This article examines the way that for-profit businesses should take into account the interests of the citizens in the liberal democratic societies in which they operate. I will show how a contractualist version of stakeholder theory identifies the relevant moral interests of both shareholders and citizen stakeholders, and provides a method for giving their interests appropriate consideration. These include (1) the interests that individuals have with respect to private property, (2) the interests citizens have in receiving equitable consideration in the political process, and (3) citizens’ interests which give them the collective right to determine the legal and economic structure of their societies. Using this contractualist analysis, I argue that corporations should consciously take into account the interests of citizen stakeholders when there is no other social mechanism for protecting their interests as citizens.
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The principal text here is Scanlon (1998).
I thank a referee for noting that companies can politically advocate on behalf of some stakeholders such as customers who want low prices and against workers who want higher wages. Companies may be advocating in good faith but not be particularly good at balancing the competing interests, especially when one set aligns with the interests of stockholders or managers.
For a review of Exxon’s efforts to undermine evidence concerning global warming, see Mufson (2007).
One can also hope to find restraints on corporate political activity in Friedman's appeal to social custom. But his general tenor is against government regulation, for low taxation and against calls for intentionally pro-social behavior on the part of business. The first two elements weigh toward requiring businesses to refrain from advocating for unnecessary privileges or the establishment of lucrative government programs. The last element weighs toward businesses having no restraints at all in seeking profits through political activity.
Freeman has worked to downplay the differences between his view and Friedman’s. See, for example, Freeman and Phillips (2002) and Freeman (2008a). In this latter paper, Freeman admits a frustration with the failure of the Freeman–Friedman debates to create value for stakeholders. Despite his pragmatist desire to move past this debate Freeman still acknowledges differences between the stockholder and stakeholder approaches, and arguably papers over further significant differences.
I mean “interests” here in a broad sense. Someone whose rights are at stake in a company’s actions has a distinctive kind of interest. Likewise for the shareholder who has an ownership stake in a company. Successfully managing for stakeholders involves understanding not just who has an interest in the company but on the kind of interest and what moral relevance that kind of interest has.
As a pragmatist, Freeman deliberately avoids committing to a justification of Stakeholder Theory; however, he does observe that if primary stakeholders’ interests are not adequately met the company will eventually suffer. He notes that “in a small business if you don’t manage your stakeholders every day, I don’t think you’re around for very long, large companies are basically harder to kill and so you can ignore some stakeholders for a while and it will take a while for that process to catch up with you but catch up with you it will.” (Freeman 2008b).
Freeman rejects the idea that there is a “moral bedrock” for business. He holds that “Finding such bedrock…is especially fruitless on pragmatist grounds for there are no foundations for either business or ethics. All we have is our own history, culture, institutions, and our imaginations.” (1994, p. 418).
This comports with an earlier understanding associated with Freeman. He argues that there are normatively legitimate stakeholders other than equity shareholders. (Phillips et al. 2003, p. 481) I agree with this less pragmatic understanding of stakeholder theory.
See Scalia’s dissent in Austin (1990).
It is outside the scope of this article to defend contractualism as a general moral theory or as the correct underpinning of business ethics and stakeholder theory. Let me make two points, though: any general moral theory can provide the moral foundations for business ethics, and could possibly count as a version of stakeholder theory. One can also seek theoretical underpinnings that are special for business ethics. Other things being equal one should aim for a general theory. Contractualism stands against utilitarianism, the other great general theory of morality. Contractualists aim to articulate and defend the idea that the separateness of persons matters, and that our interests may not simply be aggregated and maximized. Contractualists maintain both that it provides sufficient content to generate results, and that these results are more intuitively plausible than those generated by utilitarianism. For a full defense of contractualism (see Scanlon 1998).
See Scanlon (1998) for a more formal statement of the account: “According to contractualism, when we address our minds to a question of right and wrong, what we are trying to decide is…whether certain principles are ones that no one if suitably motivated, could reasonably reject.” (p. 189) Shortly later, he states that “our thinking about right and wrong is structured by…the aim of finding principles that others, insofar as they too have this aim, could not reasonably reject.” (p. 191).
I will not attempt to address here the morality of capitalism itself; however, I think there is a plausible contractualist case that capitalist economies are so much more productive than alternative economic arrangements that their citizens are qualitatively better off as rational self-governors.
I should qualify that this is a reasonable basis of objection only if there is some other social distribution of resources where everyone who did what could reasonably be asked of them could live decent lives. I take it that this is possible in many contemporary liberal democracies.
In 2007, nearly half of all personal bankruptcies in the United States were due in part to the costs of medical emergencies. See Himmelstein et al. (2009).
This point was famously made by Rawls (1971) when he recognized that the first principle to be chosen from behind the veil of ignorance was the principle of equal liberties.
Once the rights of individuals are defined and protected, the equal consideration of interests requires the principle of majority rule, except when doing so systematically disfavors the interests of some citizens. The idea here is that the principle of majority rule is a principle that cannot be reasonably rejected—unless it systematically discounts the interests of some. In that case, some modification of the principle of majority rule is in order. For a contractualist defense of the principle that the greater number is morally significant, see Kumar (2001).
See Scalia’s views referenced above in Austin (1990).
In discussing political finance reform Beitz (1990, p. 212) argues: “The speaker interest in uninhibited expression is counterpoised against voter interests in conditions of effective and responsible citizenship.”
As Christiano (1996, p. 254) puts it: “Until the moment when voting for representatives becomes necessary, the democratic process ought to be primarily a process of discussion and rational persuasion. It ought to promote the need of citizens to become informed about their interests as well as the interests of others and the claims of justice. The function of interest groups and political parties in this process is to contribute to discussion and persuasion.”
Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990).
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Silver, D. Citizens as Contractualist Stakeholders. J Bus Ethics 109, 3–13 (2012). https://doi.org/10.1007/s10551-012-1375-6
- Democratic theory
- Political philosophy
- Stakeholder theory