Two Cheers for the Welches

by Tibor R. Machan

In their BusinessWeek column of October 9, 2006, Suzy and Jack Welch make a valiant effort to debunk the stakeholder theory of corporate ethics. This is the view that managers do not owe service first and foremost to shareholders or owners of a company but, rather, to anyone who has an "interest" in the company's activities. The idea has also been dubbed the CSR thesis, whereby the first duty of business managers is their so-called "corporate social responsibility."

The Welches do a fine job of affirming the idea that what company managers ought to be doing is improving the value of the firm for their employers, the stockholders or owners. That is indeed the moral responsibility of corporate managers, even if it is true that other moral concerns do have a place in how they make their decisions. (Just like individuals, who ought to be prudent, which is to say, strive to succeed in their lives, first and foremost, companies ought also to practice such virtues as generosity, charity, and so forth.) But there are some important points the Welches failed to call attention to in this debate.

When the stakeholder theory is made part of law and public policy, it clearly violates the right to freedom of association of managers. They have not chosen to go to work for stakeholders but for stockholders, so forcing them to serve the former is involuntary servitude, plain and simple. Free men and women should not be required to work for anyone other than those whom they have chosen as their employers. (Yes, Virginia, this calls into serious question a good many public policies in our so-called free society!) This element of the CSR or stakeholder theory is never discussed by its promoters, of which there are hundreds teaching in business schools and writing business ethics text books. It is, indeed, professional malpractice to fail to address the issue.

Yet there is something the Welches might also have discussed, albeit briefly, namely, how so many company managers act unethically by getting into bed with government. Whenever companies jockey to gain subsidies, special favors like protectionist policies, or urge government to bring anti-trust actions against their competitors, they are acting immorally. Their morally defensible position against the CSR and stakeholder advocates becomes weak when they fail to refrain from seeking government favors. (Doing this, by the way, is akin to participants in an athletic race seeking special favorable treatment from referees or judges, only far more serious!)

Unfortunately the idea of going to government for this or that favor is so widespread in society that most corporate managers probably don't even think of it as possibly unethical. I venture to guess that Suzy and Jack Welch are similarly oblivious to how widespread this kind of corporate malpractice is in our midst. Certainly BusinessWeek and other business publications, or other aspects of media covering business, seem to fully accept this kind of bad corporate conduct. After all, people in the sciences, education, arts, and elsewhere indulge in what economists call rent-seeking behavior. Get government to help you rip others off and after taking its own substantial share, transfer the funds to those making the "plea."

If the Welches will not acknowledge these types of misdeeds on the part of entirely too many corporations, their leverage against the unjust critics of corporations will seriously diminish. Their credibility as moral guides will evaporate. And that would be too bad, especially when it comes to their probably widely read insights about CSR and stakeholder theory. These are rotten, nasty ideas, albeit terribly popular among those discussing business ethics these days (too many of them business bashers, in fact). They are a roundabout, dishonest way to smuggle in and gain support for collectivism again.

To deny the right of ownership to individuals is basically to treat them as common property, as if their lives, work and resources may be used against their consent with impunity by anyone. And the Welches' help in resisting this should be much appreciated. So, two cheers for them!