Hostname: page-component-cd9895bd7-lnqnp Total loading time: 0 Render date: 2024-12-25T14:16:05.288Z Has data issue: false hasContentIssue false
  • English
  • Français

Participation versus Consent: Should Corporations Be Run according to Democratic Principles?1

Published online by Cambridge University Press:  10 April 2015

Stefan Hielscher ,
Markus Beckmann  and
Ingo Pies
Stefan Hielscher
Affiliation:
Martin-Luther-University, Halle-Wittenberg
Markus Beckmann
Affiliation:
Friedrich-Alexander-University, Erlangen-Nuremberg
Ingo Pies
Affiliation:
Martin-Luther-University, Halle-Wittenberg
Get access Rights & Permissions [Opens in a new window]

Abstract:

The notion of “democracy” has become a much-debated concept in scholarship on business ethics, management, and organization studies. The strategy of this paper is to distinguish between a principle of organization that fosters participation (type I democracy) and a principle of legitimation that draws on consent (type II democracy). Based on this distinction, we highlight conceptual shortcomings of the literature on stakeholder democracy. We demonstrate that parts of the literature tend to confound ends with means. Many approaches employ type I democracy notions of participation and often take for granted that this also improves type II democratic legitimation. We hold this to be a mistake. We provide examples of the ambiguity of organizational procedures and show that under some circumstances a decrease in the degree of participation may actually increase legitimation because a governance structure that results in higher productivity can provide higher benefits for all parties involved, serve their interests and therefore meet their agreement. Less type I democracy may mean more type II democracy. We believe this to be an important insight for judging (and further improving) the legitimacy of both capitalistic firms and competitive markets.

Keywords

democracystakeholder theorylegitimacyconstitutional economicsconsentparticipation
Type
Articles
Information
Business Ethics Quarterly , Volume 24 , Issue 4 , October 2014 , pp. 533 - 563
Copyright
Copyright © Society for Business Ethics 2014

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Alchian, A.A., and Demsetz, H.. 1972. “Production, Information Costs, and Economic Organization,” American Economic Review 62: 777–95.Google Scholar
Bäckstrand, K. 2006. “Democratizing Global Environmental Governance? Stakeholder Democracy after the World Summit on Sustainable Development,” European Journal of International Relations 12(4): 467–98. http://dx.doi.org/10.1177/1354066106069321CrossRefGoogle Scholar
Bainbridge, R. 2008. The New Corporate Governance in Theory and Practice. Oxford York: Oxford University Press. http://dx.doi.org/10.1093/acprof:oso/9780195337501.001.0001CrossRefGoogle Scholar
Barro, R.K., and Gordon, D.. 1983. “Rules, Discretion and Reputation in a Model of Monetary Policy,” Journal of Monetary Economics 12: 101–21. http://dx.doi.org/10.1016/0304-3932(83)90051-XCrossRefGoogle Scholar
Beckmann, M. 2010. Ordnungsverantwortung. Rational-Choice als ordonomisches Forsc-hungsprogramm. Berlin: Wissenschaftlicher Verlag Berlin.Google Scholar
Beckmann, M., Hielscher, S., and Pies, I.. 2014. “Governance Strategies for Corporate Sustainability: How Business Firms Can Transform Trade-Offs into Win-Win Outcomes,” Business Strategy and the Environment 23: 18–37. http://dx.doi.org/10.1002/bse.1758CrossRefGoogle Scholar
