BUSINESS ETHICS AND THE THEORY OF THE FIRM

The contractual or nexus of contracts theory df the firm, which is wid ely accepted in financial economics and legal theory, has a normative structure that can provide a framework for identifying and analyzing m any business ethics problems and for devising solutions to those probl ems. Specifically, the contractual theory of the firm focuses on the n eed to safeguard the assets that each constituency brings the nexus of contracts, and many ethical problems result from inadequate safeguard ing of the assets of a particular constituency. Business ethics proble ms can be identified within the contractual framework as wrongful harm s, misallocations, and misappropriations. Solutions include tort remed ies, the expansion of management responsibility, and political action, including regulation. However, the theory of the firm does not addres s all business ethics problems, particularly those involving large eco nomic and social forces outside the firm. Nevertheless, the contractua l theory has sufficient explanatory power that it should be seriously considered by researchers in business ethics.