social Sciences, Ethics, and Economics in the Newer Historical School. From Max Weber and Rickert to Sombart and Rothacker, Berlin, New York, Tokyo (Springer) 1997.
Cf. “Niederlage für Daimler-Kritiker Wenger” (Defeat for Daimler’s critic Wenger), in: Süddeutsche Zeitung Nr. 185, 13 August (1998), p. 17, as well as “Wenger unterliegt Daimler” and comment by MATHIAS PHILIP: “Aktienoptionen” (Share Options), in: Hannoversche Allgemeine Zeitung Nr. 188, 13 August (1998), p. 9. The comment takes position for Wenger against DaimlerBenz. See also Frankfurter Allgemeine Zeitung of the same day.
A. Rappaport: Creating Shareholder Value. The New Standard for Business Performance, New York (The Free Press) 1986, pp. 25ff.
Cf. ai]Günter H. Roth: “Shareholder Value und Dividendenausschüttung” (Shareholder Value and Paying-off Dividends), in: P. Koslowski (Ed.): Shareholder Value und die Kriterien des Unternehmenserfolgs, 1986, pp. 25ff.
Cf. for this distinction in the theory of the market A. Bosch, P. Koslowski, R. Veit (Eds.): General Equilibrium or Market Process. Neoclassical and Austrian Theories of Economics, Tübingen (Mohr Siebeck) 1990; and P. Koslowski: Prinzipien der Ethischen Ökonomie Principles of Ethical Economy), Tübingen (Mohr Siebeck) 1988, 2nd ed. 1994. English translation forthcoming with Kluwer Academic Publishers, Dordrecht.
This marks an important change particularly in Germany where in Western Germany-but not in Eastern Germany-after the serious losses of wealth during and after World War II a large transfer of wealth and capital by inheritance is experienced for the first time.
Cf. Vito Tazi: “Globalization, Tax Competition and the Future of Tax Systems”, in: G. Krause-Junk (Ed.): Steuersysteme der Zukunft (Tax Systems of the Future), Berlin (Duncker & Humblot) 1998, pp. 11–27.
The effects of tax and the attempts to evade taxation was already an argument for the formation of capital in the hands of workers in the 1950s. Nell-Breuning, the most important thinker of Catholic Social Teaching in the German speaking countries and coauthor (together with Gustav Gundlach) of the draft for the encyclical letter Quadragesimo Anno argued for the formation of capital in the hands of workers since the high taxation on capital caused an overinvestment on the side of the capital owners in ways and means to avoid taxes and led to economically useless investments only justified by the wish to save taxes. Cf. O. VON Nell-Breuning: “The Formation of Private Property in the Hands of Workers” (1956), in: P. Koslowski (Ed.): The Social Market Economy. Theory and Ethics of the Economic Order, Berlin, New York, Tokyo (Springer) 1998, pp. 305ff.
Cf. J. Messner: Ethik. Kompendium der Gesamtethik (Ethics. Compendium of the Entire Ethics), Innsbruck, Wien, München (Tyrolia) 1955, VII. Buch: Wirtschaftsethik (Economic Ethics).-Messner developed this thesis as part of an ethics of colonialism under non-colonial conditions. It can be transferred to the problem of decent wages in countries where the minimal wage is already so low that it might not appear to be decent compared to living conditions.
The problem of the inversion of means and ends is formulated by Helen Alford and Michael Naughton in terms of the inversion between fundamental and excellent goods. Although one can see the importance of this distinction of human motivation the idea that shareholder value is the fundamental purpose of the firm and other goals like fulfilling the stakes of other stakeholders are excellent goods does not do justice to the fact that it is the fundamental good of the firm to produce the optimal good (good in the sense of product), and not the optimal shareholder value. The good product is, so to say, the firm’s fundamental and excellent good. Cf. H. Alford and M. Naughton: “Working for the Common Good: The Purpose of the Firm”, in: M. Naughton (Ed.): The Nature and Purpose of the Business Organization within Catholic Social Thought, forthcoming.
Cf. Rainer Fehn: “Schaffen Pension Funds über vollkommenere Kapitalmärkte mehr Beschäftigung?” (Do Pension Funds Create more Employment via more Perfect Capital Markets?), in: P. Koslowski (Ed.): Shareholder Value und die Kriterien des Unternehmenserfolgs, op. cit.
Cf. Martin Luther: De servo arbitrio.
S. Freud: Die Traumdeutung (The Interpretation of Dreams) (1900), Frankfurt am Main (S. Fischer) 1982.
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2001 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Koslowski, P. (2001). The Shareholder Value Principle and the Purpose of the Firm. In: Shionoya, Y., Yagi, K. (eds) Competition, Trust, and Cooperation. Studies in Economic Ethics and Philosophy. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-56836-7_10
Download citation
DOI: https://doi.org/10.1007/978-3-642-56836-7_10
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-63226-6
Online ISBN: 978-3-642-56836-7
eBook Packages: Springer Book Archive