Blair, M.M. 1999. “Firm-Specific Human Capital and Theories of the Firm,” in Employees and Corporate Governance, ed. Blair, M.M. and Roe, M.J., 58–90. Washington, D.C.: The Brookings Institution.Google Scholar
Blair, M.M., and Stout, L.A.. 1999. “A Team Production Theory of Corporate Law,” Virginia Law Review 85: 247–328. http://dx.doi.org/10.2307/1073662CrossRefGoogle Scholar
Blanc, S., and Al-Amoudi, I.. 2013. “Corporate Institutions in a Weakened Welfare State: A Rawlsian Perspective,” Business Ethics Quarterly 23(4): 497–525. http://dx.doi.org/10.5840/beq201323438CrossRefGoogle Scholar
Boatright, J.R. 2004. “Employee Governance and the Ownership of the Firm,” Business Ethics Quarterly 14(1): 1–21. http://dx.doi.org/10.5840/beq20041416CrossRefGoogle Scholar
Boatright, J.R. 2011. “The Implications of the New Governance for Corporate Governance,” in Corporate Citizenship and New Governance, ed. Pies, I. and Koslowski, P.. Dordrecht: Springer, 133–146. http://dx.doi.org/10.1007/978-94-007-1661-2_8CrossRefGoogle Scholar
Boatright, J.R. 2014. Ethics in Finance. Malden, Mass.: Wiley-Blackwell.Google Scholar
Brenkert, G.G. 1992. “Freedom, Participation and Corporations: The Issue of Corporate (Economic) Democracy,” Business Ethics Quarterly 2: 251–69. http://dx.doi.org/10.2307/3857532CrossRefGoogle Scholar
Brennan, G., and Buchanan, J.M. 1985. The Reason of Rules: Constitutional Political Economy. London: Cambridge University Press.Google Scholar
Buchanan, J.M. 1965. “Ethical Rules, Expected Values, and Large Numbers,” Ethics 76(1): 1–13. http://dx.doi.org/10.1086/291559CrossRefGoogle Scholar
Buchanan, J.M. 1987. “Constitutional Economics,” in The New Palgrave Dictionary of Economics, vol. 1: 585–88.Google Scholar
Buchanan, J.M. 1995. “Individual Rights, Emergent Social States, and Behavioral Feasibility,” Rationality and Society 7(2): 141–50. http://dx.doi.org/10.1177/1043463195007002002CrossRefGoogle Scholar
Buchanan, J.M. 2000. The Limits of Liberty: Between Anarchy and Leviathan. The Collected Works of James M. Buchanan. Indianapolis: Liberty Fund.Google Scholar
Buchanan, J.M., and Tullock, G.. 1962. The Calculus of Consent: Logical Foundations of Constitutional Democracy. Ann Arbor: University of Michigan Press.Google Scholar
Campbell, D.E. 2006. Incentives: Motivation and the Economics of Information. Cambridge: Cambridge University Press. http://dx.doi.org/10.1017/CBO9780511617430CrossRefGoogle Scholar
Courpasson, D., and Dany, F.. 2003. “Indifference or Obedience? Business Firms as Democratic Hybrids,” Organization Studies 24(8): 1231–60. http://dx.doi.org/10.1177/01708406030248001CrossRefGoogle Scholar
Cukierman, A. 2010. Central Bank Strategy, Credibility, and Independence: Theory and evidence. Cambridge, Mass.: MIT Press.Google Scholar
Cutler, A.C. 2001. “Critical Reflections on the Westphalian Assumptions of International Law and Organization: A Crisis of Legitimacy,” Review of International Studies 27: 133–50. http://dx.doi.org/10.1017/S0260210500001339CrossRefGoogle Scholar
Dahl, R.A. 1985. A Preface to Economic Democracy. Berkeley: University of California Press.CrossRefGoogle Scholar
Driver, C., and Thompson, G.. 2002. “Corporate Governance and Democracy: The Stakeholder Debate Revisited,” Journal of Management and Governance 6: 111–30. http://dx.doi.org/10.1023/A:1015721819591CrossRefGoogle Scholar
Dryzek, J. 2000. Deliberative Democracy and Beyond: Liberals, Critics, Contestations. Oxford: Oxford University Press.Google Scholar
Fetter, F.A. 1905. The Principles of Economics: With Applications to Practical Problems. New York.Google Scholar
