I. SHAREHOLDER-CENTRIC THEORIES

Arguments for a shareholder-centric view of the corporation have been based on the concepts of risk-bearing, promises, and fiduciary duty.^{Footnote 4} We will briefly examine each in turn. Risk-bearing arguments single out shareholders as the “residual risk bearers,” and this description supports arguments for some degree of shareholder control of the corporation. The term “residual risk” refers to the difference between the legally recognized inflows of resources to the corporation and the legally recognized outflows of resources to various claimants of the corporation (Fama and Jensen Reference Fama and Jensen1983). The outflows to those claimants are fixed by law, as negotiated among the parties or as set by governments, except for the shareholder claimants. In exchange for this weaker position, shareholders may be singled out, e.g., for control of the board of directors via voting rights (Easterbrook and Fischel Reference Easterbrook and Fischel1983, Williamson Reference Williamson1984).

Easterbrook and Fischel (Reference Easterbrook and Fischel1983) argue that shareholders have this right because, as the group typically bearing the residual risk, shareholders have the best incentive to try to ensure that the value of the corporation is maximized. This is because the residual claimants have the most incentive to ensure that a corporation invests in new wealth creating activities “until the gains and costs are identical at the margin” (Easterbrook and Fischel Reference Easterbrook and Fischel1983, 403). Indeed, Easterbrook and Fischel argue that in situations where the residual claimant shifts from shareholders to some other group, such as creditors in a corporate bankruptcy, the control rights shift as well.

Williamson argues that because “the assets in question are numerous and ill-defined, and cannot be protected in a well-focused, transaction-specific way,” transactions costs will be reduced when shareholders hold the voting rights (Williamson Reference Williamson1984, 1210). Thus, shareholders are singled out, not for their incentive to maximize, but rather because of the risk they face after an investment is made. In that regard, Williamson’s view overlaps with the fiduciary argument, which also focuses on the shareholders’ vulnerability to risk.

Unlike the other two shareholder-centric views we consider, the risk-bearing view focuses on structural features of the corporation—the placement of shareholders as residual claimants and their voting rights—rather than on a duty or voluntary obligation owed by management. Any moral justification for this structure rests on economic efficiency arguments such as wealth maximization or transactions cost minimization. The risk-bearing view provides no guidance for, or constraint on, management beyond the pragmatic concern of taking actions that will ensure their positions continued to be secured by shareholder vote. As we discuss in the next section, management legally possesses extensive discretion over the actions they may take.

Promise arguments rely upon the idea that corporate decisions should be guided by promises to shareholders (Hasnas Reference Hasnas1998; Macey Reference Macey2008b). Unlike the other two types of arguments, maximizing shareholder wealth is not something that comes from a structural feature of the corporate form, as with the residual-risk argument, nor is it necessarily a duty for management, as claimed by the fiduciary argument. This is because the exact content of the promise is not specified in such theories,^{Footnote 5} although a wealth-maximization promise is thought by proponents of promise arguments to be made by management. When there actually is such a promise, we grant that a prima facie obligation to maximize shareholder wealth is created. In such a situation, however, we argue that the rationale for making such a promise cannot properly rest on the risk taken by shareholders. This is because any positive net present value is not deserved by the shareholders, as we argue in section IV.

Furthermore, explicit promises to maximize shareholder value are rarely, if ever, made. The most straightforward place to announce a binding promise to all shareholders would be in articles of incorporation or corporate bylaws, yet few, if any, corporations have done this (Stout Reference Stout2008). Apart from an explicit promise made in the articles or bylaws, management might set an expectation among some shareholders at a point in time by making a public announcement of the goal maximizing shareholder value. Given that the shareholders of a corporation with publicly traded shares may change their identities without notice, while management might issue or rescind promises by public announcement at various times, the idea of such a promise between management and a shareholder seems strained. In any event, there is no way to distinguish a management action that intends to maximize shareholder value ex ante, but fails ex post, from an action driven by a different intention. We will discuss the resulting issues in the next section.

The fiduciary argument holds that management owes a special kind of moral duty to shareholders, and shareholders alone (Boatright Reference Boatright1994; Goodpaster Reference Goodpaster1991; Maitland Reference Maitland1994; Marcoux Reference Marcoux2003). The fiduciary relation is established when a shareholder’s financial resources become subject to management control, and, hence, vulnerable to management’s actions (Heath Reference Heath2006; Marcoux Reference Marcoux2003). We agree that shareholders face a vulnerability here. Something more than an argument from vulnerability is needed, however, to imply a duty to maximize shareholder wealth from these resources. This can be seen more clearly by looking at a legal structure with analogous duties.

