Ethics

Corporate Ethics and Shareholder Wealth

Maximization

Donald R. Chambers and Nelson J. Lacey

The 1990s have come with a heightened awareness of business ethics, and manyfacutty members have dedicated a

particular portion of a course to ethicat concerns. A general theme of business ethics discussions is that many of the

concepts taught in a traditionat business curricutum are not in tandem with ethicatty correct behavior and that ethicat

discussions may temper or dissuade students from apptying business concepts. For example, business ethics often

teaches that sharehotder weatth maximization (SWM) is a goat that is inconsistent with ethicat behavior. We

demonstrate that the corporate goat ofSWM neither adds nor subtractsfrom the weight given to ethicat consideration

by martcet participants. A corporation that embraces SWM does not estabtish a morat or ethicat position but rather

merety acts as a conduit for the ethical betiefs and desires of market participants.

• The 1990s have come with a heightened awareness of

business ethics. One theme of many business ethics

discussions is that the corporate goal of maximizing the

wealth of shareholders needs to be broadened to include a

broad array of corporate claimants. This "stakeholder"

approach is argued to have advantages over the narrower

shareholder view. These advantages include, among others,

the removal of incentives for unfair or illegal business practice

that benefits one constituency over others (Cloninger, 1995),

the reconciliation of the apparent conflict between short-term

and long-term interests of the firm (Aggarwal and Chandra,

1990), and providing a framework for understanding the

linkages between corporate finance and other corporate

functions (Cornell and Shapiro, 1987).

An unfortunate theme of the stakeholder approach is that

the traditional view of shareholder wealth maximization

(SWM) is inconsistent with ethical behavior. It is often

suggested or concluded that people's...