Friedman, M. 1970. “The Social Responsibility of Business Is to Increase Its Profits.” The New York Times Magazine (13 September).Google Scholar
Gintis, H. 1989. “Financial Markets and the Political Structure of the Enterprise,” Journal of Economic Behavior and Organization 11: 311–22. http://dx.doi.org/10.1016/0167-2681(89)90032-2CrossRefGoogle Scholar
Gomez, P.-Y., and Korine, H.. 2005. “Democracy and the Evolution of Corporate Governance,” Corporate Governance: An International Review 13(6): 739–51. http://dx.doi.org/10.1111/j.1467-8683.2005.00467.xCrossRefGoogle Scholar
Gray, R.H., Dey, C., Owen, D.L., Evans, R., and Zadek, S.. 1997. “Struggling with the Praxis of Social Accounting: Stakeholders, Accountability, Audits and Procedures,” Accounting, Auditing and Accountability Journal 10(3): 325–64. http://dx.doi.org/10.1108/09513579710178106CrossRefGoogle Scholar
Greenberg, E.S. 1986. Workplace Democracy: The Political Effects of Participation. Ithaca, N.Y.: Cornell University Press.Google Scholar
Habermas, J. 2001. The Postnational Constellation. Cambridge, Mass.: MIT Press.Google Scholar
Hansmann, H. 2000. The Ownership of Enterprise. Cambridge, Mass.: Harvard University Press.Google Scholar
Harrison, J.S., and Freeman, R.E.. 2004. “Is Organizational Democracy worth the Effort?,” Academy of Management Executive 18(39): 49–53. http://dx.doi.org/10.5465/AME.2004.14776168Google Scholar
Heath, J. 2011. “Business Ethics and the ‘End of History’ in Corporate Law,” Journal of Business Ethics 102, suppl. 1: 5–20. http://dx.doi.org/10.1007/s10551-011-1192-3CrossRefGoogle Scholar
Henderson, D. 2004. The Role of Business in the Modern World: Progress, Pressures and Prospects for the Market Economy. London: The Institute of Economics Affairs.Google Scholar
Hirschman, A.O. 1970. Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge, Mass.: Harvard University Press.Google Scholar
Homann, K. 1988. Rationalitat und Demokratie. Tübingen: Mohr Siebeck.Google Scholar
Hsieh, N. 2008. “Workplace Democracy, Workplace Republicanism and Economic Democracy,” Revue de Philosophie Economique 9(1): 57–78.Google Scholar
Hussain, W. 2012. “Nurturing the Sense of Justice: The Rawlsian Argument for Democratic Corporatism,” in Property-Owning Democracy: Rawls, and Beyond, , ed. O’Neill, M. and Williamson, T., 180–200. Malden, Mass.: Wiley-Blackwell. http://dx.doi.org/10.1002/9781444355192.ch9CrossRefGoogle Scholar
Hutt, W.H. 1940. “The Concept of Consumers’ Sovereignty,” The Economic Journal 50(197): 66–77. http://dx.doi.org/10.2307/2225739CrossRefGoogle Scholar
Jensen, M.C. 2002. “Value Maximization, Stakeholder Theory, and the Corporate Objective Function,” Business Ethics Quarterly 12: 235–56. http://dx.doi.org/10.2307/3857812CrossRefGoogle Scholar
Kerr, J.L. 2004. “The Limits of Organizational Democracy,” Academy of Management Executive 18(3): 81–97. http://dx.doi.org/10.5465/AME.2004.14776172Google Scholar
Klein, B., Crawford, R.G., and Alchian, A.A.. 1978. “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process,” Journal of Law and Economics 21: 297–326. http://dx.doi.org/10.1086/466922CrossRefGoogle Scholar
Kreps, D.M. 1990. “Corporate Culture and Economic Theory,” in Perspectives on Positive Political Economy, ed James, E. Alt and Kenneth, A. Shepsle, 90–143. Cambridge: Cambridge University Press. http://dx.doi.org/10.1017/CBO9780511571657.006Google Scholar
Kydland, F.E., and Prescott, E.C.. 1977. “Rules Rather than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy 85: 473–91. http://dx.doi.org/10.1086/260580CrossRefGoogle Scholar