A paradigm case of fiduciary duty is that of the relationship of trustee to beneficiary in the law of trusts. The trust is a legal device for separating the management of property, put into the hands of a trustee, from the beneficial ownership, retained by the beneficiaries of the trust (Dukeminier et al. 2005). A trust beneficiary, lacking legal control of the property, is, in regard to that property, wholly dependent and vulnerable to the actions of the trustee. In trust law, the two most fundamental duties of the trustee are those of loyalty and prudence (Dukeminier et al. 2005). Similarly, in corporate law, the two most prominent fiduciary duties of directors are loyalty and care (Klein, Ramseyer, and Bainbridge Reference Klein, Mark Ramseyer and Bainbridge2006). The duty of loyalty implies that the trust must be administered solely in the interests of the beneficiary, but the concern is foremost with the possibility of self-dealing by the trustee.^{Footnote 6} The duty of loyalty means that the trustee’s interest and concern for the beneficiary is undivided, but not that any particular result is to be obtained. The latter is the domain of the duty of prudence.

The duty of prudence underwent something of a transformation during the twentieth century. Echoing case law from the nineteenth century, the Restatement, Second, of Trusts (1959) stated that trustees should “make such investments and only such investments as a prudent man would make of his own property having in view the preservation of the estate and the amount and regularity of the income to be derived.”^{Footnote 7} Although attempting to maximize value is not necessarily imprudent by such a standard, the language “preservation” and “regularity” indicates that maximization is not required. Furthermore, by the close of the twentieth century, the prudent man rule had been replaced by the prudent investor standard in which modern portfolio theory (to be discussed below) provides much of the content of the rule (Dukeminier et al. 2005). By this standard, the prudent investor attempts to achieve only such increase in value as is compatible with the degree of risk appropriate to the beneficiary’s needs. Again, attempts at maximization are not required.

None of this is to argue that the fiduciary relation based on vulnerability between trustee and beneficiary lacks moral force. Some additional factor would have to be added to the duties of loyalty and prudence, however, in order to justify a duty to maximize the trust’s value. By analogy with the law of trusts, some factor as yet unidentified in the fiduciary theory of the corporation would be needed for a duty of management to maximize shareholder value to be established. As noted above, corporate directors have a duty of care in addition to a duty of loyalty. We examine whether this duty implies the goal of shareholder wealth maximization in the next section.

II. THE BUSINESS JUDGMENT RULE AND THE DUTY OF CARE

We have argued that shareholder-centric views of the corporation do not provide a moral justification for shareholder-wealth maximization,^{Footnote 8} but perhaps management simply has a legal duty to maximize shareholder wealth that prudence requires it to follow. Among legal scholars the status of such a duty is contentious, however, as illustrated by various commentary on the case of Dodge v. Ford.^{Footnote 9} When Ford refused to declare a dividend, the minority shareholders sued. The Dodges owned ten percent of the company at that time, but were not represented on the company’s board. In the course of the opinion, the court stated: “A business corporation is organized and carried on primarily for the profit of the shareholders. The powers of the directors are to be employed for that end.”^{Footnote 10}

Regarding this case, Stout (Reference Stout2008), for example, argues that the judicial decision is dated; that the Michigan courts have not been central to the development of corporate law; and that the quoted text is dicta, unnecessary to reach the holding (which ordered Ford to pay a dividend) of the case. On the other hand, Macey (Reference Macey2008a) discounts the significance of the first two claims, and argues that the quoted text is not dicta, but essential to the result. Additionally, Macey rises to Stout’s challenge to base the legal justification of shareholder wealth maximization on something in addition to Dodge v. Ford. Macey points to the American Law Institute’s Principles of Corporate Governance, which “specify that the goal of the corporation is shareholder wealth maximization” (2008a, 178). Macey grants, however, that the Principles are not “controlling” for courts, and that “there are no cases other than Dodge v. Ford that actually operationalize the rule that corporations must maximize profits” (2008a, 180).

