¹ See, generally, Kenneth E. Goodpaster, “Business Ethics and Stakeholder Analysis,” Business Ethics Quarterly 1 (1991): 53–73; Kenneth E. Goodpaster and Thomas Holloran, “In Defense of a Paradox,” Business Ethics Quarterly 4 (1994): 423–429. I shall employ the term “managers” throughout as a shorthand for the officers and directors of firms. I trust no argument will turn on this generic use of the term “managers” and that its use will make my exposition less cumbersome than would frequent recourse to the less felicitous “officers and directors.”

² See John R. Boatright, “Fiduciary Duties and the Shareholder-Management Relation: Or, What’s So Special About Shareholders?” Business Ethics Quarterly 4 (1994): 393–407, and the favorable reception of same in R. Edward Freeman, “The Politics of Stakeholder Theory: Some Future Directions,” Business Ethics Quarterly 4 (1994): 409–421, 413.

³ The intended target of this argument is Boatright, who argues that the fiduciary duties historically owed to shareholders from managers are not morally deep, but instead find their way into the law as a matter of what will make society in general better off. See, generally, his “Fiduciary Duties and the Shareholder-Management Relation,” op. cit.

⁴ Some accounts of narrowly-interpreted stakeholder theory include managers in this list, as well. Whether they may be subsumed by the “employees” heading or must be regarded as a separate constituency of the firm is a matter that need not detain us here. I trust that no argument offered here will turn on whether or not managers constitute a separate stakeholder group.

⁵ The “coordinating” characterization is found in William M. Evan and R. Edward Freeman, “A Stakeholder Theory of the Modern Corporation: Kantian Capitalism,” in Ethical Theory and Business, Tom L. Beauchamp and Norman Bowie, eds., 3rd ed., (Englewood Cliffs, N.J., 1988), 103; and Freeman, “The Politics of Stakeholder Theory,” op. cit., 413. The “balancing” characterization is found in Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” Academy of Management Review 20 (1995): 65–91, 79. The “trading-off” characterization is found in Goodpaster, “Business Ethics and Stakeholder Analysis,” op. cit., 61.

⁶ Some refer to the stakeholder theory as “multi-fiduciary” in scare quotes, as I have done here (see, e.g., Goodpaster, “Business Ethics and Stakeholder Analysis,” op. cit.), suggesting the view that the stakeholder theory is not fiduciary in character. Others employ the term with out scare quotes (see, e.g., Freeman, “The Politics of Stakeholder Theory,” op. cit.), suggesting that the stakeholder theory extends truly fiduciary duties to non-shareholding stakeholders.

⁷ They write:

Management bears a fiduciary relationship to stakeholders and to the corporation as an abstract entity. It must act in the interests of the stakeholders as their agent, and it must act in the interests of the corporation to ensure the survival of the firm, safeguarding the longterm stakes of each group.… [This] we might call The Stakeholder Fiduciary Principle… (Evan and Freeman, “A Stakeholder Theory of the Modern Corporation,” op. cit., 103–104).

⁸ “Fiduciary,” in Black’s Law Dictionary, 5th ed. (St. Paul, Minn.: West, 1979), 563.

⁹ Thus, fiduciary relations can be represented in first-order predicate calculus by sentences of the form ‘Fpqr’, where p holds or administers r for q’s benefit in an F way.

¹⁰ That the fiduciary must also place the beneficiary’s interests ahead of those of third parties is obvious because were the fiduciary to subordinate only his own interests to those of the beneficiary, but not those of third parties, then there would be no sense in which the beneficiary (or class of beneficiaries) is treated any differently than third parties. The fiduciary would not have entered into any special relationship with the supposed beneficiary, but rather would merely have made an altruistic commitment to the world at large not to pursue his own interests over the project or asset he manages.

