BOATWRIGHT Coming off of the Hasnas piece: we mentioned how fiduciary duty to stockholders (the consent bond) is truly a duty, but that it has possible competitors – other duties that demand recognition. Boatwright’s topic is the search for the ground of justification for prioritizing the fiduciary duties to the stockholders above these other possible duties. To let the cat out of the bag: according to Boatwright, we won’t find such ground! THESIS: There is nothing special about shareholders that privileges the fiduciary duties to them over the fiduciary duties to others. · It’s important to get the dialectic framed right: Boatwright wants to argue against the position that fiduciary duty extends to shareholders only (that if there are extra responsibilities to other stakeholders, these responsibilities are not grounded on a fiduciary relationship, but some kind of benevolence) · So Boatwright will explore and attempt to debunk a number of ways one might argue that duties to shareholders posses a unique moral status. Shareholders as Owners This position argues that it is the fact that the shareholders are owners of the company that entitles them to this special status. · In the past, financers made businesses possible with the investing of their personal assets · Boatwright argues that things are different now: · Distinction between ownership of personal assets and ownership of a corporation · Shareholders are not given the right to use corporate assets as if they were personal assets · In other words, there is no longer control · Because of this (and as evidence that this is true!), there are (legal) shareholder rights to try to protect shareholder interests (presumably to encourage investment!) · Right to elect a Board of Directors · Right to dividends from company profits · These rights (of ownership if we want to use that word) do not logically entail that managers need to act only in the interests of the shareholders · Tim says: to say there is a logical gap here is a very weak claim. We could say there is a logical gap between having a right to life and it being wrong for me to kill you, but that doesn’t blunt the force of having a right to life as counting as a pretty strong reason to think it would be wrong to kill you. That said, we can still ask for this link the way Boatwright does. In this case we DO want to know what it is about ownership that provides ground for fiduciary duty. I say this only to qualify the possible rhetorical force of “logical gap”… · If they don’t automatically entail such a duty, what does? · Possible answer: The Equity Argument · That we need to protect the risks of investors? (notice that this is a consequentialist consideration – risk of harm) · Shareholders do not have contracts to protect their investments · The investments of shareholders are not associated with particular assets · No way of withdrawing what they’ve put in (ex: I could donate a table to the chess club and then possibly take it back) · ...

1. BOATWRIGHT
Coming off of the Hasnas piece: we mentioned how fiduciary
duty to stockholders (the consent bond) is truly a duty, but that
it has possible competitors – other duties that demand
recognition.
Boatwright’s topic is the search for the ground of justification
for prioritizing the fiduciary duties to the stockholders above
these other possible duties.
To let the cat out of the bag: according to Boatwright, we won’t
find such ground!
THESIS: There is nothing special about shareholders that
privileges the fiduciary duties to them over the fiduciary duties
to others.
· It’s important to get the dialectic framed right: Boatwright
wants to argue against the position that fiduciary duty extends
to shareholders only (that if there are extra responsibili ties to
other stakeholders, these responsibilities are not grounded on a
fiduciary relationship, but some kind of benevolence)
· So Boatwright will explore and attempt to debunk a number of
ways one might argue that duties to shareholders posses a
unique moral status.
Shareholders as Owners
This position argues that it is the fact that the shareholders are
owners of the company that entitles them to this special status.
· In the past, financers made businesses possible with the
investing of their personal assets
· Boatwright argues that things are different now:
· Distinction between ownership of personal assets and
ownership of a corporation
· Shareholders are not given the right to use corporate assets as
if they were personal assets
· In other words, there is no longer control
· Because of this (and as evidence that this is true!), there are
(legal) shareholder rights to try to protect shareholder interests

2. (presumably to encourage investment!)
· Right to elect a Board of Directors
· Right to dividends from company profits
· These rights (of ownership if we want to use that word) do not
logically entail that managers need to act only in the interests of
the shareholders
· Tim says: to say there is a logical gap here is a very weak
claim. We could say there is a logical gap between having a
right to life and it being wrong for me to kill you, but that
doesn’t blunt the force of having a right to life as counting as a
pretty strong reason to think it would be wrong to kill you. That
said, we can still ask for this link the way Boatwright does. In
this case we DO want to know what it is about ownership that
provides ground for fiduciary duty. I say this only to qualify the
possible rhetorical force of “logical gap”…
· If they don’t automatically entail such a duty, what does?
· Possible answer: The Equity Argument
· That we need to protect the risks of investors? (notice that this
is a consequentialist consideration – risk of harm)
· Shareholders do not have contracts to protect their investments
· The investments of shareholders are not associated with
particular assets
· No way of withdrawing what they’ve put in (ex: I could donate
a table to the chess club and then possibly take it back)
· Boatwright’s Reply
· This doesn’t give grounds for the conclusion that the
manager’s fiduciary duties are to the shareholders ALONE
· 1) Perhaps the existing shareholder rights do enough to give
this space of protection for shareholder investments
· 2) There is another mechanism that greatly compensates for
investor risk: the stock market
· “Indeed, managers and employees of firms generally have far
more at stake in the success of a corporation than do the
shareholders”
· 3) Shareholders only are owners of stock, NOT owners of the
company.