We are in no position to resolve such a basic dispute in the realm of corporate law, nor is it necessary for our purposes here to do so. This is because of another doctrinal feature of corporate law recognized by all sides that can be seen at work in Dodge v. Ford. In Dodge, the Michigan Supreme Court ordered a dividend payment, but reversed a lower court decision that had placed an injunction on Ford’s building a new plant, stating “we are not…persuaded that we should interfere with the proposed expansion of the business.”^{Footnote 11} The principle underlying the reluctance to interfere is referred to as the business judgment rule.^{Footnote 12}

The rule has been stated as a “presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.”^{Footnote 13} As corporate law has developed, this presumption is quite hard to overcome, with the standard typically described as “deferential” (Rock Reference Rock2015; Velasco Reference Velasco2015) to directors’ actions. The rule limits the duty of care to an examination of the procedure followed by management (Bauries Reference Bauries2012, 761). The substance of the result will not be examined so long as “the board’s decision can be attributed to any rational business purpose.”^{Footnote 14} This undercuts the possibility of the duty of care underwriting the goal of maximizing shareholder wealth, since the content of the decision, so long as it has some rational basis, will not be reviewed by a court.

Macey is somewhat generous, however, with the concession that no case other than Dodge v. Ford calls for shareholder wealth maximization. In Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.,^{Footnote 15} the court determined that directors were required to maximize shareholder wealth (by getting the best price for the corporation’s shares) in certain, limited corporate takeover situations, where the corporation will not be preserved as a going concern. Absent these situations, directors are free to follow policies that “have regard for various constituencies in discharging its responsibilities, provided there are rationally related benefits accruing to the stockholders.”^{Footnote 16} In the complex environment of business, there are any number of activities that could be reasonably taken as “rationally related” to some shareholder benefit, any of which, then, could be legally pursued without any need to show shareholder value maximization, either ex ante or ex post. Indeed, Macey maintains that Ford could have avoided having to pay a dividend if he had simply described his motive as retaining the cash to benefit the company rather than to reduce prices and pay higher wages (2008a).

The result is that even if it is that case that the goal of shareholder wealth maximization is embedded in corporate law, there are few circumstances where the goal will be found to have been violated by management. Outside of the narrow range of Revlon-like cases, management’s discretion is not legally open to challenge on any substantive grounds as long as the business judgment rule applies.^{Footnote 17}

To recap the previous two sections, fiduciary duty alone does not justify the goal of shareholder wealth maximization. Furthermore, the business judgment rule places only weak, procedural constraints on management decision making, so that a corporate law requirement to maximize shareholder wealth would not, as a practical matter, constrain management’s discretion. What is needed is a moral principle that could guide management decisions, consistent with a fiduciary duty to shareholders. In the next section, we present an overview of the financial theory needed to motivate such a principle, which, in turn, is presented in section IV.

III. FINANCE THEORY PRELIMINARIES: NPV AND CAPM

Before discussing a principle for guiding management’s discretion regarding corporate actions, we need to present brief explanations of the concept of net present value (NPV) and the capital asset pricing model (CAPM). Modern financial theory has replaced the vague goal of “making a profit” for a company with the goal of accepting all projects with a non-zero NPV (Fisher Reference Fisher1977). Since accounting profit is calculated from period to period by subtracting expenses from revenues, a corporate course of action or set of projects might have positive residuals in some periods and negative ones in others. Thus, some generalized idea of profit over multiple periods is needed to begin to correctly assess whether value is ultimately being created. A further complication is that, from a financial perspective, a criterion is desired not simply for measuring accounting profit, but for guiding the selection of projects that would get the most value for the resources available for investment, that is, to maximize value. Different projects will be associated with different forecasts of periodic cash flow. In order to discover what the maximum profit could be, these projects must be made comparable so that the most valuable can be selected.

The method of discounted cash flow analysis can be used to address both of these complications. Once an appropriate rate for discounting the future periods is selected, the net cash flows from each period under consideration can be discounted back to the present time, and then added together. When the initial cost of undertaking the corporate action is subtracted from this sum, the result is called the NPV of the action.

CAPM expresses the return on an individual investment, such as corporate shares, as the sum of the risk-free rate of return (a rate that should be the reward for bearing no risk) and the product of the quantity of risk (called beta) and the market risk premium (the excess of market rate of return over the risk free rate). Beta is specific to a corporation, and measures the risk of investment in the corporation relative to the risk of the market for all investments (Lintner Reference Lintner1965, Mossin Reference Mossin1966, Sharpe Reference Sharpe1964).

The development of CAPM made possible the determination of a required cost of equity for the owners of financial capital. The return is “required” in the sense that any smaller return would not be fully compensating shareholders for the risk they were undertaking. The required rate of return from CAPM can be used as the discount rate in an NPV calculation for the corporation. When the resulting NPV is equal to zero, the risk and return are in a sense balanced. On the other hand, if the NPV is positive, equity investors are in effect receiving a reward (the value of the positive NPV) over and above what was required for the capital put at risk. In other words, the providers of capital are rewarded with the correct price for the risk they take, but there is still a surplus of capitalized income.

