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Alternate Views on the Purpose of Business:
A Resource for Business Ethics Instruction
Gary L. Karns
Professor of Marketing
School of Business & Economics
Seattle Pacific University
3307 Third Ave. W. Ste. 201
Seattle, WA 98119
Tel: 001.206.282.2948
E-mail: gkarns@spu.edu
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Alternate Views on the Purpose of Business:
A Resource for Business Ethics Instruction
ABSTRACT
This paper provides an instructional resource for business educators to help frame a
student discussion of the purpose of business which will contribute to the development of their
business philosophy and their perspectives on business ethics. It is offered as a response to the
numerous calls for a reformed vision of the purpose of business in the wake of many ethics
scandals associated with practices fostered by the shareholder wealth maximization paradigm.
The paper gives a concise overview of the tenets and critiques of the shareholder, stakeholder,
and stewardship paradigms; compares their underlying worldviews and perspectives on business
ethics so students can enter the discussion with a fuller understanding of the approaches; and,
provides discussion questions for student reflection on the purpose of business and their
preferences for the different paradigms. The paper explicates the recently articulated
stewardship paradigm which proposes that the purpose of business is contribute to human
flourishing by serving customers with products and services, employees with creative and
meaningful work and the community; that management practice should follow a positive ethic, a
duty to do as much good as possible; and that business should relate to government and other
social institutions as a partner rather than as an adversary.
INTRODUCTION
Dissatisfaction with the behavior of business has intensified in recent years due to the
many ethical lapses that have occurred. The groundswell of dissatisfaction has included
concerns about the shareholder wealth maximization (SWM) paradigm. It has been asserted that
SWM is morally deficient (Donaldson & Preston, 1995; Freeman, Parmar & Wicks, 2004).
Martin (2010) calls the premise that shareholders and society benefits from maximizing
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shareholder wealth flawed and argues for reinventing the purpose of business. John Mackey
(2009) of Whole Foods, Inc. has said: “What we need is a transformation… We need a deeper,
fundamental reform in the essence of business…” Navarro (2008) echoed this sentiment, calling
on business schools to re-think their teaching about the purpose of business. This paper responds
to this need by providing business students a resource for exploring the purpose of business as
construed by the two main paradigms for business, SWM and stakeholder theory, and a new
Stewardship view offered by Daniels et al (2007).
Foremost among alternative approaches to understanding business is the stakeholder
(SKH) approach (Donaldson & Preston, 1995; Freeman, 1984) which has broad exposure in
contemporary business education. Conscious capitalism, a recent movement within SKH, sees
business as having a purpose deeper than profit maximization.
Bill Gates (2009), co-founder of Microsoft, advocates “creative capitalism” as a potent
vehicle for addressing social needs in partnership with governments and charitable organizations.
Creative capitalism leans on the business argument that the poor can express sufficient demand
to support an appropriately designed business model and that mainstream buyers value the
social-benefits created by socially responsible firms. Yet another re-visioning called “consumer
capitalism” suggests that putting customer satisfaction as the first order of business will pay off
for shareholders over the long run (Martin, 2010).
This paper discusses the worldviews of the SWM, SKH and Daniels et al’s (2007)
recently articulated stewardship or “Another Way of Doing Business” (STW/AWDB) paradigm
in which the purpose of business is to serve customers, employees, and the community with
profit playing an instrumental role. It is intended to serve as a resource for business educators to
help frame an interaction with students on the purpose of business, to contribute to the
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development of their philosophy of business, and to help them clarify their perspectives on
ethical choices in business. It is hoped that in reading and discussing these ideas students will
formulate a more noble vision of business. The paper provides an overview of the tenets of the
paradigms, a synopsis of the criticisms that have been voiced about them (usually from
advocates of another paradigm), and finally contrasts the paradigms in terms of their underlying
worldviews.
THE PARADIGMS
The shareholder wealth maximization (SWM) and the stakeholder (SKH) paradigms
should be quite familiar to readers. There are extensive literature streams regarding both
approaches, including comparisons of the two (Halal, 2000; Jones & Wicks, 1999; Kaler, 2003;
Shankman, 1999). This paper’s comparison of the new STW/AWDB paradigm brings additional
perspectives to understanding the purpose of business.
