The claim that managers have a fiduciary duty to shareholders to run the corporation in their interests is generally supported by two arguments: that shareholders are owners of a corporation and that they have a contract or agency relation with management. The latter argument is used by Kenneth E. Goodpaster, who rejects a multi-fiduciary, stakeholder approach on the grounds that the shareholder-management relation is “ethically different” because of its fiduciary character. Both of these arguments provide an inadequate basis for the fiduciary duties of officers and directors of corporations. The basis is to be found, rather, in considerations of public policy, a point that was established in the Dodd-Berle exchange of the 1930s. This conclusion also shows the inadequacy of Goodpaster’s solution to the so-called stakeholder paradox, and an alternative solution to the paradox is presented.

The purpose of this paper is to enter the conversation about stakeholder theory with the goal of clarifying certain foundational issues. I want to show, along with Boatright, that there is no stakeholder paradox, and that the principle on which such a paradox is built, the Separation Thesis, is nicely self-serving to business and ethics academics. If we give up such a thesis we find there is no stakeholder theory but that stakeholder theory becomes a genre that is quite rich. It becomes one of many ways to blend together the central concepts of business with those of ethics. Rather than take each concept of business singly or the whole of “business” together and hold it to the light of ethical standards, we can use the stakeholder concept to create more fine-grained analyses that combine business and ethics; or more simply, we can tell many more, and more interesting, stories about business.

Our approach in this response is as follows. In § 1, we try to identify accurately Boatright’s central claims—both about Goodpaster’s original paper and about matters of substance independent of that paper. In § 2 and 3, we discuss the plausibility of those claims, first from a legal point of view and then from a moral point of view. Finally, in § 4, we defend the concept of paradox (and, in particular, the Stakeholder Paradox) as a limitation on practical reason which is not necessarily to be lamented. In fact, we believe, some paradoxes are better preserved from rather than guided toward resolution.

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.

In the canonical view of the corporation, management is the agent of the owners of the corporation—the stockholders—and, as such, has a fiduciary duty to manage the corporation in their best interests. Most business ethicists condemn this arrangement as morally indefensible because it fails to respect the right of other corporate constituencies or “stakeholders” to self-determination. By contrast, the modern agency theory of the firm provides a defense of this arrangement on the grounds that it is the result of stakeholders’ right to self-determination. This paper uses the example of managers’ fiduciary duty to stockholders to argue that different normative judgments often mask empirical disagreements.

The paper suggests replacing the shareholder/stakeholder distinction with a “Dual-Investor” model of business: stockowners provide the specific capital for business ventures, while society provides the “opportunity capital.” Thus society is an investor in every business venture. Dual-Investor theory provides a response (based purely on the ethics of investment) to Milton Friedman’s arguments that executives should maximize profit by any legal means, avoids recent criticisms by Kenneth Goodpaster and Thomas McMahon, and suggests that the dichotomy between private and public ownership overlooks several important alternatives. Some consequences of the theory are detailed and a sketch of a theory of property, based on Dual-Investor theory, is appended.

Stakeholder theory has become one of the most important developments in the field of business ethics. While this concept has evolved and gained prominence as a method of integrating ethics into the basic purposes and strategic objectives of the firm, the authors argue that stakeholder theory has retained certain “masculinist” assumptions from the wider business literature that limit its usefulness. The resources of feminist thought, specifically the work of Carol Gilligan, provide a means of reinterpreting the stakeholder concept in a way that overcomes many of the existing limitations. This reading provides a different understanding of the identity and meaning of the firm, specifically in terms of its relationship to stakeholder groups and what it means for a firm to succeed. The alternatives proposed also converge with recent trends in the wider management literature and provide practical guidance for firms which face a myriad of challenges in the increasingly complex and global marketplace.

In mid-1993 a provocative piece on business ethics appeared on the pages of the Harvard Business Review. Andrew Stark’s “What’s the Matter with Business Ethics?” (1993a) found plenty wrong with business ethics, arguing that the product served up to managers and potential managers by traditional ethicists in their articles and classrooms is without practical value. Since it is supposed to be “applied” ethics, he finds something seriously amiss with a business ethics that offers nothing to help a manager resolve moral dilemmas in business. While some “new” ethicists are now beginning to appear, ethicists who are willing to get their hands dirty and acknowledge the legitimacy of normal business practices, the traditional ethicists continue to dominate the field and continue to offer a product unable to satisfy the manager’s needs. According to Stark, “[Business ethicists] have been too preoccupied with absolutist notions of what it means for managers to be ethical, with overly general criticisms of capitalism as an economic system, with dense and abstract theorizing, and with prescriptions that apply only remotely to managerial practice” (1993a, p.38). Or, as he puts it in a more detailed discussion, traditional business ethics fails because it is a deadly combination of “too general,” “too theoretical,” and, worst of all, “too impractical” (1993a, p.44). In short, the “old” approach is idealistic and academic, irrelevant to the rough-and-tumble of real business.