3. · The argument here is that the space of those shareholder rights
mentioned above exhaust the claims of ownership and thus fit
closer to seeing shareholders as owners of stock rather than
owners of the company.
Contracts
(Like Hasnas argued) this position holds that it is on the basis
of a special contract between the shareholders and the
manager/CEO that there is special fiduciary duty to
shareholders.
· This is different from the Equity argument since it trades on
the deontic duties of promise making/keeping.
· First problem: no contract
· It certainly isn’t an explicit contract
· Implicit? Nope (at least not by the nominal legal standards)
· Shareholders frequently buy from previous shareholders, not
the company
· Even when they buy the original stock, Boatwright claims that
the attitude from shareholders to a company they buy stock in is
like a risk (no promises).
· No interaction between managers and shareholders
· Second problem: social contract
· Without a legal contract, we could still argue that the moral
dimensions here operate as if there were a contract (JUST like
the quasi-contracts of the Social Contract proposal from
Hasnas)
· But Boatwright thinks this will be hard to use to justify the
special status of shareholders for the same reasons that came up
for a real contract
· No opportunities for negotiation. “Shareholders are offered
stock on a take-it-or-leave-it basis”
· Little interaction between shareholders and managers. That
shareholders are beneficiaries of a manager’s existing fiduciary
responsibilities isn’t to say that they are necessarily owed such
duties (much less exclusively). In other words, it isn’t TO them
that these existing duties are in place.
· Ex: prohibition on insider trading is something that protects

4. shareholder interests, but it may not be on the grounds that a
(even quasi-contract) promise TO shareholders has been broken.
Instead Boatwright posits that this is owed to the investing
public in general (not the specific shareholders of the company)
· Another concern: if we take the social contract route, then it
will be likely that the position of exclusive duty to shareholders
will not win out. Most social contract theories (like Rawls) see
such a quasi-contract as holding between all members of
society.
Agency
Part of the compelling nature of the stockholder theory (which
prioritizes the fiduciary responsibility to stockholders) requires
us to see the manager as agents of the stockholders, and
Boatwright wants to challenge the legitimacy of this aspect as
well.
Being an “agent” is like being a “surrogate”. (example from
biomed ethics)
· Friedman holds pretty clearly that the managers are agents of
the shareholders. Boatwright thinks that pretty clearly they are
not.
· Boatright’s argument
· Legally, managers are agents of the company, not of the
shareholders specifically.
· To become an agent (according to the 2nd Restatement of
Agency which comes from the American Law Institute) a few
conditions must be met:
· 1) consent to the relation (on both sides)
· As has already been argued, there is no real opportunity for
the manager to express consent to such a relation
· 2) power for the putative agent to act on the other’s behalf
· Managers are not given the power to redefine the legal
relations of the company with a 3rd party (ex: merging,
changing bylaws) – these require shareholder approval
· If they were to be agents Boatwright thinks they ought to have
some of these powers
· 3) the element of control

5. · Shareholders have no right to intervene on the way the
company runs. Here managers are given independent authority
and this is actually protected by law.
· Tim says: what do we think of this argument? Hasnas
complained of arguments for moral claims that cite law as their
justification. Why might he be upset about that?
· Managers have existing fiduciary responsibilities (legally) that
are not covered by the notion that they are agents of
shareholders.
· Like the prohibition on insider trading
· Boatwright doesn’t argue as much for this claim.
· Worries? Do legal responsibilities count?
· Think again back to the framing from Hasnas: there the real
issue was whether there is a duty to non-shareholders (social
responsibility). How is Boatwright doing compared to this
burden?
Public Policy
Boatwright argues that it is obvious that managers have
fiduciary duties inasmuch as they are holding control of the
company “in trust” in some way (and note that Boatwright
concedes that social responsibility is not a fiduciary duty). But
at this point he concludes it is implausible that these fiduciary
duties can all be exhausted by the fiduciary duty managers have
to shareholders. So what else could ground these duties?
A: now we’re back to the argument that in assuming a fiduciary
duty for managers, we maximize public welfare (the
consequentialist defense of the Stockholder Theory from
Hasnas)
Notice the dialectic here: the fight over the original thesis is
pretty much over at this point. The rest here on public policy
doesn’t give any other reasons why there is nothing special
about stockholders (other than that the presence of an
alternative makes it easier to justify giving up a theory – that’s
something but not a lot).
Main ideas in this section:
· We begin from the assumption that we can’t ground fiduciary

