View From a Height
Commentary from the Mile High City
Wednesday, February 19, 2003
I've mentioned before this notion of business "stakeholders," which is au courant in business schools now. Today, the finance professor discussed why the principle of maximizing shareholder wealth is a misunderstood and misapplied concept among those who deride it. God, it's nice to be studying with people who understand economics as well as business.

Voluntary stakeholders include customers, suppliers, employees, debt holders, and shareholders. Involuntary stakeholders include the Government and the Community, meaning anyone who is affected by company decisions. The Government will certainly take care of itself. Among voluntary stakeholders, every one of them is in line before the shareholders, and our obligations to them are more or less fixed. Customers should get a safe product that they want at a fair price. Suppliers should get paid on time. Employees should get paid what we agree when we agree. (We're talking about financial costs here, not the other responsibilities that people have towards each other.) And debt holders want their interest and their principal.

The community is the squishy one. We're all familiar with basic torts involved: don't poison my water and make sure your pizza delivery guys know where the brakes are. But obligations may go beyond that, may not be strictly reciprocal, and may eventually be enshrined in law rather than in ethics or morals. Thus, could "community" be a trojan horse for socialist ideas, spirited into our bastions of free enterprise and innovation - our business schools.

My hope is, naturally, that this doesn't happen. Instead, it's entirely possible that this will promote a more rigorous intellectual debate, forcing proponents on each side to sharpen and clarify their ideas before selling them to a public or to the legislatures. Appropriate suggestions for corporate responsibility may make it through, while the wacky ones get rejected. My sense is that most (but not all) business school students are politically conservative, or classically liberal, and want to preserve their own freedom to act once they get out. Much like the American public as a whole, which doesn't like class warfare since they see themselves as the future rich.

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