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Business Ethics and Stakeholder Analysis

Published online by Cambridge University Press:  23 January 2015

Kenneth E. Goodpaster
Kenneth E. Goodpaster*
Affiliation:
University of St. Tomas
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Abstract

Much has been written about stakeholder analysis as a process by which to introduce ethical values into management decision-making. This paper takes a critical look at the assumptions behind this idea, in an effort to understand better the meaning of ethical management decisions.

A distinction is made between stakeholder analysis and stakeholder synthesis. The two most natural kinds of stakeholder synthesis are then defined and discussed: strategic and multi-fiduciary. Paradoxically, the former appears to yield business without ethics and the latter appears to yield ethics without business. The paper concludes by suggesting that a third approach to stakeholder thinking needs to be developed, one that avoids the paradox just mentioned and that clarifies for managers (and directors) the legitimate role of ethical considerations in decision-making.

So we must think through what management should be accountable for; and how and through whom its accountability can be discharged. The stockholders’ interest, both short- and long-term, is one of the areas. But it is only one.

Peter Drucker, 1988Harvard Business Review

Type
Articles
Information
Business Ethics Quarterly , Volume 1 , Issue 1 , January 1991 , pp. 53 - 73
Copyright
Copyright © Society for Business Ethics 1991

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References

Notes

This paper derives from a conference in Applied Ethics, Moral Philosophy in the Public Domain, held at the University of British Columbia, in June 1990. It will also appear in an anthology currently in preparation at the UBC Centre of Applied Ethics.

1 Strictly speaking the historical meaning of “stakeholder” in this context is someone who literally holds the stakes during play.

2 See Goodpaster and Piper, Managerial Decision Making and Ethical Values, Harvard Business School Publishing Division, 1989.

3 See Goodpaster, PASCAL: A Framework For Conscientious Decision Making (1989).

4 Actually, there are subtle ways in which even the stakeholder identification or inventory process might have some ethical content. The very process of identifying affected parties involves the use of the imagination in a way that can lead to a natural empathetic or caring response to those parties in the synthesis, choice and action phases of decision-making. This is a contingent connection, however, not a necessary one.

5 Note that including powerless stakeholders in the analysis phase may indicate whether the decision-maker cares about “affecting” them or “being affected by” them. Also, the inclusion of what might be called secondary stakeholders as advocates for primary stakeholders (e.g., local governments on behalf of certain citizen groups) may signal the values that will come into play in any synthesis.

6 It should be mentioned that some authors, most notably Andrews, Kenneth R. in The Concept of Corporate Strategy (Irwin, Third Edition, 1987)Google Scholar employ a broader and more social definition of “strategic” decision-making than the one implied here.

7 Freeman writes: “Theoretically, ‘stakeholder’ must be able to capture a broad range of groups and individuals, even though when we put the concept to practical tests we must be willing to ignore certain groups who will have little or no impact on the corporation at this point in time.” (52–3)

8 Ladd observed in a now-famous essay entitled “Morality and the Ideal of Rationality in Formal Organizations” (The Monist, 54, 1970) that organizational “rationality” was defined solely in terms of economic objectives: “The interests and needs of the individuals concerned, as individuals, must be considered only insofar as they establish limiting operating conditions. Organizational rationality dictates that these interests and needs must not be considered in their own right or on their own merits. If we think of an organization as a machine, it is easy to see why we cannot reasonably expect it to have any moral obligations to people or for them to have any to it.” (507)

9 “Public Obligations of Private Corporations,” U. of Pennsylvania Law Review 114 (1965). Ruder recently (1989) reaffirmed the views in his 1965 article.

10 Business Products Corporation—Part 1,” HBS Case Services 9–377-077.

11 “The Business Judgement Rule” gives broad latitude to officers and directors of corporations, but calls for reasoning on the basis of the long-term economic interest of the company. And corporate case law ordinarily allows exceptions to profit-maximization criteria only when there are actual or potential legal barriers, and limits charitable and humanitarian gifts by the logic of long term self-interest. The underlying rationale is accountability to investors. Recent work by the American Law Institute, however, suggests a rethinking of these matters. See Exhibit 2.

12 (Christopher Elias, “Turning Up the Heat on the Top,” Insight, July 23, 1990).

13 We might consider the NDP in broader terms that would include the relationship between “client” and “professional” in other contexts, such as law, medicine, education, government, and religion, where normally the community's expectations are embodied in ethical standards.

14 Nagel, T., The View from Nowhere, Oxford U. Press (1986), p. 163.Google Scholar