¹¹ Evan and Freeman are perfectly aware of this point. They write:

[M]anagement, especially top management, must look after the health of the corporation, and this involves balancing the multiple claims of conflicting stakeholders. Owners want more financial returns, while customers want more money spent on research and development. Employees want higher wages and better benefits, while the local community wants better parks and daycare facilities. (“A Stakeholder Theory of the Modern Corporation,” op. cit., 103, emphasis added.)

I say most everyone recognizes this because there exist at least some adherents of the stakeholder theory who regard conflicts among the interests of the various stakeholders in a firm as rare. See, e.g., Lee E. Preston and Harry J. Sapienza, “Stakeholder Management and Corporate Performance,” Journal of Behavioral Economics 19 (1990): 361–375, cited approvingly in Thomas W. Dunfee and Thomas Donaldson, “Contractarian Business Ethics: Current Status and Next Steps,” Business Ethics Quarterly 5 (1995): 173–186, 183.

¹² John Hasnas, “The Normative Theories of Business Ethics: A Guide for the Perplexed,” Business Ethics Quarterly 8 (1998): 19–43, 39 n. 32.

¹³ Freeman, “The Politics of Stakeholder Theory,” op. cit., 410, emphasis added.

¹⁴ I say “apparent” because although the language of consequentialist weighing and balancing is most often employed by those advancing the stakeholder theory, none explicitly regards the theory as consequentialist in character. Evan and Freeman (“A Stakeholder Theory of the Modern Corporation,” op. cit.) conceive of the stakeholder theory as essentially Kantian—an implication and application of the practical imperative. The more recent Freeman (“The Politics of Stakeholder Theory,” op. cit.) and (sometimes) Donaldson (Donaldson and Preston, “The Stakeholder Theory of the Corporation,” op. cit.) see their stakeholder-theoretic projects within the tradition of rights theory. In a more recent paper, Donaldson and Dunfee, “Integrative Social Contracts Theory: A Communitarian Conception of Economic Ethics,” Economics and Philosophy 11 (1995): 85–112, see their project as contractarian, but, as the title indicates, yielding a “communitarian conception of economic ethics.” In other words, by all accounts the stakeholder theory functions in a consequentialist manner, but its partisans advance theoretical bases for it that range all over the map of non-consequentialist ethical theories.

¹⁵ This, apparently, is Boatright’s view. See, generally, “Fiduciary Duties and the Shareholder-Management Relation,” op. cit. Of course, this would require Evan and Freeman to jettison, or at least rename, their Stakeholder Fiduciary Principle.

¹⁶ Matter of Heilman’s Estate, 37 Ill. App.3d 390, 345 N.E.2d 536, 540.

¹⁷ Williams v. Griffin, 35 Mich. App. 179, 192 N.W.2d 283, 285.

¹⁸ Schweikhardt v. Chessen, 161 N.E. 118, 123, 329 Ill. 637.

¹⁹ Patton v. Shelton, 40 S.W.2d 706, 712, 328 Mo. 631.

²⁰ Robert Goodin, Protecting the Vulnerable (Chicago: University of Chicago Press, 1985).

²¹ Goodin, Protecting the Vulnerable, op. cit., 62.

²² Charles Fried, “The Lawyer as Friend: the Moral Foundations of the Lawyer-Client Relation,” Yale Law Journal 85 (1976): 1060–1089, 1077.

²³ The discussion here is borrowed from James W. Child and Alexei M. Marcoux, “Stakeholder Theory’s Ephemeral Normative Core,” presented at the Society for Business Ethics session, Central Division Meetings of the American Philosophical Association, Pittsburgh, April 24, 1997.

²⁴ Indeed, Goodin treats it as such, writing that in his consideration of professional obligations he “shall continue to look to the law as the principal guide to our settled moral intuitions…” (Protecting the Vulnerable, op. cit., 62).

²⁵ I am indebted to Elaine Sternberg for these observations.

²⁶ Kenneth Arrow, “Government Decision Making and the Preciousness of Life,” in Ethics of Health Care, L. R. Tancredi, ed. (Washington, D.C.: National Academy of Sciences, 1974), 33–47, 37, quoted in Goodin, Protecting the Vulnerable, op. cit., 66 n. 35.