Leijonhufvud, A. 2007. “The Individual, the Market and the Division of Labor in Society,” Capitalism and Society 2(2), Article 3.Google Scholar
Matten, D., and Crane, A.. 2005a. “Corporate Citizenship: Towards an Extended Theoretical Conceptualization,” Academy of Management Review 30: 166–79. http://dx.doi.org/10.5465/AMR.2005.15281448Google Scholar
Matten, D. 2005b: “What Is Stakeholder Democracy? Perspectives and Issues,” Business Ethics: A European Review 14(1): 6–13. http://dx.doi.org/10.1111/j.1467-8608.2005.00382.xGoogle Scholar
McCall, J.J. 2001. “Employee Voice in Corporate Governance: A Defense of Strong Participation Rights,” Business Ethics Quarterly 11: 195–213. http://dx.doi.org/10.2307/3857877CrossRefGoogle Scholar
McMahon, C. 1994. Authority and Democracy: A General Theory of Government and Management. Princeton, N.J.: Princeton University Press.Google Scholar
Mises, L.v. 1962. The Free and Prosperous Commonwealth: An Exposition of the Ideas of Classical Liberalism. Princeton, N.J.: Van Nostrand.Google Scholar
Moriarty, J. 2009. “Rawls, Self-Respect, and the Opportunity for Meaningful Work,” Social Theory and Practice 35(3): 441–59. http://dx.doi.org/10.5840/soctheorpract200935325Google Scholar
Moriarty, J. 2012. “The Connection Between Stakeholder Theory and Stakeholder Democracy: An Excavation and Defense,” Business and Society. Published online 1 April 2012. http://dx.doi.org/10.1177/0007650312439296Google Scholar
Müller-Jentsch, W. 2008. “Industrial Democracy: Historical Development and Current Challenge,” Management Revue 19(4): 260–73.Google Scholar
Murphy, K.M., Shleifer, A., and Vishny, R.W.. 1993. “Why Is Rent-Seeking So Costly to Growth?,” The American Economic Review 83(2): 409–14.Google Scholar
O’Dwyer, B., 2005. “Stakeholder Democracy: Challenges and Contributions from Social Accounting,” Business Ethics: A European Review 14(1): 28–41. http://dx.doi.org/10.1111/j.1467-8608.2005.00384.xCrossRefGoogle Scholar
Olson, M. 1965. The Logic of Collective Action. Cambridge, Mass.: Harvard University Press.Google Scholar
Palazzo, G., and Scherer, A.G.. 2006. “Corporate Legitimacy as Deliberation. A Communicative Framework,” Journal of Business Ethics 66: 71–88. http://dx.doi.org/10.1007/s10551-006-9044-2CrossRefGoogle Scholar
Palazzo, G. 2008. “Corporate Social Responsibility, Democracy, and the Politicization of the Corporation,” Academy of Management Review 33: 77375. http://dx.doi.org/10.5465/AMR.2008.32465775CrossRefGoogle Scholar
Parker, C. 2002. The Open Corporation: Effective Self-Regulation and Democracy. Cambridge: Cambridge University Press. http://dx.doi.org/10.1017/CBO9780511550034CrossRefGoogle Scholar
Pateman, C. 1970. Participation and Democratic Theory. Cambridge: Cambridge University Press. http://dx.doi.org/10.1017/CBO9780511720444CrossRefGoogle Scholar
Phillips, R. 2003. Stakeholder Theory and Organizational Ethics. San Francisco: Berrett-Koehler Publishers.Google Scholar
Pies, I., Beckmann, M., and Hielscher, S.. 2010. “Value Creation, Management Competencies, and Global Corporate Citizenship: An Ordonomic Approach to Business Ethics in the Age of Globalization,” Journal of Business Ethics 94: 265–78. http://dx.doi.org/10.1007/s10551-009-0263-1CrossRefGoogle Scholar
Pies, I. 2011. “Competitive Markets, Corporate Firms, and New Governance-An Ordonomic Conceptualization,” in Corporate Citizenship and New Governance, ed. Pies, I. and Koslowski, P., 171–88. Dordrecht: Springer.CrossRefGoogle Scholar