Shareholder Wealth Maximization Paradigm
SWM is the dominant paradigm for understanding the role of business and the practices
of management. Its most notable proponent has been Milton Friedman. Its roots are in the
Industrial Age and Adam Smith (Halal, 2000; Key, 1999). As illustrated in Figure 1, SWM
places business solidly within the economic sphere of life, which is only slightly inter-penetrated
by the social sphere. The purpose of business as an institution is to maximize shareholder wealth,
to create capital though making profit (Friedman, 1970). The owners of a business, motivated by
self-interest, are seen as having property rights on that profit and all other parties involved in the
business enterprise (i.e., customers, employees, value-chain partners, etc.) are in contractual
relationships with it. Managers, as agents of the owners, have the fiduciary duty to manage the
firm as a nexus of these contracts to create profit for the owners, subject to the contractual, legal
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and moral boundaries within which society allows business to operate. Profit is the desired end
and all other parties, relationships, and resources are seen as instrumental means to that end
(Donaldson & Preston, 1995; Halal, 2000). Financial results serve as the primary indicators of a
firm’s performance.
Control of participants occurs via contract under the auspices of the owners, or their
elected representatives, as delegated to management. The control system between owners and
managers is explained by agency theory. Under agency theory, managers’ tendencies toward
opportunistic self-interest are held in check by aligning their economic interests with those of the
owners. Systemic control of firms as entities occurs via the countervailing self-interest that exists
across the multitude of firms and involved parties and via government that imposes
social/political will on firms through laws and regulations. Government is seen as the other
major institution in society.
It should be noted that SWM does not deny the importance of social good, rather it
ascribes the achievement of social good, beyond providing products and jobs, to government and
the social sphere. Firms may engage in corporate social responsibility only to the degree
necessary to keep the rules of the game set by government and public opinion from being too
intrusive, or in so far as it is otherwise instrumental for generating return for shareholders, even
if that return is across the longer-run.
FIGURE 1 HERE
The underlying values and worldview presumptions of the SWM paradigm center on selfinterest, economic rationality, and property rights (Donaldson & Preston, 1995). Egoistic
hedonism is the applicable moral framework (Jones & Wicks, 1999). SWM asserts that
entrepreneurial risk-taking is incentivized by the prospect of economic gain for example. People
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and the natural environment are seen instrumentally, not for their intrinsic value. SWM
implicitly acknowledges the importance of truth-telling, honoring contracts, avoiding harm to
others, and respecting freedom of choice as the necessary bases for a functioning economy and
system of contracts (Shankman, 1999).
Critiques of SWM
SWM has been criticized for exacerbating the moral failures evident in a number of
corporate scandals. Exploitation of any opportunity for advantage and avoidance of the
recognition of externalities and long-run consequences are encouraged under SWM (Freeman,
Parmar & Wicks, 2004). Martin (2010) also argues that SWM has fostered short-run thinking
among CEO’s and has not actually produced superior results for shareholders.
SWM has also been criticized for having a narrow perspective on the nature of
humankind. The notion of economically rational persons is too simplistic (Jones & Wicks 1999).
Moreover, SWM compartmentalizes the economic, social and moral aspects of persons and
institutions. The saying, “it’s not personal, it’s just business” is an example of this
compartmentalization and of the instrumental view of persons.
Critics argue that agency does not adequately portray the nature of the role and behavior
of managers (Shankman, 1999). Management often acts more independently of distant owners
and on its own behalf. Making management into owners through stock incentives has not
overcome this concern.
Stakeholder Paradigm
Freeman’s 1984 book, Strategic Management: A Stakeholder Approach gave formal
articulation to the SKH paradigm which was advocated by proponents of corporate social
responsibility and business ethics and gained momentum in the 1990’s (Jones & Wicks, 1999;
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Kaler, 2003; Key, 1999). In the SKH paradigm (illustrated in Figure 2) firms exist to achieve the
range of economic and social interests of their stakeholders (Donaldson & Preston, 1995;
Freeman, Parmar & Wicks, 2004) who live within inter-penetrating economic and social
spheres. Profits per se do not drive a business from the outset; rather they result from the
creation of value. In essence, SKH says firms do well by doing good as part of the overall value
they create (Jones & Wicks 1999). Doing good, under SKH, entails more than merely providing
products and jobs.
FIGURE 2 HERE
SKH is primarily focused on the practice management. Under SKH, firms are a nexus of
relationships, not contracts, (Bryde, Mason & Kirkbride, 2007) among mutually interested
parties with legitimate, substantive interests in a business’s processes or outcomes. These
stakeholders have intrinsic value and should not be seen as merely instrumentally useful in
pursuit of profit for shareholders (Halal, 2000; Jones & Wicks, 1999). Satisfying the interests of
stakeholders as measured by a “triple” or “quadruple” bottom-line indicates successful
performance for a firm (Donaldson & Preston, 1995). Bell, Mengüç & Neville (2005) have
suggested that a firm’s reputation is a useful overall measure of stakeholder satisfaction.
