Abstract
ABSTRACT:According to themarket failures approachto business ethics, beyond-compliance duties can be derived by employing the same rationale and arguments that justify state regulation of economic conduct. Very roughly, the idea is that managers have a duty to behave as if they were complying with an ideal regulatory regime ensuring Pareto-optimal market outcomes. Proponents of the approach argue that managers have aprofessional dutynot to undermine the institutional setting that defines their role, namely the competitive market. This answer is inadequate, however, for it is the hierarchical firm, rather than the competitive market, that defines the role of corporate managers and shapes their professional obligations. Thus, if the obligations that the market failures approach generates are to apply to managers, they must do so in an indirect way. I suggest that the obligations the market failures approach generates directly apply to shareholders. Managers, in turn, inherit these obligations as part of their duties as loyal agents.
Highlights
According to the market failures approach to business ethics, beyond-compliance duties can be derived by employing the same rationale and arguments that justify state regulation of economic conduct
I am generally sympathetic to the market failures approach and I agree that managerial obligations are best understood as part of a professional code
Proponents of the market failures approach think of business ethics as a branch of professional ethics
Summary
What is distinctive about the market failures approach to business ethics is that, in deriving the content of managers’ moral duties that go beyond compliance with the law, it applies the same conceptual tools as are commonly used to justify the (government-) regulation of markets. While these ideal conditions never apply in the real world, it is widely agreed that even imperfect markets do, by and large, a better job at achieving efficient results than any other economic arrangement that has been tried out on a large scale (McMahon, 2013: 2–12) Taking this argument for a market economy as a starting point, directly leads to a rationale for the regulation of markets, i.e. boundaries to the ways in which individuals may pursue their self-interest (or in which corporations may maximize profits). This might be a more accurate label than ‘market failures approach’ (Heath, 2014: 5–12) It captures nicely the fundamental idea at the heart of his view, namely that the central role Pareto-efficiency plays in arguing for a market economy in the first place should be seen as implying a (if not ) central role for Pareto-efficiency in business ethics.
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