The Firm and Society

Most management decisions have social consequences, and the question of how best to deal with these consequences is not easily answered. An objective of maximizing firm or stockholder wealth implicitly assumes that the social side-costs are either trivial enough that they can be ignored or that they can be priced and charged to the firm. In many cases, neither of these assumptions is justifiable.

There are some cases where the social costs are considerable but cannot be traced to the firm. In these cases, the decision-makers, though aware of the costs, may choose to ignore the costs and maximize firm wealth. The ethical and moral dilemmas of forcing a managers to choose between their survival (which may require stockholder wealth maximization) and the broader interests of society can be debated but there is no simple solution that can be offered in this book.

In the cases where substantial social costs exist, and firms are aware of these costs, ethicists might argue that wealth maximization has to be sublimated to the broader interests of society, but what about those cases where firms create substantial social costs without being aware of these costs? John Manville Corporation, for instance, in the fifties and sixties produced asbestos with the intention of making a profit, and was unaware of the potential of the product to cause cancer. Thirty years later, the lawsuits from those afflicted with asbestos-related cancers have driven the company to bankruptcy.

To be fair, conflicts between the interests of the firm and the interests of society are not restricted to the objective of maximizing stockholder wealth. They may be endemic to a system of private enterprise, and there will never be a solution to satisfy the purists who would like to see a complete congruence between the social and firm interests.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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