The duties of management in SKH include: structuring the relationships a firm has with,
and among, its stakeholders; marshalling resources and activities to produce the benefits desired
by the stakeholders; and, assuring the sustainability of a firm (Halal, 2000; Shankman, 1999).
SKH expands management’s agency responsibilities to all of its stakeholders (Donaldson &
Preston, 1995). Moreover, management is expected to be a sensitive, moral agent, not merely a
loyal one, seeking a just, fair balancing of the multiple interests that may be in conflict with each
other (Halal, 2000).
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Governance within SKH involves participation of the stakeholders as a community (Halal,
2000) in a multiparty bargaining process. This necessitates judgments by management on
whether a party’s interest merits having its “voice” heard (Charron, 2007; Donaldson & Preston,
1995; Jones & Wicks, 1999). Effective governance relies on the alignment of values and
interests among the stakeholders (Bryde, Mason & Kirkbride, 2007).
At its core, SKH emphasizes business ethics and social responsibility. It pursues
economic and social justice, the creation of value, and the “common good.” It is built on ethical
idealism, a deontological moral framework based on the idea that persons have inherent dignity
and are not to be treated instrumentally (Charron, 2007; Donaldson & Preston, 1995; Gibson,
2000; Jones & Wicks, 1999). SKH takes a complex view of persons whose motivations include
a mix of economic and social mindedness, altruism and self-interest. SKH sees property rights
as embedded within human rights and as subject to the injunction to do no harm. Shareholders’
property rights do not give them the ultimate decision-making authority (Freeman, Parmar &
Wicks, 2004).
Critiques
SKH is criticized for being a set of prescriptive, over-reactive “oughts” focused on the
role of management and on its ethical and social responsibilities rather than being a theory of the
firm since it does not explain the behavior of firms in a dynamic, competitive market economy.
It is viewed as being overly optimistic about human nature, failing to recognize the tendency
toward opportunistic exploitation and as placing too much emphasis on the social sphere and not
enough on value creation (Charron, 2007; Key 1999; Shankman, 1999). Critics offer as evidence
that firms adopting SKH under-perform financially (Charron, 2007). A related criticism is that
SKH diminishes the incentive for entrepreneurial risk-taking (Dufresne & Wong, 1996).
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SKH is seen as improperly diminishing the importance of legal contracts and, especially,
the private property rights of ownership. The importance of shareholders is not sufficiently
recognized or is mischaracterized as a mere investment relationship (Charron, 2007; Bryde,
Mason & Kirkbride, 2007). There are questions about whether stakeholders’ “rights” are on par
with the property rights of shareholders (Kaler, 2003) and whether they diffuse responsibility
away from management (Bryde, Mason & Kirkbride, 2007).
SKH is seen as being unclear about how management should balance or prioritize the
multiple, conflicting interests, leaving management to favor itself and those of the primary
stakeholders that it chooses to preference. One aspect of this difficulty is that what one
stakeholder deems ethical, another may deem unethical. Management cannot anticipate the
outcomes of its decisions and its ability as an arbiter of moral truth is dubious (Charron, 2007;
Bryde, Mason & Kirkbride, 2007).
Stewardship Paradigm
A stewardship theory of management has emerged as a clarification of SKH (Caldwell &
Karri, 2005; Davis, Donaldson &, Schoorman, 1997; McCuddy & Pirie, 2007). It explicitly
integrates religious spirituality and moral conscience as the source of values which include being
more “other-centered” and building trust among the parties through a covenantal approach to
relationships. It asserts that stewards identify more closely than agents do with their
organizations. Stewards’ values include mutual accountability; care for people, planet and
economic sustainability; and, empowerment of the parties. Stewards are also seen as being
motivated by higher-order, intrinsic needs (Preston, 1998). This closer alignment of values and
motivations better aligns steward and stakeholder interests and reduces the need for the control
and incentive structures.
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Daniels et al (2007) have separately proposed the Stewardship/“Another Way of Doing
Business” (STW/AWDB) paradigm. This view emerges from their understanding of the creation,
fall, redemption, and consummation meta-narrative elements in the Judeo-Christian worldview.
STW/AWDB shares some commonalities with SKH and conscious capitalism, but it does depart
from some fundamental SKH tenets.
The STW/AWDB paradigm (Figure 3) proposes that the purpose of business is to
contribute to the flourishing of humankind and the natural environment by providing: the goods
and services that enable people as consumers to flourish; opportunities for meaningful and
creative work that enable people as employees to flourish; and, support for the community-atlarge and other institutions in society. While the economic and social spheres are seen as interpenetrating and business contributes to achieving social outcomes, under STW/AWDB business
should not encroach upon the roles of other institutions (i.e., government, family, church, etc.).
