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Fiduciary Duty, Risk, and Shareholder Desert

Published online by Cambridge University Press:  19 February 2018

Gordon G. Sollars  and
Sorin A. Tuluca
Gordon G. Sollars
Affiliation:
Fairleigh Dickinson University
Sorin A. Tuluca
Affiliation:
Fairleigh Dickinson University
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Abstract:

A common moral argument is that shareholders have a special status because of risk when considering the duties of corporate management. The privileges of this status usually include the idea that management should adopt the goal of maximizing shareholder wealth. We argue that modern financial theory demonstrates that this argument should be modified by the recognition of a principle of desert, the shareholder desert principle (SDP). Financial theory can usefully circumscribe the duty owed to shareholders and the extent to which risk bearing justifies a claim on corporate value. When combined with the SDP, the result provides management with a guideline for what is owed to shareholders before other stakeholder non-contractual claims may be satisfied. As such, our approach provides management with some guidance through the thicket of competing stakeholder claims.

Keywords

desertfiduciary dutycapital asset pricing modelshareholderstakeholder
Type
Article
Information
Business Ethics Quarterly , Volume 28 , Issue 2 , April 2018 , pp. 203 - 218
Copyright
Copyright © Society for Business Ethics 2018 

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