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Stakeholders and the Moral Responsibilities of Business

Published online by Cambridge University Press:  23 January 2015

Bruce Langtry
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Abstract:

This paper discusses the normative ethical theory of the business firm advanced principally by William E. Evan and R. Edward Freeman. According to their stakeholder theory, the firm should be managed for the benefit of its stakeholders: indeed, management has a fiduciary obligation to stakeholders to act as their agent. In this paper I seek to clarify the theory by discussing the concept of a stakeholder and by distinguishing stakeholder theory from two varieties of stockholder theory—I call them ‘pure’ and ‘tinged.’ I argue that the distinctive claims of stakeholder theory, as contrasted with tinged stockholder theories, have been inadequately supported by argument.

Type
Articles
Information
Business Ethics Quarterly , Volume 4 , Issue 4 , October 1994 , pp. 431 - 443
Copyright
Copyright © Society for Business Ethics 1994

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References

Notes

1 R. Edward Freeman, Strategic Management: A Stakeholder Approach, Boston: Pitman, 1984, develops such an approach.

2 William M. Evan and R. Edward Freeman, “A Stakeholder Theory of the Modern Corporation: Kantian Capitalism,” in Tom L. Beauchamp and Norman Bowie, ed., Ethical Theory and Business, third edition, Englewood Cliffs, NJ: Prentice Hall, 1988.

3 A. Sharplin and L. Phelps, “A Stakeholder Apologetic for Management,” Business and Professional Ethics Journal 8, 41–53.

4 Evan and Freeman, op. cit., p. 97.

5 Freeman, Strategic Management, op. cit., p. 46. Freeman’s Chapter 2 traces the history of the term ‘stakeholder.’ Freeman regards the ‘affected by’ condition as of derivative importance. He explains: Groups which 20 years ago had no effect on the actions of the firm can affect it today, largely because of the actions of the firm which ignored the effects on these groups. Thus, by calling those affected groups stakeholders, the ensuing strategic management model will be sensitive to future changes.

6 D3, like D2, is morally neutral. This might be denied, on the grounds that the term causally responsible for is itself to be defined in terms of moral concepts. The objection is mistaken. For there is little reason to suppose that the term causally responsible for is itself defined in terms of moral concepts. (We are considering the common meaning of these terms, and leaving aside questions about their technical meanings in, say, tort law.) H. L. A. Hart and A. M. Honore, Causation and the Law, second edition, Oxford University Press, 1985, consider cases like “The death of the flowers was caused by the gardener’s failure to water them.” Why do we single out the gardener’s inaction, rather than the inaction of other individuals who might have watered the flowers, as the cause of—or as causally responsible for—the death of the flowers? It might be said: in virtue of the fact that the gardener failed to fulfill a moral duty. Hart and Honore reject this analysis (op. cit., pp. 37–38). According to them the gardener’s inactivity is singled out because it is a departure from normal conditions, where these are identified by custom or convention.

Hart and Honore carefully distinguish the ordinary everyday concepts of causing and being causally responsible for from related concepts, such as being liable for and being answerable for. Their work suggests that we cannot expect any simple definitions of our ordinary concepts cause, be causally responsible for etc.

7 Compare D4 with a remark made in passing by Evan and Freeman, op. cit., p. 100: “Corporations have stakeholders, that is, groups and individuals who benefit from or are harmed by, and whose rights are violated or respected by, corporate actions.” This account has flaws similar to those detected in D2; yet it, like D2, can be regarded as an ancestor of D4.

8 Evan and Freeman, op. cit., p. 103.

9 Ibid., p. 103.

10 Ibid., p. 97.

11 Ibid., p. 103.

12 Ibid., p. 103.

13 Of course when Evan and Freeman identify the stakeholder and stockholder theories as the only known starting points for a theory of the firm, they mean “the only known starting points within the assumptions of democratic capitalism.” They do not bother to consider fascist, Marxist and other socialist theories of the firm. This omission is perfectly reasonable in context.

14 Kenneth Goodpaster, ‘Business Ethics and Stakeholder Analysis,’ Business Ethics Quarterly 1 (1991), p. 66.

15 Goodpaster, op. cit., p. 68.

16 Evan and Freeman, op. cit., note 3.

17 Evan and Freeman, op. cit., p. 97.

18 Immanuel Kant, Groundwork of the Metaphysic of Morals, translated in H. J. Paton, The Moral Law, Hutchinson, 1948, p. 91.

19 Ibid., p. 92.

20 For useful discussion see Hardy E. Jones, Kant’s Principle of Personality, University of Wisconsin Press, 1971, and Onora O’Neill, Constructions of Reason, Cambridge University Press, 1989, Chapters 6, 7.

21 A. Sharplin and L. Phelps, ‘A Stakeholder Apologetic for Management,’ Business and Professional Ethics Journal 8, 41–53.

22 Ibid., p. 50.

23 Ibid, p. 51.

24 See Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics 3 (1976), 305–360, and Eugene F. Fama, “Agency Problems and the Theory of the Firm,” Journal of Political Economy 88 (1980), 288–307.

25 Ronald F. Duska, “Why Be a Loyal Agent? A Systemic Ethical Analysis,” in Norman E. Bowie and R. Edward Freeman, eds., Ethics and Agency Theory: An Introduction, Oxford University Press, 1992.

26 The term “side-constraint” was introduced by Robert Nozick, Anarchy, State and Utopia, Oxford: Blackwell, 1974, pp. 28–29.

27 Evan and Freeman, op. cit., p. 103.

28 The most prominent writer talking of a social contract reached under a veil of ignorance is John Rawls, A Theory of Justice, Harvard University Press, 1971.

29 Robert C. Solomon, Ethics and Excellence, Oxford University Press, 1992, p. 180.

30 I thank C. A. J. Coady for some very helpful discussion.