Thursday, November 12, 2009

Do ethics and the free market really collide?

Here is an interesting article from about whether free market libertarians really believe that the most ethical responsibility of a company is to maximize share holder value.

The author argues that even the most pure free market libertarian must at some point go against the idea of maximizing share holder value. His example is of Noble Prize winning economist Gary Becker, an ardent free market supporter, denouncing Yahoo! for turning over the names of potential dissidents in China. The author argues that Yahoo! was simply obeying local laws and by doing so was putting itself in a better position to gain market share in China, which would surely increase shareholder value at some point. But I am not convinced that is necessarily true.

Consumers in America and around the world are smart and if they think that a company is acting unethically they will make them pay. Yahoo! has been losing market share for several years now and its stock price is down from a high of ~ $43 in 2006 to ~ $16 today. Now this is certainly not all due to Yahoo! releasing the names of its users to the Chinese government, but is it really that hard to believe that acting unethically in one part of the world, though it may be in accordance with local laws, is the right thing to do for a company's stock? I feel that any short term gains that may be made by an unethical decision will be washed away once a company's behavior comes to light. So in reality it seems to me that a true free market libertarian whose primary concern is with maximizing share holder value would seek to do the right thing regardless of local laws. This will keep the consumer on your side and will ultimately lead to good publicity around the world.

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