Maximization, Incomparability, and Managerial Choice “The Accountable Corporation” Third Biennial Global Conference on B

1. Maximization, Incomparability, and Managerial Choice “The Accountable Corporation” Third Biennial Global Conference on Business Ethics Markkula Center for Applied Ethics, Santa Clara University 17- 19 February 2005 Nien-hê Hsieh Legal Studies Department

2. CORPORATE ACCOUNTABILITY • The market value thesis is a prominent account of corporate accountability: Managers should make all decisions so as to increase the total long-run market value of the firm (Jensen 2002: 236). • Against the market value thesis, most accounts of corporate accountability (e.g., stakeholder theory) require managers to incorporate non-shareholder interests. • A recent defense of the market value thesis raises a novel challenge for such alternatives to the market value thesis.

3. MAXIMIZATION • Michael Jensen defends the market value thesis on grounds of the requirements of justified choice (2002). • Justified choice requires a single dimensional objective to be maximized. • Long-run market value is one such objective. • Stakeholder theory lacks such an objective. • Jensen’s account reflects the widely held view that justified choice requires maximization and, more generally, the comparability of alternatives (Chang 1998). • Maximization: the choice of the alternative that is at least as good • Distinct from Amartya Sen’s conception (2000)

4. THE CHALLENGE • According to Jensen’s account, alternatives to the market value thesis (e.g., stakeholder theory) are to be rejected not only as a matter of morality, but more fundamentally as a requirement of rationality. • For proponents of alternatives to the market value thesis, the challenge is to articulate a framework for managerial choice that is distinct from the market value thesis, but remains consistent with the view that justified choice requires maximization.

5. COMPETING INTERESTS • Accounts of corporate accountability, such as stakeholder theory, require managers to incorporate interests that compete with those of shareholders. • Example of wage negotiations • Incorporation of competing interests need not require rejecting the view of justified choice as maximization. • Single dimension of value (e.g., monetary) • Differ from the market value thesis in terms of the weights attached to interests other than those of shareholders

6. PLURAL VALUES • Example of routing an oil pipeline • Route A: shorter and passes through a fragile ecosystem • Route B: longer and passes through a barren desert • Accounts of corporate responsibility, such as stakeholder theory, may also reflect a recognition of plural values that cannot be captured in monetary terms: People value environmental goods in ways other than use: we admire many wild animals, feel wonder and awe at spectacular storms and volcanic eruptions, demand consideration for delicate ecosystems, appreciate mountains and seascapes for their beauty(Anderson 1993: 205).

7. INCOMPARABILITY • Two alternatives are incomparable if there is no positive value relation (e.g., “better than,”) that holds between them in virtue of the relevant covering consideration (Chang 2002). • If market value and environmental value are both considered relevant, then justified choice is not possible between Route A and Route B. They are incomparable. • The challenge raised by Jensen would appear to remain.

8. CONSTRAINTS AND PRIORITIES • Constraints rule out certain courses of action • Example of human rights • Priorities specify certain courses of action • Example of rescue • Recognizing constraints and priorities in the process of maximizing long-run market value provides one way in which to incorporate competing interests and plural values into theories of corporate accountability.

9. CLUMPINESS • Clumpy covering considerations sort items into classes based upon the degree to which the items possess each of the relevant respects that comprise the covering consideration, which may consist of plural values (Hsieh forthcoming). • Example of grading student papers • Clumpy covering considerations permit maximization. • Example of the oil pipeline • Potential sources for clumpy covering considerations: • Corporate codes of conduct and mission statements • Corporate history and culture

10. CONCLUSION According to Jensen’s account, alternatives to the market value thesis (e.g., stakeholder theory) are to be rejected not so much as a matter of morality but rather as a requirement of rationality. Theories of corporate accountability can incorporate competing interests and plural values without rejecting the view that justified choice requires maximization. • Constraints and priorities • Clumpy covering considerations