Tutorial Questions Business Law & Ethics Week 5 – CSR & Labour Law
1. Explain how the agency theory (mentioned on p. 204,212 of the CSR article) relates
to Milton Friedman’s vision on corporate social responsibility.
Agency theory is that agents do not act in the interest of the principal (CEO ->
Shareholders). The aim of the corporation should maximize shareholder value.
Milton said CEO’s should act in our favour so it is a potential conflict of interest, because
managers could serve their own interest and not that of shareholders.
2. Name two points of criticism on Milton Friedman’s theory towards maximizing
shareholder value. Additionally, provide a counterargument towards these critics’
arguments. ENDTERM (p.205)
- The corporations only CSR is to maximize shareholder value, its only focus is to make
them happy and maximize profit illegally and immorally as long as it stays within the
rules of the game.
Critisicm: they don’t care about the stakeholders and they should use them as tools in the
eyes of Friedman. And anything is justified in the realization of profits.
Managers can create more profit if they treat others well.
Counter to criticism: he is not saying commit fraud but stay in terms of law
3. In “The error of the Heart of Corporate Leadership,” Joseph L. Bower and Lynn S.
Paine point out that the shareholder primacy view is inconsistent with corporate
law. Why is this the case? Not Endterm
Shareholders have no accountability for firm behavior.
4. Give two examples of how the agency theory is flawed in the context of social
responsibility, from a legal perspective. (213,214)
1. Shareholders don’t have the same rights as owners in a traditional sense.
2. They don’t have an incentive to care/manage the corporation
3. They have no accountability for firm behavior.
4. There is no shareholder uniformity because they have different objectives and can not
be treated as a single owner.
5. Looking at investor activism described in the Corporate Social Responsibility
Chapter, what are two reasons that ‘value creation’ could actually be a form of value
transfer?
Skipped
6. What can be the (dangerous) result of applying the agency theory too rigidly?
There would be a focus on short-term profits, long term would be neglected. Fewer
innovative business models, only a day-to-day thinking instead of strategy
7. Explain the basic idea behind the “managing for stakeholders” model.
Manage in the interest of stakeholders instead of primacy on shareholders. The managers
should care for these relationships.
8. What is the primary responsibility of the executive in the “managing for
stakeholders” model? Prob not endterm (223,226)
To create as much value for stakeholders and when there are conflicts they should rethink
the problems so all interests go together.
9. Explain “The Argument from Consequences” in light of the managing for
stakeholders model. Explain how Adam’s Smiths idea of the invisible hand aligns or
contradicts with this argument.
Managing for stakeholders might produce better consequences for all stakeholders as it
recognizes that all interests are interjoined. Otherwise other stakeholders might group up.
10. Which of the following is a positive consequence of the industrial revolution?
C) Increase in creativity, ideas, and scientific progress
11. Explain how the industrial revolution is related to the income gap between
company owners and the working class.
Because of machines, jobs were taken from workers which caused a gap.
12. What is the relationship between the IVCESCR and the ILO? Secondly, what are the
things that the ILO have been organizing / offering? Irrelevant as not binding
The goal of ilo is to protect labour rights
13. Which of the following is NOT one of the tests used by the Irish courts to determine
the nature of a labour contract?
A) Control test
B) Integration test
C) Economic reality test
D) Hierarchical test
14. What are the arguments for and against the implementation of a minimum wage?
Discuss the potential benefits and drawbacks of a minimum wage on the economy
and the labour market. Prob not on Endterm
The working class will more likely spend more money which improves the economy, which
creates jobs and opportunities. The government will have to spend less on social security
systems which helps because less need for income by gov so less taxes.
Employees might earn an amount that exceeds their economic value which leads to
economic obstruction which leads to unemployment which leads to more people
depending on social benefits. Consumer prices will go up as the company has to pay
more for production -> sales drop -> economy obstructed.
15. Explain the concept of indirect discrimination in labour law. Secondly, use the
example of a company requiring all employees to work a set schedule from 9 am to
5 pm, and explain how this policy could indirectly discriminate against employees
with caregiving responsibilities. Finally, suggest potential remedies to avoid
indirect discrimination in this scenario.
When a non-discriminatory regulation has a discriminatory effect to some employees.
so the policy may not be intentionally be discriminatory but it disproportionately affects
employees in this case single parents etc.
3 forms of discrimination:
Direct, indirect and affirmative action
16. Jim runs his sole proprietorship and is specialized in advising corporations on
Corporate Governance Strategies. He is hired by Netflix for a period of already four
years as an external expert. His advisory role for Netflix takes up to 78% of his
entire workload and makes up 85% of his income. He advises the management
board, so he does not really have a superior within the organization. At some point
Jim and Netflix argue about what kind of employment relationship applies between
them. They want to bring their case to court.
What would be the legal employment relationship between Jim and Netflix
according to common law assuming the court applies the control test, the
integration test and the economic reality test?
Yes according to the tests
17. Assessing the safety of the working place is part of:
A) The right to organize and collective bargaining
18. To offer some counterweight to the power position of employers, the right of
employees to use their collective strength is recognized in most industrialized
countries. What do these collective labour rights include?
To form trade unions, to strike, to bargain collectively