UNIT 2: Purpose of the Corporation
• Unit Background/Author Perspective
• Module 6: Stakeholder Ethics
• Module 7: Milton Friedman and Shareholder Ethics
• Module 8: Stakeholder Focus: Employees
• Module 9: Stakeholder Focus: Plant Closing
• Module 10: Stakeholder Focus: Communities
• Module 11: Stakeholder Focus: Customers and Dangerous Products
Unit Background/Author Perspective
Unit 1 examined general ethical issues. This unit looks at the first of many questions that
are central to business ethics: “What is the purpose of a corporation? For much of our nation's
history, the answer to this question was both simple and legally required: “To make money for
the shareholders.” And, although no longer required by law, many companies continue to operate
with an eye exclusively on the bottom line.
Many other companies, though, follow some form of the stakeholder model. Stakeholders
are groups that have a stake in a firm's success. They include employees, customers, suppliers,
the communities in which businesses operate, and other groups. Owners of a corporation
(shareholders) are also stakeholders, but they are not the only group worthy of consideration
under the stakeholder model.
In many circumstances, what is good for shareholders is good for stakeholders. A
company with happy employees who are well treated tends to be more profitable. The same
applies for a company with satisfied and loyal customers, and a company that operates in stable
communities with strong labor pools and healthy local economies.
But some decisions pit shareholders against other stakeholders, and these are the difficult
ethical questions. In such a case, should the shareholders “win,” or be given top priority, due to
the fact that they put up their own money to make the company run? Or is it sometimes
appropriate to give preference to other stakeholders, even if, in the end, the company makes a
In this unit, we will identify various stakeholders. Then, we will evaluate a variety of
situations which pit shareholders head-to-head with other stakeholders. Should employees be
taken care of even if a company will lose money? Should a plant be kept open to protect a
community if the company would make more money relocating the operation? Does a
corporation have an obligation to give to charity and support projects that will benefit society?
Does a company have an obligation to protect customers, even if it is not cost-effective? These
and other questions will be examined.