The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

The Finance Ethics of Hostile and Friendly Takeovers 73
which may be present but latent, underutilized or undervalued, the only addition of
value that takes place is extractive. This is only justified if the takeover target has
objectively proved itself incapable of utilizing its assets to carry on a profitable and
economically purposeful business.
It is impossible, here, to ignore the intention of those planning a corporate
takeover, because in cases of merger or asset-stripping, the intentional actions are
crucial for an ethical, albeit perhaps not a legal, definition of the economic facts.
A merger for the purpose of cannibalizing the acquired firm is not a merger at all, but
an asset-stripping operation, whereas a takeover with the purpose of realizing synergies
between two firms raises the productivity of both firms and increases allocative
efficiency within the economy. Therefore, this alone merits the designation “merger”
in the sense of a constructive amalgamation.
In terms of economic ethics, whether a takeover is friendly or hostile, i.e. done
in consultation with the board of the takeover target or without its cooperation, is
not a crucial question, either. A hostile takeover may very well be justified in terms
of economic ethics if the management of the target acquisition has been idling.
If the management has grown slack and can only be tightened up by pushing through
a merger against its will, this being the only way to replace the management, then
a hostile takeover is justified, both economically and in terms of economic ethics.
If the sole purpose of the merger is cannibalization yet the management agrees to
it, influenced by the prospect of receiving generous payoffs, a “friendly” merger
can be reprehensible from the viewpoint of economic ethics, irrespective of the
management’s consent. The objective material appropriateness of the merger, and
the intentio recta of the economic actors – in this case, whoever is embarking on
the merger or takeover – who is objectively intent upon acting appropriately to the
domain of the economy, determine the ethical or unethical character of an action.
The example of the merger and the leveraged buyout make it clear that the economy
is not just a formal context for market exchange, in which subjective demand
and subjectively-defined suppliers meet one another and are intermediated, but that
the economy serves an objective purpose which has to be realized in a subjective
way, i.e. according to the subjectivity of economic actors. The economy does not
primarily serve the profit-making intention of individuals; rather, the profit-making
intention of individuals is the means by which the objective purpose of the economy,
the satisfaction of consumer demand, is realized in the subjective pursuit of
individual objectives.
In light of the criterion of material appropriateness to business, the concept of
profit maximization also draws criticism, since it involves a reversal of ends and
means. Positive (not maximum) profit is a necessary condition of corporate activity
but not the ultimate purpose of the firm. Profit, i.e. market success, is the criterion of
the firm’s objective success in pursuit of its economic purpose; however, profit cannot
be the sole and only purpose of entrepreneurial activity, not even in the capital
market.
The profit motive cannot be formulated in the language of maximization, because
the maximization of residual profit is not the corporate objective; rather, profit as a
surplus is the yardstick for measuring the firm’s objective success and performs the