Introduction to Symposium on Capitalism, Corporations and the Social Contract: A Critique
of Stakeholder Theory
Samuel Mansell
I’d like to begin by thanking Pedro Francés-Gómez and Lorenzo Sacconi for organising this
symposium on my book. I’m also grateful to the audience for coming to participate in the
discussion. The central question addressed by the book is: in whose interests should a
corporation be run? In other words, what is the ultimate purpose of the corporation? This
question is worth asking because of the widely held belief that recent corporate scandals have
resulted from a mistaken ideology called ‘shareholder value theory’. This is the idea that
corporations should be run exclusively in the interests of shareholders, rather than for the
benefit of any other stakeholder group, and that what shareholders desire is the maximisation
of the financial value of their investment (see Friedman, 1970). My book engages with the
possibility of alternatives to this normative position. It therefore asks whose interests should
count in the determination of corporate aims.
Who is to decide the purpose of the
corporation, and what should that purpose be? To whom, and for what, should directors be
accountable?
When considering answers to these questions, there are those, most notably perhaps Joel
Bakan (2004) in his book The Corporation, who hold that in a broadly free-market capitalist
system a corporation in anything like its current form cannot be the site of genuine
responsibility or accountability. The solution to these questions would therefore entail an
overhaul of the very concept of the corporation, or of the economic system in which it
operates. Though many hold to this position, my interest is in an alternative view known as
‘stakeholder theory’. This theory received its major impetus from R Edward Freeman’s
(1984) Strategic Management: A Stakeholder Approach and has since flourished as an idea in
the fields both of strategic management and business ethics. Stakeholder theorists claim that
without any radical changes to the way corporations are structured as legal persons, or to the
basic ethical framework of a capitalist economy, a corporation can be run to create as much
value as possible, not merely for shareholders, but for all its primary stakeholders: customers,
employees, suppliers, financiers and communities, all of whom are assumed to have a ‘stake’
or vested interest in the success of the firm (Freeman et al, 2010). And ‘value’ here means
not just financial value but the well-being or happiness of these stakeholders, and stakeholder
theorists have proposed various measures for capturing stakeholder happiness in nonfinancial terms (Harrison and Wicks, 2013).
How do stakeholder theorists justify the view that management should be accountable to all
stakeholders, and not merely to shareholders? One type of justification is an explicitly
pragmatist line of argument: i.e., it’s impossible to maximise the value created for any one
stakeholder group without creating as much value as possible for all the other stakeholder
groups. Whatever the purpose of an individual firm, it is just good business to create as much
as value as possible for all stakeholders without resorting to trade-offs, and this should be the
proper focus for the management of any business (Freeman, 2011). However, I argue that
there are categories of stakeholders (whether or not one calls them ‘stakeholders’) whose
interests and well-being may be affected by what a corporation does, but whom a corporation
does not rely upon for its immediate profitability and survival. For example, a corporation
could create value for its employees, suppliers, financers, etc, while ignoring its impact on
future generations or non-human nature, for example. We therefore need to look beyond
strategic pragmatism to the moral justifications given for a corporate purpose that
encompasses the interests of particular stakeholders and demarcates the stakeholder interests
that count, in determining corporate objectives, from those that do not.
A range of ethical theories are employed by stakeholder theorists, the most common being
from the field of political philosophy: namely, the social contract. In this tradition of political
theory, which dates back to the work of Thomas Hobbes and John Locke in the 17th century,
Jean-Jacque Rousseau and Immanuel Kant in the 18th century, and more recently John
Rawls’s work A Theory of Justice (1999), it is held that all citizens of a state have an identical
interest in consenting to the existence of that state and to the rule of a sovereign power that is
able to keep peace among them and thus secure the life and property of every citizen. It can
be asked on what terms free, equal and independent members of society would agree to this
contract; the most extensive answer to this question appears in John Rawls’s A Theory of
Justice, with the use of his so-called ‘veil of ignorance’, which is designed to represent
equality between human beings as moral persons.
Here it is assumed, as a thought-
experiment, that individuals are ignorant of their class position or social status, their natural
abilities, their conception of the good, their risk preferences, the level of culture of their
society, or the generation to which they belong. Behind this ‘veil of ignorance’, individuals
must decide once and for all what is to count among them as just or unjust, and Rawls’s aim
is to deduce exactly what rational individuals would agree to under such conditions.
Many stakeholder theorists, whose arguments I analyse in the book, take Rawls as their
inspiration and consider the corporation to be a contract between employees, customers,
suppliers, financiers and local communities placed behind a veil of ignorance (e.g.,
Donaldson, 1982; Freeman and Evan, 1990; Freeman, 1994; Sacconi, 2006). Management
are then authorised to run the firm in the joint interest of all the relevant stakeholders, in
accordance with the terms that these stakeholders would rationally accept as conditions for
the contract. If one accepts this argument, at least in outline, then it is a short step from here
to see the corporation as a democracy of all its stakeholders.
The major question I try to answer in my book is whether this theoretical approach, along
with several others that stakeholder and CSR theorists have proposed (e.g. Phillips, 2003),
can provide a justified alternative to shareholder value theory. Even if these arguments can
be argued to fail, and accountability to a range of stakeholders for pursuit of the corporate
purpose has not received adequate justification, then it can still be asked whether
shareholders have a moral obligation to hold managers to account, not merely for maximising
the financial value of that investment, but also for the effects of the firm’s activity on the
well-being of its stakeholders (Mansell, 2013). So that’s what the book is about, and to find
out how well I have answered these questions, I’ll now hand over to Lorenzo and Pedro.
Thanks very much.
References
Bakan, J. (2004) The Corporation: The Pathological Pursuit of Profit and Power. London.
Constable
Donaldson, T. (1982) Corporations and Morality. New Jersey. Prentice-Hall
Freeman, R. (1984) Strategic Management: A Stakeholder Approach. London. Pitman
Freeman, R. (1994) The Politics of Stakeholder Theory: Some Future Directions. Business
Ethics Quarterly, 4 (4): 409-421.
Freeman, R. (2011) Managing for Stakeholders: Trade-offs or Value Creation. Journal of
Business Ethics, 96: 7-9.
Freeman, R. and Evan, W. (1990) Corporate governance: A stakeholder interpretation.
Journal of Behavioural Economics, 19 (4): 337-360.
Freeman, R., Harrison, J., Wicks, A., Parmar, B., de Colle, S. (2010) Stakeholder Theory:
The State of the Art. Cambridge University Press.
Friedman, M. (September 13, 1970) The social responsibility of business is to increase its
profits. New York Times Magazine.
Harrison, J. and Wicks, A. (2013), Shareholder Theory, Value, and Firm Performance.
Business Ethics Quarterly, 23 (1): 97-124.
Phillips, R. (2003) Stakeholder Theory and Organizational Ethics. San Francisco. BerretKoehler Publishers, Inc.
Mansell, S. (2013) Shareholder Theory and Kant’s ‘Duty of Beneficence’. Journal of
Business Ethics,
Rawls, J. (1999) A Theory of Justice Revised ed. Oxford. Oxford University Press.
Sacconi, L. (2006) A Social Contract Account for CSR as an Extended Model of Corporate
Governance (I): Rational Bargaining and Justification. Journal of Business Ethics, 68 (3):
259-281.