Due Diligence and the Profit Motive: Perfect or Imperfect Duty?

The pursuit of shareholder wealth is not a contractual obligation of management and therefore not a perfect duty. It is an imperfect duty that has practical limits that result from its trade-offs with other imperfect duties of due diligence. These imperfect duties of managerial due diligence are illustrated here through explanations of basic financial decisions: capital budgeting (the selection of long-term projects of the firm), capital structure (the selection of finance sources), and liquidity management. The ethical foundations of these imperfect duties of due diligence are drawn from Rawls’ criteria for “competent moral judges” and “considered moral judgments.” These are shown to depend on the imperfect duties to gather and utilize relevant knowledge as explained in Chaps. 3 and 4.