²⁷ Although, as Goodin notes, it may give rise to an obligation on the part of a professional providing fiduciary services to avoid driving hard bargains in contracting out their services and to avoid declining to serve those who might be left helpless without the professional’s services (Protecting the Vulnerable, op. cit., 67).

²⁸ M. D. Bayles, Professional Ethics (Belmont, Calif.: Wadsworth, 1981), 69, quoted in Goodin, Protecting the Vulnerable, op. cit., 66–67.

²⁹ This discussion intentionally leaves unanswered a number of interesting conceptual and practical puzzles that attend the fiduciary relation. These puzzles form the basis of another project by the present author.

The Anglo-American law generally conceives of fiduciary duties as requiring that the fiduciary maximize for the beneficiary. That is, within the scope of the project over which the fiduciary owes fiduciary duties to the beneficiary, the fiduciary is obligated to make her best efforts to maximize for the beneficiary, subject to the legitimate legal claims of others (e.g., a fiduciary cannot steal from another for the benefit of the beneficiary). This requirement of constrained maximization in the interests of the beneficiary poses no apparent difficulty if the fiduciary has only a single beneficiary and a single project. Many professionals, however, are in the business of providing fiduciary services for multiple beneficiary-clients. The typical personal injury attorney, for example, carries a caseload of 200–300 cases, making her a fiduciary for some 200–300 people over some 200–300 separate projects. Medical doctors typically have many regular patients. Surely, the fiduciary duties of lawyers and doctors to one client do not bar them from serving the interests of other clients. As such, the constrained maximization interpretation of fiduciary relations is not as straightforward as it might first appear. Among the side-constraints on maximizing for a beneficiary are not only the legitimate claims of non-beneficiaries (e.g., not to be thieved from), but also the positive claims of other beneficiaries on the time and resources of the fiduciary. How do we reconcile the legitimate claims of other beneficiaries with the idea that the fiduciary is a constrained maximizer of the interests of the beneficiary?

Similarly, fiduciaries, like normal people, presumably may rest, take vacations, attend to their families, and the like, using for these purposes time that could be spent in the service of one or another of their beneficiaries. How are we to reconcile these legitimate pursuits with the constrained maximization model of fiduciary relations?

In other words, the fiduciary relation is ripe for a detailed conceptual treatment, one that takes important steps towards an account of the bounds within which the fiduciary must maximize for the beneficiary—an account that is consistent with the prevalent practice of professional fiduciaries serving many beneficiaries over many projects, as well as being consistent with the concept of exerting reasonable (as opposed to super-human) efforts on behalf of one’s beneficiaries.

³⁰ This is one way to read Boatright’s argument in “Fiduciary Duties and the Shareholder-Management Relation,” op. cit.

³¹ Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law (Cambridge, Mass.: Harvard University Press, 1991).

³² Easterbrook and Fischel, The Economic Structure of Corporate Law, op. cit., 90–91.

³³ Easterbrook and Fischel, The Economic Structure of Corporate Law, op. cit., 90.

³⁴ Easterbrook and Fischel, The Economic Structure of Corporate Law, op. cit., 90–91.

³⁵ Easterbrook and Fischel, The Economic Structure of Corporate Law, op. cit., 93.

³⁶ Gochenour v. George & Francis Ball Foundation, D.C. Ind., 35 F. Supp. 508, 515 (emphasis added).

³⁷ See, e.g., Freeman and Evan, “Corporate Governance: a Stakeholder Interpretation,” Journal of Behavioral Economics 19 (1990): 337–359, 340–342; Boatright, “Fiduciary Duties and the Shareholder-Management Relation,” op. cit., 396.

³⁸ I owe this observation to Jim Child.