This result applies only to shareholders that are well diversified, following the guidelines of modern portfolio theory (MPT) (Markowitz Reference Markowitz1959). In such a case, the market should reward risk at the required rate given by a model of risk and return consistent with CAPM. Shareholders who are not diversified and who, in the extreme case, may have shares in only a single corporation, would be exposed to more risk. Such shareholders could be thought of as undercompensated by a corporation that was only just meeting the CAPM required return. MPT assumes that shareholders will diversify, and so the theory can provide no guidance to management regarding the treatment of the undiversified shareholder. At least at the present time, however, diversification is available to shareholders at little or no cost. As long as the choice to diversify imposes little or no burden on the shareholder, we claim that management may properly use CAPM to measure deserved return for all shareholders.

IV. SHAREHOLDERS AND DESERT

We propose using the financial concepts briefly discussed in the previous section in a normative fashion to explain the relation between managers and shareholders within the context of the publicly traded corporation.^{Footnote 18} We begin, as does the fiduciary argument, by noting that shareholders are vulnerable to the actions of management because of resources put at some risk of loss. As such, we argue for:

When a claim of desert is made, three components are at least implicitly involved: a subject for the claim; an object; and a basis (Feinberg Reference Feinberg1970; Kleinig Reference Kleinig1971; Olsaretti Reference Olsaretti2003). In the present context, the subject would be the shareholder, and the object would be any dividend paid and any price appreciation of the share.^{Footnote 19}

The “desert basis” may be a characteristic or an action (Feinberg Reference Feinberg1970, 58). Sher (Reference Sher1987) presents fifteen assertions of desert that he takes to be paradigmatic. Of these, eight are framed in terms of actions, e.g., “Baker deserves to win; he’s played superbly,” “Anderson deserves his twenty-year sentence; he planned the murder,” and “Lee deserves a reward; he risked his life,” rather than characteristics (1987, 7). The shareholder takes an action by making an investment, and, by doing so, risks the complete loss of the amount invested.

Philosophers have sought to ground desert claims in at least four different ways: through the consequences of a desert claim; the institutional framework in which the claim is embedded; the “appraising attitudes” of persons; and, finally, a pluralist approach that does not try to explicate desert in terms of any one factor (McLeod Reference McLeod and Zalta2013). Perhaps not surprisingly, none of these ways currently commands universal assent among philosophers, yet some seem more apt than others. We believe that Sher makes a strong case for a pluralist approach. In this approach, various desert claims are justified by reference to different external values (McLeod Reference McLeod and Zalta2013). The desert claim in the SDP is justified by the external values created by the corporate form.

Corporations are vehicles for the creation of economic value. Although such value has not been at the core of philosophic treatments of the concept of desert, we find no principled reason for this. Enabling the creation of economic value through the risky action of investment has the same logical form as preserving the value of a life by taking a risky action to save it.

In a market economy, the economic value created by corporations may be used to further the personal projects that provide the basis for value creation of all kinds, economic or otherwise (Lomasky Reference Lomasky1987, Sollars Reference Sollars2002). Further, some corporations, such as Tesla, have been founded to accomplish other than purely economic values.^{Footnote 20} The provision of capital is necessary to enable a corporation to provide a vehicle that project pursuers may use to create value. Persons who play a foundational role in facilitating value creating projects are deserving of some reward because of the risk of loss they undertake.

One possible objection to this argument is that any sales of shares by initial shareholders to subsequent shareholders do not provide any new resources to the corporation (Mayo Reference Mayo2006, 17-23), thus undercutting the basis for desert for new shareholders. We note, first, however, that any subsequent holders are also voluntarily undertaking the risk of loss. Second, denying subsequent shareholders a similar return would reduce the part of the return that initial shareholders get from having transferable shares, so that potential initial shareholders would require a greater return for the same risk in a regime of non-transferable shares. This, in turn, would be expected to reduce the number of value-creating projects that could be created. To avoid this loss, we argue that the basis for value should extend to include subsequent shareholders, even if they do not contribute new resources to the corporation. Their contribution stems from their participation in a scheme that facilitates the willingness of initial shareholders to provide resources, which participation underwrites the ability of corporations in general to exist and engage in value-creating activities.