6. duty in the consent between manager and shareholders (on the
grounds of the separation of ownership and control as already
talked about)
· One way to take it from here is to think that with the
shareholder fiduciary duty dethroned, there is room to open up
fiduciary duty to all stakeholders
· But another way is to retain the semblance of the fiduciary
duty to shareholders without the previous justification
· Instead the justification is now on the grounds of avoiding
giving the managers absolute power of management (and the
risk of abuse). This is a justification stemming from public
interest
· I like this quote as a summary: “the present state of corporate
governance is not ideal but it is a workable arrangement”
· This position is largely supported by contemporary law
· EITHER WAY, Boatwright argues, issues of putative fiduciary
responsibility are all grounded on public interest and there is no
special status here for fiduciary duty to shareholders – it’s a
level playing field with public interest as the measuring stick.
· “except for the useful role they play in corporate governance ,
there is nothing special about shareholders”
FRIEDMAN
Friedman’s target is most specifically to deny room for social
responsibility in a business ethic.
Square One: Fiduciary duty to Stockholders
· The (now) classic line: the manager is the agent of their
employers (i.e. stockholders)
· The key issue is framed as a question about the ends for which
the manager can appropriately deploy company resources
· On that topic Friedman says this is a question about whether
the manager can work to purposes that are outside of the
purposes the stockholders lay out for him
What are the Arguments?
· To fulfill a social responsibility, the manager would have to
be “spending other people’s money”

7. · In other places Friedman describes this as “imposing taxes”
AND deciding how to spend them
· I think there’s an implicit argument to appeal to our intuition
that this is unfair – that it is forcing people to do things for
which they have not consented
· The Political Argument (“principle”)
· If the manager is imposing and spending “taxes”, then this is a
political activity and subject to the standards of politics
· If so, the manager’s exercise of social responsibility is clearly
a violation of justifiable political standards
· “no taxation without representation”
· No control over how the manager does this
· He is not elected to bear this responsibility for society
· It also violates the legitimacy of the power the manager has
been given through control of the company
· Friedman believes that the stockholders bestow this legiti macy
(and should)
· Private agent versus civil servant
· A separate line of attack: the Market Argument
(“consequences”)
· Friedman argues that biting the bullet here and going down the
political path would be subscribing to the position that Political
Mechanisms should supplant Market Mechanisms in allocating
resources (making this socialism)
· Friedman thinks this won’t work/is inappropriate
· CEOs/managers do not have the wisdom to make decisions
about social welfare
· If they try to do so, stockholders will fire them (what kind of
argument is this?)
· When artificial political means are used to enforce social
welfare, more problems result (ex: unions and wage restraint)
· Related: Friedman is concerned that this is circumventing of
democracy (if they cannot convince through government, they
become social “vigilantes” (my word))
· Straight up: this undermines free society [THIS IS HIS
MAJOR PLATFORM IMO]

8. · lack of compulsion makes it harder to coerce/control for good
OR bad purposes
· market system undermined by government regulations
· While this might begin as just the exercise of conscience by
managers, it will end with the “iron fist” of governmental
control (this is “suicidal”)
· The market ideal is a conception of freedom exhausted by un-
coerced consent. Social responsibility undermines this ideal
since it requires use of resources independently of consent and
violates the consensual agreements of stockholders and
managers
· Social responsibility prioritizes a principle of conformity over
the respect of individual agency
· Friedman grants that some degree of conformity is
unavoidable, but (this is the implicit argument I see) if we can
get by without it we should
· A final quick argument: Friedman is skeptical of altruistic
intentions behind social responsibility in business. Instead, he
thinks this is usually a long-term strategy for profit/success.
While he is unwilling to condemn this, he does “admire” the
“disdain [for] such tactics as approaching fraud”