What is a Corporation

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What is a Corporation and what should it be?
By Ronald F.White, Ph.D. Professor of
Philosophy College of Mount St. Joseph
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Nexus-of Contracts Theory

• Orthodoxy is business management and business
  ethics is currently occupied by a deontological
  Nexus-of-Contracts Theory, whereby Each
  constituency or stakeholder group bargains with
  the firm over a set of rights that will protect
  the firm specific assets that it makes available
  for production. (Boatright p. 1837)

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Stockholder Theory

• John Locke
• Adam Smith
• Invisible Hand
• Self-Organization
• Milton Friedman
• Classical Economic Theory
• Role of Government

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Stakeholder Theory

• Kant
• Eugene Freeman
• John Rawls (Welfare Liberalism)
• Stakeholders-
• Interests
• Harms
• Corporate Stakeholders
• Stockholders (owners)
• Employees
• Managers
• Consumers
• Financiers
• Suppliers
• Local Community
• Role of Government

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Critique of Theories

• Stockholder Theory
• Strengths
• Weaknesses
• Stakeholder Theory
• Strengths Weaknesses

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Agency Theory

• Machiavellian Background
• Jensen and Meckling Theory of the Firm (1976)
• Conflict of interest between contracting parties
• (shareholders, corporate managers, debt managers
  etc.)
• Conceptual Framework-
• Contractual Obligations
• Principals (owners)
• Agents (managers)
• Behavior of Principles and Agents
• Delegation of Authority from Principle to Agent
• Incentives and Monitoring-
• Problem of Self-Interest-
• Agency and Moral hazard Who bears cost? Who
  enjoys Benefits?