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• Working Paper | HBS Working Paper Series | 2019

  Rehabilitating Corporate Purpose

  Malcolm S. Salter

  In this paper, I address how the ascendance of the theory of shareholder value maximization into the central consciousness of public corporations and its canonization as the only legitimate expression of corporate purpose has contributed to both a widening breach between American-style capitalism and justice and increased alienation of the public from capitalism as a system of economic governance. Despite the vast academic literature and many management testimonials advocating a broader conception of corporate purpose—one that addresses the interests of firms’ multiple constituencies and the well-being of their employees, customers, and operating environment—shareholder value maximization remains the de facto expression of corporate purpose and guide for decision-making for most publicly owned firms in the United States (and the United Kingdom). I argue that narrowing the compatibility gap between capitalism and justice and reversing declining public trust in contemporary capitalism requires a very different conception of corporate purpose—one reflecting established moral and economic principles that challenge those underlying the shareholder value maximization doctrine. To this end, I start by discussing the vulnerability of contemporary capitalism, which is largely rooted in the social and moral disengagement of firms operating under this doctrine. I then explain how the emergence of the doctrine over the past four decades has led to this social and moral disengagement, what the theoretical underpinnings of the shareholder value maximization doctrine are, how this doctrine has become so deeply ingrained in our capitalist system, and the conceptual and practical problems presented by this doctrine and related theory of the firm. Next, I propose an alternate, principle-based guideline for corporate purpose that blends Aristotle’s theory of reciprocal justice with considerations of corporate purpose, along with Chester Barnard’s compatible theory of business organizations as cooperative systems. Aristotle stresses the ethicality of cooperation in transactional settings; Barnard stresses the efficiencies and adaptive benefits flowing from cooperation. Both see utility in truly reciprocal, cooperative relationships, which is not a priority in a shareholder value maximization regime. This alternative approach—referred to as ethical reciprocity—not only provides the basis for a rebuttal of the shareholder-primacy doctrine based on principles of justice and economic efficiency, but also offers a practical guideline for balancing the interests of shareholders and other corporate constituencies in the conduct of everyday business affairs. After presenting ethical reciprocity as a justice-sensitive guideline for corporate purpose, I turn to two practical questions related to its implementation: (a) whether “reciprocity practitioners” can compete in a world dominated by shareholder value maximizers, and (b) if so, what asset holders and asset managers, corporate directors, and educators can do—and, in some instances, are currently doing—to foster increased attention to both the principle and spirit of ethical reciprocity in the definition and pursuit of corporate purpose.

  Keywords: Capitalism; justice; corporate purpose; shareholder value maximization; ethical reciprocity; Economic Systems; Business Ventures; Mission and Purpose; Ethics; Corporate Social Responsibility and Impact;

  Citation:

  Salter, Malcolm S. "Rehabilitating Corporate Purpose." Harvard Business School Working Paper, No. 19-104, April 2019.  View Details

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• Case | HBS Case Collection | July 2016 (Revised January 2017)

  Banking on Change: Aligning Culture and Compensation at Morgan Stanley

  Malcolm S. Salter

  This case study was prepared as part of a research project on Culture, Conduct, and Governance in Financial Firms. The objective of this project is to compare and contrast the efforts of U.S. and European banks to induce changes in organization culture in the aftermath of the 2008 financial crisis. Since this crisis, wide ranging regulations aimed at improving risk management and bankers’ ethics have been promulgated in the United States and in Europe, and more rules are currently under discussion. Academics, regulators, and public officials have proposed many of these measures. At the same time, banks have been implementing their own company-tailored culture change programs. This project and the Morgan Stanley case in particular describe these change programs and banks’ experience with them so far—with particular attention being paid to how banks are using compensation and other incentives to change and reinforce organization culture and conduct. One of the central questions of this case is whether or not the voluntary efforts of Morgan Stanley to strengthen their conduct and culture will prove to be “effective” or “adequate” according to bank regulators and the general public. This case lends itself to analysis and discussion in a variety of related graduate-level courses dealing with the management of financial institutions, financial regulation, corporate governance, organization behavior, and corporate accountability and ethics.

  Keywords: Business or Company Management; Corporate Accountability; Ethics; Organizational Culture; Corporate Governance; Banks and Banking; United States; Europe;

  Citation:

  Salter, Malcolm S. "Banking on Change: Aligning Culture and Compensation at Morgan Stanley." Harvard Business School Case 917-402, July 2016. (Revised January 2017.)  View Details

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• Working Paper | HBS Working Paper Series | 2014

  Crony Capitalism, American Style: What Are We Talking About Here?

  Malcolm S. Salter

  This paper seeks to reduce the ambiguity surrounding our understanding of what crony capitalism is, what it is not, what costs crony capitalism leaves in its wake, and how we might contain it.

  Keywords: democracy; industrial governance; institutional corruption; crony capitalism; lobbying; campaign finance; costs; cronyism; Business ethics; campaign finance reform; revolving door; Economic Systems; Ethics; Political Elections; Financing and Loans; United States;

  Citation:

  Salter, Malcolm S. "Crony Capitalism, American Style: What Are We Talking About Here?" Harvard Business School Working Paper, No. 15-025, October 2014.  View Details

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