Moral Partiality and the Economic Theory of the Firm



The economic theory of the corporation contends that corporations and their managers should maximize shareholder value because this will lead to a socially optimal outcome.  Ethicists often object to this theory because it assumes ideal market conditions that do not exist in the real world.  Although valid, I do not believe that the "ideal conditions" objection gets to the heart of what is wrong with the economic theory.  In this paper, I argue that the fundamental problem is rather that the economic theory does not adequately acknowledge the connection between the corporation and our personal lives.  Theorists such as Bernard Williams and Samuel Scheffler have rightly argued that morality does not always require that we act in ways that promote social welfare: there is a "sphere of partiality" in which we are each free to pursue our personal interests, even if these pursuits are not optimal from the social point of view.  The economic theory holds that the corporation belongs wholly to the part of our lives that is subject to the demands of social welfare.  But this conception of the corporation leads to several counterintuitive results.  The reason, I argue, is that the corporation actually straddles the division between the "sphere of partiality" on the one hand and the "sphere of impartiality" on the other.  The upshot of my argument is that there is much greater latitude for individuals to steer corporations towards goals other than the promotion of shareholder value.  Throughout my discussion, I focus on the version of the economic theory advocated by Michael Jensen. 
Contact information:
Ben Wempe