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Stakeholder Theory and A Principle of Fairness

Published online by Cambridge University Press:  23 January 2015

Robert A. Phillips
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Abstract:

Stakeholder theory has become a central issue in the literature on business ethics/business and society. There are, however, a number of problems with stakeholder theory as currently understood. Among these are: 1) the lack of a coherent justificatory framework, 2) the problem of adjudicating between stakeholders, and 3) the problem of stakeholder identification. In this essay, I propose that a possible source of obligations to stakeholders is the principle of fairness (or fair play) as discussed in the political philosophic literature of Rawls, Simmons, and Cullity among others. The principle of fairness states that, “Whenever persons or groups of persons voluntarily accept the benefits of a mutually beneficial scheme of co-operation requiring sacrifice or contribution on the parts of the participants and there exists the possibility of free-riding, there exist obligations of fairness on the part of these persons or groups to co-operate in proportion to the benefits accepted.” In this essay I discuss the gaps in the current stakeholder literature, elucidate and defend a principle of fairness that fills the gap, compare the fairness model to other similar models of business ethics, and draw some conclusions for the future of stakeholder theory.

Type
Articles
Information
Business Ethics Quarterly , Volume 7 , Issue 1 , January 1997 , pp. 51 - 66
Copyright
Copyright © Society for Business Ethics 1977

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References

Notes

1 I wish to thank, Thomas Dunfee, R. Edward Freeman, John Rowan, A. John Simmons, and Patricia Werhane for reading earlier drafts of this essay and making helpful comments. I am also grateful to the Darden School at the University of Virginia for their financial support.

2 The term is obviously a play on the word shareholder and the immediate implications are obvious. Although many have investigated the subject before and since, the seminal treatment of stakeholder theory remains R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman Publishing Inc., 1984). See also Business Ethics Quarterly, 4 (4), Oct. 1994 for some more recent work on the subject.

3 Thomas Donaldson, The Ethics of International Business, (New York: Oxford University Press, 1989), p. 45.

4 Freeman, Strategic Management., p 25.

5 Ibid., p. 46.

6 See A.K. Sen, On Ethics and Economics, (Oxford: Basil Blackwell, 1987) for a good discussion of the distinction between “well-being” and “agency” considerations.

7 Freeman, ibid., 1984

8 Mark Starik, “Should Trees Have Managerial Standing? Toward Stakeholder Status for Non-Human Nature,” Journal of Business Ethics, 14 (1995) pp. 207-17.

9 H.L.A. Hart, “Are There Any Natural Rights?” Philosophical Review 64, (April, 1955).

10 John Stuart Mill, On Liberty (OL), 1859 (Cambridge: Cambridge University Press, 1989), p. 103f.

11 John Rawls, A Theory of Justice, (Cambridge, MA: The Belknap Press of Harvard University Press, 1971) , pp. 108-117, 333-355 and “Legal Obligation and the Duty of Fair Play,” in S. Hook (ed.) Law and Philosophy, (New York University Press, 1964). A. John Simmons Moral Principles and Political Obligations (Princeton, NJ: Princeton University Press, 1979), pp. 101-42. Kent Greenawalt, Conflicts of Law and Morality, (New York: Oxford University Press, 1987), pp. 121-158). George Klosko, The Principle of Fairness and Political Obligation (Lanham, MD: Rowman & Littlefield Publishers, Inc., 1992) and Klosko, “Presumptive Benefit, Fairness, and Political Obligation,” Philosophy and Public Affairs 16 (1987), pp. 241-259. Garrett Cullity, “Moral Free Riding,” Philosophy and Public Affairs 24 (1), pp. 3-34.

12 Rawls, “Legal Obligation...”, ibid., pp. 9-10.

13 This first pass will rely heavily on Simmons’ critique of the same work.

14 Adam Smith, The Wealth of Nations, 1776, ed. D.D. Raphael & A.L. Macfie. (Oxford: Oxford University Press), 1976. Reprinted Indianapolis, IN: Liberty Classics, 1982.

15 Rawls, TJ, p. 343.

16 For a discussion of the implications of property rights for the stakeholder model, see Thomas Donaldson and L.E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” Academy of Management Review, 20(1), pp. 65- 91.

17 See Cullity, ibid., for an excellent summary treatment on free-riding

18 See for example Simmons, ibid.

19 Robert Nozick, Anarchy State, and Utopia, (Basic Books, 1974), pp. 90-95.

20 These represent Simmons’ criteria for having accepted a benefit in the sense appropriate to the principle of fairness. See Simmons, ibid., p. 129.

21 Nozick, ibid., p. 95, Nozick’s emphasis.

22 Simmons, ibid., and Greenawalt, ibid., use similar examples.

23 See Thomas Donaldson and Thomas W. Dunfee, “Integrative Social Contracts Theory: A Communitarian Conception of Economic Ethics”, Economics and Philosophy 11, pp. 85-112 and “Toward a Unified Conception of Business Ethics: Integrative Social Contracts Theory,” Academy of Management Review, 18(2), pp. 252-84.

24 Donaldson and Dunfee, “Integrative Social Contracts Theory...” ibid., p. 99.

25 Ibid., p. 101.

26 On this distinction see Simmons, ibid., pp. 88ff.

27 Donaldson and Dunfee, ibid., p. 101.

28 Ibid., p. 100n17.

29 Joint ventures between firms that are usually competitors would likely be an exception to this rule. Such ventures between competitors are relatively rare, however and do not affect the generality of the argument against stakeholder status for competitors.

30 John Stuart Mill, On Liberty, chapter 5, (1859), (Cambridge: Cambridge University Press, 1989), p. 95.

31 Andrea Larson, “Network Dyads in Entrepreneurial Settings: A Study of Exchange Relationships”, Administrative Science Quarterly 37 (1992), pp. 76-104.

32 Ibid., p. 77.

33 JÅrgen Habermas, “Discourse Ethics: Notes on a Program of Philosophical Justification” Moral Consciousness and Communicative Action, Christian Lenhardt and Shierry Weber Nicholsen (trans.), (Cambridge, MA: The MIT Press, 1990), p. 66, Habermas s emphasis. See also Habermas, The Theory of Communicative Action, Thomas McCarthy (trans.), (Boston: Beacon Press, 1984, 1987) and Seyla Benhabib and Fred Dallmayr (eds.), The Communicative Ethics Controversy, (Cambridge, MA: The MIT Press).

34 R. Edward Freeman, Personal Correspondence.

35 This is an example of a monological method that is critiqued as insufficient by Habermas.

36 Jerry M. Calton, Legitimizing Stakeholder Voice: The Normative Argument for Institutionalizing Moral Discourse,” 1996 Proceedings of the International Association of Business and Society.