The Unjust Authority Approach to the Firm

Abstract

Certain acts of employer authority are prima facie morally wrong and therefore in need of a justificatory criterion. I establish three forms of employer authority that can be judged: authority in, out and via the workplace. I reject a possible egalitarian criterion and look to the Market-Failure Approach to business ethics for a more convincing criterion that is in line with market logic. The approach appeals to transaction cost theory to explain the existence of employer authority. However, the moral logic underlying it denotes that competitive behaviour in the market is only justified if it exists in the spirit of the Pareto principle; it follows that employer authority within the firm is only justified if it exists in the spirit of the reason for the existence of the firm. That reason, according to transaction cost theory, is to combat uneconomical transaction costs. This line of argument allows for a justificatory criterion for employer authority within market logic: acts of authority are only legitimate and uncoercive if they are exerted in the spirit of cutting transaction costs; unjustified acts of employer authority constitute a transaction-cost reduction failure. I test the three forms of employer authority against the criterion and finally suggest a list of tentative guidelines for avoiding transaction-cost reduction failures.