Given that shareholders have a claim of desert commensurate with the risk undertaken,^{Footnote 21} the question arises concerning possible conflicts with the proper claims of other stakeholders on corporate resources.^{Footnote 22} We stress, however, that such conflict might not occur: when a corporation has a positive NPV, it has resources beyond what is needed to satisfy the SDP. In order to analyze the potential conflicts in a systematic way, we rely on the well-known division of stakeholder theory into three aspects; descriptive, instrumental, and normative (Donaldson and Preston Reference Donaldson and Preston1995).^{Footnote 23} We will consider only the normative and instrumental aspects here.^{Footnote 24} The instrumental aspect of stakeholder theory is concerned with “examining the connections, if any, between the practice of stakeholder management and the achievement of various corporate performance goals” (Donaldson and Preston Reference Donaldson and Preston1995, 67). This, in turn, gives rise to the concepts of the instrumental stakeholder, “who can be defined in terms of the need of managers to take them into consideration when trying to achieve their goals,” and the “normative stakeholder,” who is “defined in terms of having valid normative claims on the firm” (Reed Reference Reed2002, 169-70).^{Footnote 25}

The desert claims of shareholders override any claims by instrumental stakeholders, since, strictly speaking, instrumental stakeholders do not have moral claims. By definition, management is concerned with instrumental stakeholders in order to improve corporate performance. One prominent corporate performance goal is return on equity, but in that case the goal and the basis for shareholder desert are aligned. Other common financial performance measures have the same result. To the extent that a performance goal such as increased market share is undertaken to ultimately generate the requisite return on equity, it would also be aligned. The possibility exists that market share (or some other performance goal) would be pursued to enhance the position of management rather than enhance return on equity. Given the fiduciary duty of management to shareholders, we claim that favoring an instrumental stakeholder over shareholders to increase market share (or other performance goals) in a way that would violate the SDP is morally impermissible.

The claims of normative stakeholders cover a much more difficult landscape. This difficulty rests partly on the nature of different kinds of normative claims, and partly on the proper identification of a corporation’s stakeholders. Focusing on identification first, we see that as early as 1997 there were at least twenty-eight different rules for identifying stakeholders (Mitchell, Agle, and Wood Reference Mitchell, Agle and Wood1997). Indeed, some have argued that “normative” stakeholders are picked out by the existence of some normative principle that connects the stakeholder to the corporation in a way beyond the duties or obligations the corporation owes (in some sense) to persons generally (Phillips Reference Phillips2003).

In order to make headway, and without claiming that we can account for the claims of all possible normative stakeholders, we will use a definition given by Clarkson (Reference Clarkson1994) that “stakeholders” are those “placed at risk as result of a firm’s activities.”^{Footnote 26} We select this definition for three reasons. First, we believe that it designates as “stakeholders” many of the same groups or entities that are picked out by other contending rules. Second, we believe that the pre-theoretical meaning of “stakeholder” is best captured by this definition. Intuitively, a stake is something of value that may be placed at risk. Third, this definition has consonance with the idea behind the SDP, which also employs the idea of resources placed at risk.

Before proceeding, something else is needed to refine the Clarkson stakeholder definition. For example, persons could have their health at risk from a corporation’s (legal or illegal) polluting activities. Although health might be plausibly be taken to be a “stake” at risk, we argue that these persons, even if connected on some pre-existing basis such as being members of a community, are not best thought of as stakeholders. In the legal realm, in those circumstances where there has been no contractual relation, the law of torts applies. The persons in our example may be viewed as tort victims, owed a duty of care by the tortfeaser even in the absence of some contractual relationship between them. In the moral realm, such persons could have rights that are being violated, rights that exist independently of any connection to the corporation. As Phillips notes, stakeholder theory is “not intended as…a comprehensive moral scheme” (2003, 31), nor does lack of stakeholder status serve to legitimate any actions a corporation might take regarding some entity or group. Thus, we use the Clarkson definition with the proviso that entities or groups with claims against the corporation that flow strictly from rights violations framed within a comprehensive moral scheme are not best thought of as stakeholders, even when corporate activities put them at risk.

