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Stakeholder Theory, Fact/Value Dichotomy, and the Normative Core: How Wall Street Stops the Ethics Conversation

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Abstract

A review of the stakeholder literature reveals that the concept of “normative core” can be applied in three main ways: philosophical justification of stakeholder theory, theoretical governing principles of a firm, and managerial beliefs/values influencing the underlying narrative of business. When considering the case of Wall Street, we argue that the managerial application of normative core reveals the imbedded nature of the fact/value dichotomy. Problems arise when the work of the fact/value dichotomy contributes to a closed-core institution. We make the distinction between open- and closed-core institutions to show how in the case of the closed-core, ethical decision-making is viewed by the institution as a separate domain from the core business of the institution. The resulting blind spot stifles meaningful exchanges with stakeholders attempting to address the need for reform. We suggest in conclusion that ethical considerations are less about casting a value judgment and more about creating a process for meaningful conversation throughout an institution and its stakeholders.

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Notes

  1. Some critics of stakeholder theory call for a more specific use of the term “stakeholder” and a prescribed method for how it is applied to specific strategic or ethical contexts (Orts and Strudler 2009), without which the theory fails by its own vague ambition. In our interpretation, this commentary ignores the normative work of stakeholder theory by repeating the logic of the separation fallacy and clinging to a singular notion of business that we do not find useful as description or prescription, much less as a practical managerial mindset.

  2. That the separation fallacy is also diagnostic of weaknesses in ethics writ large is a longer and more complex argument to be addressed in future papers.

  3. This transcript is from the Hearing on the: “Credibility of Credit Ratings, the Investment Decisions Made Based on Those Ratings, and the Financial Crisis” Wednesday, June 2, 2010 The New School 55 West 13th Street, New York, New York. Available online from http://fcic.law.stanford.edu/hearings/testimony/credibility-of-credit-ratings-the-investment-decisions. Video record of the testimony is also available online from the same site.

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  1. Darden School of Business, University of Virginia, Charlottesville, VA, USA

    Lauren S. Purnell & R. Edward Freeman

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  1. Lauren S. Purnell
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  2. R. Edward Freeman
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Correspondence to Lauren S. Purnell.

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Purnell, L.S., Freeman, R.E. Stakeholder Theory, Fact/Value Dichotomy, and the Normative Core: How Wall Street Stops the Ethics Conversation. J Bus Ethics 109, 109–116 (2012). https://doi.org/10.1007/s10551-012-1383-6

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