The Role of Normative Ethics in Next-Stage Capitalism: An Examination of Oliver Hart and Luigi Zingales’ Corporate Governance Model

In this chapter, I contribute to the broad question of how to justify next-stage capitalism by focusing on a narrower issue. On the one hand, I will limit myself to discussing the role that normative ethics should play in justifying capitalism. On the other hand, I will not discuss capitalism in general but will focus on one particular corner within it: corporate governance. The central thesis I will defend is that unless normative ethics informs discussions about corporate governance, the accounts of how corporate managers should conduct the firm will be ethically inadequate. I will defend my claim by focusing on the influential account proposed by Oliver Hart and Luigi Zingales, two of the most prominent economists of the last decade. They have recently argued that managers should maximize shareholder welfare (i.e., promote the preferences of shareholders, including their ethical and social preferences) instead of shareholder value (i.e., maximize profits for shareholders). Among the central motivations for their revised proposal is offering a more ethically attuned version of corporate governance. Their account is valuable because, unlike the dominant model of shareholder primacy, it seeks to incorporate ethical and social values into managerial decision-making. However, I show that the framework with which they work, in particular its paucity of normative ethical resources, does not allow Hart and Zingales to provide an account of corporate governance that passes moral muster. I conclude by arguing that a proper account of the corporation’s governance requires using the normative conceptual resources usually discussed by moral philosophers. I highlight, however, that one should not merely draw on moral philosophy. A proper account of corporate governance (and a proper justification of next-stage capitalism) requires a multidisciplinary approach where the insights from moral philosophy are informed, at the very least, with those from economics and legal scholarship.