Turning to the differences in kinds of normative claims, claims of desert are frequently contrasted with claims of entitlement. This contrast is sometimes illustrated with the example of an athletic contest where an objectively measurable “victory condition” is satisfied by a competitor who is not the most deserving (Feinberg Reference Feinberg1970, 64-5; Sher Reference Sher1987, 117-8). The winner of the contest is entitled to a reward according to the rules, although a competitor who suffered some stroke of bad luck could be more deserving of it.^{Footnote 27}

Sher notes that claims of right often appear to dominate claims of desert, but denies that there is any general dominance of rights over desert. Rather, he argues that rights-claims and desert-claims “answer different questions” (1987, 199). Desert claims answer questions about what it would be good for someone to have, while rights claims answer questions about what ought to be done. When the question is framed on terms of what ought to be done, the rights claim provides the answer.^{Footnote 28} Similarly, we claim that although it would be good for the shareholders to receive the return commensurate with their risk, management should first satisfy stakeholder claims based upon entitlement.^{Footnote 29} We put the SDP forward as a reason for management to take a particular action within the legal framework of discretion they possess due to the business judgement rule. Such discretion should be terminated where there are proper claims of entitlement.

The remaining category of possible conflict is desert claims among stakeholders. Since shareholders and bondholders are financial stakeholders with different interests, the potential for conflicting claims between them must be considered. Like shareholders, bondholders also face a risk of loss. Unlike shareholders, bondholders may attempt to limit their risk with covenants that restrict the actions management may take (Smith and Warner 1979). Nevertheless, there is the possibility that after the bonds are issued, management could take actions that would increase the risk of bondholders for the benefit of shareholders, no matter how much care is taken in the preparation of bond covenant protections (Bratton Reference Bratton2006). We consider attempts to “game” the requirements of bond covenants for the benefit of shareholders to be an instance of bad faith on the part of management, and such a rationale undercuts the moral basis of the SDP. The principle is not intended as a cloak for harmful actions.

Regarding the community stakeholder,^{Footnote 30} first we note that because of the definition’s proviso, the normative connection cannot be one that is provided by general background rights. Second, insofar as the stake of the community is represented by an entity that has a contract (or agreement)^{Footnote 31} with the corporation, this case is similar to the bondholder case, in that protections can be provided by contract. As with the “gaming” of bond covenants for the benefit of shareholders, deliberate violation by management of the contract would undercut the rationale of the SDP.

When there is no contract with the community stakeholder, we are left with comparing the relative strength of desert claims between the community and the shareholders. Here, the lack of specificity at a generic stakeholder level of analysis makes it difficult to identify an underlying basis for the community’s desert claim. Perhaps the community has provided a good “home” for the corporation, and deserves some reward on that basis.^{Footnote 32} Prudent communities might act to ensure such a reward by contract or agreement, but, by assumption, neither of these two is available. The relevant question is one of desert, however, not prudence.

Unfortunately, unlike with shareholders, we lack any method of deciding what a “commensurate” reward for the risk might be. Indeed, without a contract or agreement that would specify the reward, the notion of a “commensurate” reward seems wholly indeterminable in this context. Given that we adopt Sher’s pluralist approach to desert, we must allow for the possibility that some theory for measuring the value of a community stakeholder’s desert claim could be developed. Our goal, however, is to provide management with a principle to guide their discretionary choices under the business judgment rule. Until the community stakeholder’s desert claim (if any) can be quantified, management has no basis for determining if a conflict exists with the SDP.

The remaining generic stakeholders are customers, suppliers, and employees. Regarding the first two, our argument is the same as for the community stakeholder: until their desert claims (if any) can be quantified according to some desert basis, they cannot provide any definite guidance for management. Because the employee stakeholder has been specifically considered in philosophic analyses of desert (Feinberg Reference Feinberg1970, 94; Sher Reference Sher1987, 99-108), however, this stakeholder warrants some additional discussion.

Employees of a corporation might have desert claims to some amount over and above their contractual wages or salaries. First, we note that there might be no conflict in satisfying these claims. When a corporation has a positive NPV, it has resources to conform to the SDP and still satisfy employee desert claims, at least to some degree. Second, as we have argued previously, without some way to quantify a desert claim management has no way to effectively act on it.

In this regard, some have argued that all employees should be paid at least a “living wage” (Pollin, Burns, and Heintz Reference Pollin, Burns and Heintz2004; Snyder Reference Snyder2008), and Sher suggests that employees deserve such a wage. To the extent that such a wage is quantifiable, management could be faced with a conflict between employee desert claims and the SDP. We note, however, that those arguing for a living wage typically claim that employers have an obligation to pay the wage in order to avoid the wrong of exploitation. This is a large topic which we cannot begin to address here.^{Footnote 33} If there is a duty to pay a wage above contractual amounts in order to avoid exploitation, then we are no longer in the realm of management discretion, which is the motivation for the SDP.