The ethics of leveraged management buyouts revisited

Although previous ethical analyses of management buyouts have presented useful insights, they have been flawed in three major ways. First, they define the transaction too narrowly, emphasizing the going private aspect and ignoring the leveraged aspect. Leveraging alters the nature of the transaction substantially and warrants additional ethical analysis. Second, these previous analyses ignore the impact of buyouts on non-stockholder constituents of the firm, an omission which renders their implicit utilitarian approach incomplete. Third, these analyses do not include Rawlsian, libertarian, or Kantian perspectives on ethics. This paper addresses these shortcomings and finds the ethical status of leveraged management buyouts to be highly suspect. Thomas M. Jones is a Professor of Organization and Environment in the School of Business Administration at the University of Washington in Seattle. He has written on such subjects as business ethics, corporate social responsibility, corporate governance, boards of directors, shareholder litigation, and business and society paradigms. His work has appeared in the Academy of Management Review, California Management Review, Boston University Law Review and the Hastings Law Journal.Reed O. Hunt, III is currently working for the Seattle Office of Peterson Consulting Limited Partnership, a national business dispute resolution consulting firm.