I’m planning a further post about the notion of ‘creative capitalism’, but before I get on to it, I thought it might be useful to clear up some of the confusion surrounding the alternative view, that managers have a ‘fiduciary obligation’ to act solely in the interests of shareholders, reflected in debate at my blog, at Crooked Timber (including this) and here at the Creative Capitalism blog.
A surprising number of people seemed to want to argue that, even in the absence of any legal enforceable obligation, and therefore any reasonable ex ante expectation on the part of investors, managers are morally obliged to put the interests of shareholders before their own, and before the interests of any other stakeholders. This ethical absolutism is particularly odd when it is combined with a willingess to endorse breaches of implicit contracts with workers and, as in Richard Posner’s post, hypocritical pretences of corporate altruism.
This kind of claim about the moral responsibility of managers as agents runs against the whole body of literature on principal-agent relationships, which takes a starting point the assumption that agents will pursue their own objectives within the constraints of their contractual relationship with the principal. It’s up to the principal to design the contract in a way that aligns the interests of principal and agent (this is called incentive-compatibility).
See full Article.
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