³⁹ This is one of the strangest aspects of stakeholder theory: it is apparently a theory of the moral obligations of managers that is limited to firms doing business in the publicly-traded corporate form. As such, stakeholder theorists might object to ABC Corporation’s decision to close its plant in Fort Wayne, Indiana, on the grounds that it failed to consider properly the interests of employees and the community in reaching that decision. However, were the managers of to take ABC private (e.g., as a closely-held corporation or limited partnership) before reaching that decision, stakeholder theorists—according to their own theory—have no grounds upon which to object. Why the legal form assumed by ABC should determine the propriety of closing its Fort Wayne plant is a mystery.

Apparently, I am not alone in this concern. An earlier iteration of the Wharton Ethics Program website reveals that stakeholder theory’s exclusive focus on the corporate form is an area of interest and concern for Thomas W. Dunfee, who is generally sympathetic to the stakeholder theory.

⁴⁰ “Corporate Governance: A Stakeholder Interpretation,” op. cit., 342–344. Boatright advances similar arguments (“Fiduciary Duty and the Shareholder-Management Relation,” op. cit., 396), although not for the purpose of advocating stakeholder representation on boards.

⁴¹ Note that the argument is not that the relationship of nonshareholding stakeholders to the firm is morally empty. The argument I advance is perfectly consistent with the view that firms have obligations—perhaps negative, perhaps positive, perhaps both—to nonshareholding stakeholders. I deny only that those obligations are or should be fiduciary, i.e., that they include advancing the interests of non-shareholding stakeholders as the object of managerial action. As such, managers may have extensive obligations to non-shareholding stakeholders, but they must stand as side constraints on the pursuit of the interests of shareholders—a pursuit that is morally obligatory via fiduciary obligations owed to shareholders. (For the seminal discussion of side constraints, see Robert Nozick, Anarchy, State and Utopia [New York: Basic Books, 1974], 28–35.)

It is this constrained maximization view of the moral obligations of managers to stakeholders that I take to be anathema to, and the principal competitor of, stakeholder theory, for it is the one which Freeman most strongly criticizes in a recent article:

The mythology of laissez-faire capitalism is unfortunately easily propped up by arguments that claim, of course managers have the same moral obligations that you and I have, even if they disregard them in favor of invisible hand explanations. Economists, business theorists and evidently some business ethi-cists think that it is enough to see morality as a side-constraint on the maximization of stockholder wealth, justifiable only if a greater good or other moral end is served. (“The Politics of Stakeholder Theory,” op. cit., 411–412.)

It is also the view advanced by Child and Marcoux, “Stakeholder Theory’s Ephemeral Normative Core,” op. cit.

⁴² The same analysis applies to debt-holders, who are for all intents and purposes ordinary suppliers, albeit of debt capital. Unlike employees and ordinary suppliers, debt-holders typically do invest everything up front. However, like employees and other suppliers, they may readily discover whether the firm is holding up its end of the bargain and they have legal recourse if it does not.

⁴³ Easterbrook and Fischel, The Economic Structure of Corporate Law, op. cit., 90.

⁴⁴ Easterbrook and Fischel write that, “Fiduciary principles are uncommon in contractual relations” (The Economic Structure of Corporate Law, op. cit., 90).

⁴⁵ Margaret Blair, Ownership and Control (Washington, D.C.: Brookings 1995), and others argue that employees and suppliers make asset-specific investments in the firm and that this constitutes a vulnerability that justifies a claim to management in behalf of their interests. Assuming, for the sake of argument, that this is true, why does this legitimate vulnerability give rise to claims that firms be managed in employees’ and suppliers’ behalf? Why does it not merely give rise to certain threshold claims on the firm, e.g., to notice and/or severance before closing a plant or terminating a supply arrangement? How does such reliance justify a blank check on (or equal participation in) managerial care and concern?

⁴⁶ This paper was presented at the Society for Business Ethics Annual Meeting in San Diego, 1998. It has benefitted considerably from discussion with, and suggestions from, John Boatright, Jim Child, John Hasnas, Elaine Sternberg, and Sean Whyte.