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page 165 chapter V
the shareholders – the legal, and also moral, owners of
a business. But they can only ask their employees questions
once a year, and have to rely on the board of directors
for the other 364 days of the year, although the
independence of the board from the executive management
is an excellent subject for argument in some
instances. Here, an economist is confronted with two
so-called principal-agent problems: how can the owners
guarantee that the boards of directors act in their
interests, and what can be done to make sure that the
executive management pursues the same goals as the
(now like-minded) board of directors?
Having quoted him at the beginning, I would at this
point like to return to Milton Friedman, who is sometimes
called an “unscrupulous neo-liberal”. Perhaps
not even intentionally, he points an important way towards
what we now know as corporate social responsibility,
when he writes as follows in the previously cited
article: “In a free-enterprise, private-property system,
a corporate executive is an employee of the owners of
the business. He has direct responsibility to his employers.
That responsibility is to conduct the business
in accordance with their desires, which generally will
be to make as much money as possible while conforming
to the basic rules of the society, both those embodied
in law and those embodied in ethical custom.”
So, we don’t even need to trouble Adam Smith, whose
“invisible hand” is happily cited, while his other basic
work, “The Theory of Moral Sentiments”, unfortunately
often remains under a cloak of silence. On the one
hand, a manager can be expected to act not only legally,
but also legitimately. However, the owners are like-