Private Sector Intervention

PRIVATE SECTOR INTERVENTION
The prevailing view among most economists and business scholars is that corporate directors
have a fiduciary duty to maximize profits for shareholders. While this view underlies many
economic models of firm behavior, its legal basis is actually not very strong. The judicial record,
although supportive of a duty to maximize profits for shareholders, also leaves room for the
possibility that firms may sacrifice profits in the public interest. The courts’ deference towards
the judgment of businesspeople -- the “business judgment rule” -- prevents many public-minded
managerial actions from being legally challenged. Simply because the legal system may allow
firms to sacrifice profits in the social interest does not mean that firms can do so on a sustainable
basis in the face of competitive pressures. As a means of correcting market failures firms may
utilize/engage in the following:
1. Corporate Code of Conduct- Companies have something called a code of ethics that
outlines how they will run their business. Sometimes they refer to this as their code of
conduct. There aren’t always laws to govern things like ethics. Therefore, it is up to
companies to define some of their ethical behavior. A code of ethics is a guide of
principles designed to help professionals conduct business honestly and with integrity. A
code of ethics document may outline the mission and values of the business or
organization, how professionals are supposed to approach problems, the ethical principles
based on the organization's core values and the standards to which the professional will
be held.
2. Corporate Social Responsibilities- Corporate social responsibility (CSR) can be defined

as the "economic, legal, ethical, and discretionary expectations that society has of
organizations at a given point in time". The concept of corporate social responsibility
means that organizations have moral, ethical, and philanthropic responsibilities in
addition to their responsibilities to earn a fair return for investors and comply with the
law. A traditional view of the corporation suggests that its primary, if not sole,
responsibility is to its owners, or stockholders. However, CSR requires organizations to
adopt a broader view of its responsibilities that includes not only stockholders, but many
other constituencies as well, including employees, suppliers, customers, the local
community, local, state, and federal governments, environmental groups, and other
special interest groups.
3. Voluntary Agreements- This is a term often applied to describe agreements wherein

companies’ agreement to meet objectives related to environmental impacts. It therefore,
represents an agreement between firms and regulators in which firms voluntarily commit
to actions that improve the natural environment. The regulator encourages and or
supervises these actions. VAs may be divided into three categories:
a) Public Voluntary Programme- involves commitments designed by the
environmental agency and in which individual firms are invited to participate. These
are seen as optional agreements since participation is voluntary.
b) Negotiated agreement- involves commitment for environmental protection

developed through bargaining between a public authority and industry. They are
frequently signed at the national level and industry sector and a public authority.
These tend to be formal but not legally bending.
c) Unilateral Agreements- set by the industry independently without any involvement

of public authority. It however, may include a third party for monitoring or validation,
thereby establishing the credibility created through participation of an authority.
4. Corporate ethics- After a company has met these basic requirements, a company can
concern itself with ethical responsibilities. Ethical responsibilities are responsibilities that
a company puts on itself because its owners believe it's the right thing to do -- not
because they have an obligation to do so. Ethical responsibilities could include being
environmentally friendly, paying fair wages or refusing to do business with oppressive
countries, for example.

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PRIVATE SECTOR INTERVENTION

2. Corporate Social Responsibilities- Corporate social responsibility (CSR) can be defined

3. Voluntary Agreements- This is a term often applied to describe agreements wherein

b) Negotiated agreement- involves commitment for environmental protection

c) Unilateral Agreements- set by the industry independently without any involvement

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