Abstract
The most recent restatements of stakeholder theory formulate that approach in terms of the distribution of value: “A stakeholder approach to business is about creating as much value as possible for stakeholders, without resorting to tradeoffs” (Freeman et al. 2010: 28). This formulation marks a shift from earlier work, which included a procedural dimension—a requirement that stakeholders participate in organization decision making. The present paper pushes back against this shift: it argues that orienting the stakeholder approach around the participation requirement provides for a different moral logic, one not available to (now) conventional stakeholder theorizing (without that requirement), and one that may be more compelling to many. This argument requires critical re-examination of the moral arguments offered in the most recent restatements of the stakeholder approach.
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Notes
Another telling example: Between 2006 and 2010, the investment bank Goldman Sachs assured investors that, “Our reputation is one of our most important assets. As we have expanded the scope of our business and our client base, we increasingly have to address potential conflicts of interest, including situations where our services to a particular client or our own proprietary investments or other interests conflict, or are perceived to conflict, with the interest of another client.” And: “We have extensive procedures and controls that are designed to identify and address conflicts of interest.” And, most important, Goldman said, “our client’s interests always come first.”
Goldman during this period, leading up to the 2008–2009 financial crisis, sold securities that had been constructed to fail to benefit a hedge fund. In 2011, Goldman acknowledged that it provided “incomplete information” to investors and paid a $550 million penalty. But that payment did not provide compensation to customers who lost money, so the Arkansas Teacher Retirement System lead a group of investors and sued Goldman for $13 billion—alleging that the bank violated these stated commitments to customers.
The case was argued at the U.S. Supreme Court in spring 2021. The plaintiffs’ case depended on a technical point in the law about corporate representations to stockholders; news accounts reported that some of the Court justices were confused by the issues at stake. What is relevant here—and striking—is this: Goldman Sach’s lawyers argued that those explicit commitments to customers created no substantive obligations on the firm’s part, they were instead “exceptionally generic and aspirational statements.” So, Goldman doesn’t seem to think that putting its own interests ahead of customers would hurt the company; Goldman doesn’t think the profit-oriented approach is doomed to failure, at least not economic failure; and that firm tends to be a good judge of such things. See Bravin 2021 and Liptak 2021.
The Business Roundtable endorsed the stakeholder approach to business in 2019, 181 member CEOs from the largest corporations operating in the United States signed the statement. Here some see endorsement of the stakeholder approach, recognition (at least) of its instrumental benefits. This is not clear: Recently, two Harvard Business School professors studied Roundtable signatories’ corporate governance guidelines. They found that none of the signatories updated those guidelines to reflect a change in the status of stakeholder concerns, demonstrating lack of intention to reorient decision making around stakeholder considerations. And the companies’ compensation systems support their conclusion: “most of the companies [signatories to the Roundtable statement] still have guidelines that explicitly align the interests of directors and stockholders. In contrast, no company’s compensation practices or guidelines link director compensation with stakeholder interests. The strong alignment of director pay with stock price sends a clear signal that shareholder value is the object directors are expected or pursue” (Bebchuk and Tallarita 2021).
Separately, Robert Reich (2021) documents the hypocrisy in Jamie Dimon’s claims to be practicing stakeholder management (Dimon is CEO of J.P. Morgan Chase, and he initiated the Business Roundtable statement while serving as Chairman of that organizations). Reich’s analysis is required reading for anyone taking the Roundtable statement at face value.
At multiple points, across a number of publications including the (2010) restatement, Freeman and collaborators reject the so-called separation thesis, the idea that economic and ethical considerations are distinct in the context of business practice. The main text first presented instrumental arguments for the stakeholder approach and at this point turns to moral argument, so the main text might seem to endorse separation. But note: Freeman and collaborators allow that arguments can be made from one perspective or the other; Freeman and collaborators themselves make instrumental economic arguments (“doomed to failure”), and they also make separate moral arguments involving different “normative cores” (more on these in the main text, in a moment). The present paper follows their practice. This practice allows that instrumental economic decisions and actions will have moral effect, and vice versa.
To be sure, evolutionary arguments for this suggestion are tempting, and these might be modern versions of Aristotle’s arguments about what is “natural.” For example, across a long series of comparative experiments on small children and primates, Michael Tomasello (2009) has shown that humans evolved special skills in order to engage in cooperative behavior. And we can read Tomasello as suggesting that humans are distinct in engaging in (what he calls, following Tuomela) we-mode cooperation—acting with others for cooperative as opposed to strictly individual reasons. The suggestion in the main text is consistent with this line of research, but the evolutionary arguments are dangerous, we don’t want to associate all evolved capacities with the human good. At the same time, however, the evolutionary account provides a psychological explanation for why human beings are frustrated when put in non-cooperative environments—those environments frustrate deep instincts.
Alfano (2015) uses this kind of example, with latitude and longitude, in a different context.
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Cohen, M.A. Reconstructing the Moral Logic of the Stakeholder Approach, and Reconsidering the Participation Requirement. Philosophy of Management 22, 293–308 (2023). https://doi.org/10.1007/s40926-022-00227-y
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DOI: https://doi.org/10.1007/s40926-022-00227-y