Pies, I. 2014. “The Political Role of the Business Firm: An Ordonomic Re-Conceptualization of an Aristotelian Idea,” Business & Society 53(2): 226–59. http://dx.doi.org/10.1177/0007650313483484CrossRefGoogle Scholar
Pies, I., Hielscher, S., and Beckmann, M.. 2009. “Moral Commitments and the Societal Role of Business: An Ordonomic Approach to Corporate Citizenship,” Business Ethics Quarterly 19: 372–401.CrossRefGoogle Scholar
Popper, K.R. 1966. “The Autonomy of Sociology,” in The Open Society and Its Enemies, vol. 2: Hegel and Marx, 89–99. New York: Harper.Google Scholar
Rawls, J. 1993. Political Liberalism. New York: Columbia University Press.Google Scholar
Scharpff, F. 1999. Governing in Europe: Effective and Democratic? New York: Oxford University Press.CrossRefGoogle Scholar
Schelling, T.C. 1984. “Economic Reasoning and the Ethics of Politics,” in Choice and Consequence. Cambridge, Mass.: Harvard University Press.Google Scholar
Scherer, A.G., and Palazzo, G.. 2007. “Toward a Political Conception of Corporate Responsibility: Business and Society Seen from a Habermasian Perspective,” Academy of Management Review 32: 1096–1120. http://dx.doi.org/10.5465/AMR.2007.26585837CrossRefGoogle Scholar
Scherer, A.G. 2011. “The New Political Role of Business in a Globalized World: A Review of a New Perspective on CSR and Its Implications for the Firm, Governance, and Democracy,” Journal of Management Studies 48(4): 899–931. http://dx.doi.org/10.1111/j.1467-6486.2010.00950.xCrossRefGoogle Scholar
Scherer, A.G., Palazzo, G., and Baumann, D.. 2006. “Global Rules and Private Actors. Towards a New Role of the TNC in Global Governance,” Business Ethics Quarterly 16: 502–32. http://dx.doi.org/10.5840/beq200616446CrossRefGoogle Scholar
Schneider, A., and Scherer, A.G.. 2010. Globalization and the Political Role of the Firm: Implications for Corporate Governance. IOU Working Paper No. 118, Zürich.Google Scholar
Stout, L. 2012. Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public. San Francisco: Berrett-Koehler Publishing.Google Scholar
Suchman, M.C. 1995. “Managing Legitimacy: Strategic and Institutional Approaches,” Academy of Management Review 20(3): 571–610.CrossRefGoogle Scholar
Thompson, G.F. 2005. “Global Corporate Citizenship: What Does it Mean?,” Competition & Change 9(2): 131–52. http://dx.doi.org/10.1179/102452905X45418CrossRefGoogle Scholar
Thompson, G.F. 2008. “The Interrelationship between Global and Corporate Governance: Towards a Democratization of the Business Firm?,” in Handbook of Research on Corporate Citizenship, ed. Scherer, A.G. and Palazzo, G., 476–98. Cheltenham: Edward Elgar Publishing.Google Scholar
Turnbull, S. 1994. “Stakeholder Democracy: Redesigning the Governance of Firms and Bureaucracies,” The Journal of Socio-Economics 23(3): 321–60. http://dx.doi.org/10.1016/1053-5357(94)90007-8CrossRefGoogle Scholar
Webb, S., and Webb, J.. 1897. Industrial Democracy. London: Longmans, Green.Google Scholar
Williamson, O. 1985. The Economic Institutions of Capitalism. New York: Free Press.Google Scholar
Willke, H., and Willke, G.. 2008. “Corporate Moral Legitimacy and the Legitimacy Of Morals: A Critique of Palazzo/Scherer’s Communicative Framework,” Journal of Business Ethics 81: 27–38. http://dx.doi.org/10.1007/s10551-007-9478-1CrossRefGoogle Scholar
Young, I.M. 2004. “Responsibility and Global Labor Justice,” Journal of Political Philosophy 12: 365–88. http://dx.doi.org/10.1111/j.1467-9760.2004.00205.xCrossRefGoogle Scholar
Zingales, L. 2000. “In Search of New Foundations,” Journal of Finance 55: 1623–53. http://dx.doi.org/10.1111/0022-1082.00262CrossRefGoogle Scholar