Rather, it should be a cooperating partner. In a marked point of departure, generating profit is
not a fundamental purpose of business, rather profit is a resource and capital providers are costeward partners.
FIGURE 3 HERE
A second key departure from SKH is that management is cast in the role of leading a firm
forward in pursuit of its purpose and doing so by acting as responsible, ethical stewards rather
than as balancing the interests of stakeholders. Over and above doing no harm to consumers,
employees, community, and the planet, STW/AWDB proposes that management has an
affirmative duty to do as much good as possible, and to grow a firm’s ability to fulfill its purpose.
The motivation for entrepreneurial risk-taking and innovation proceeds from a deep desire to
make life better. The relationships of a firm and its management with its role partners are
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covenantal in nature (i.e., commitment to constructive relationships, even when not reciprocated).
STW/AWDB does incorporate the need for behavioral incentives and controls based on its
presumptions that while humankind is fundamentally good, it is also “broken” and can be quite
exploitive.
STW/AWDB proposes that firms adopting this approach are likely to engender trust,
organizational commitment, brand preference, etc. which will in turn produce favorable financial
results. But, STW/AWDB admits that firms should be prepared for the eventuality that there
may be low correspondence between their moral stances and their financial performance. The
triple bottom line approach to measuring firm performance has been proposed by STW/AWDB.
The values framework underpinning STW/AWDB is moral idealism as expressed in the
Judeo-Christian worldview. The concept of shalom and the creation mandate have guided the
articulation of the purpose of business which encompasses a commitment to social and economic
justice and a high level of “other-interestedness.” STW/AWDB sees people as capable of being
good, as inherently communal, and as preferring meaningful, creative work as an expression of
self-identity. It also sees people’s capacity to do evil which requires that norms, laws and other
constraints must be established.
Critiques
STW/AWDB does not yet have well developed propositions. It is a more of “moral
philosophy” of business. Certainly more work is needed to fully develop this approach. One
such area for further development is in articulating the concept of human flourishing and
clarifying indicative performance measures of it that could be implemented for management and
public-policy purposes.
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As with SKH, it can be argued that STW/AWDB overemphasizes social outcomes at the
expense of a focus on wealth creation and financial sustainability. STW/AWDB, even more so
than SKH, is subject to the critique that it underplays the importance of profitability. In
particular, if profit is only a means, can a STW/AWDB firm obtain the necessary financial
capital for growth? Also, since profitability is a yardstick for management, STW/AWDB firms
could suffer from a lack of financial discipline.
STW/AWDB does not give primacy to the private property rights of stockholders.
Critics may argue that STW/AWDB requires a new corporate form, such as the social enterprise
form available in Britain, or at least an atypical prospectus in which stockholders are clearly just
investors.
STW/AWDB’s view that stewardship, rather than agency, can achieve effective
governance and accountability may be too naïve about the exploitive, opportunistic tendencies of
human nature. While alignment of values and motivations plays a constructive role, it may not
be sufficient. Further, critics may also argue that challenges to a firm’s economic survival will
displace its lofty goals. Finally, a criticism unique to STW/AWDB is that its theological origins
may disabuse some business persons from considering it.
REFLECTION & IMPLICATIONS FOR BUSINESS ETHICS
Three underlying dimensions provide a useful framework (shown in Table 1) for
comparing the paradigms’ worldviews: the importance of economic and social outcomes; the
presumptions about the nature of humankind; and, the nature of the relationships and ethical duty
of business.
TABLE 1 HERE
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The purpose of business is seen as focused on economic outcomes or as producing both
economic and social outcomes or as participating in the common good with profitability as a
necessary, but insufficient condition. The paradigms see the nature of humankind as either
centering on self-interest denominated in economic terms (i.e., homo oeconomicus), or as a
complex holistic of self- and other-interest motivated by an array of needs. The paradigms’
views on private property rights and agency correspond with their perspectives on economically
oriented self-interest.
The nature of relationships and the ethical duty of firms are related to the views of the
nature of humankind. Relationships are seen as instrumental, arms-length contracts or as mutual
or as covenantal. Ethical duty is seen as either requiring mere conformance to the ground rules
established by society or as “doing no harm” or as “do as much good as possible.”
These differences are further reflected in the paradigms’ visions for the role and practice
of business. As the view on the purpose of business shifts from creating shareholder wealth
alone to creating both economic and social outcomes, the creation of desired social outcomes
becomes a core aspect of a firm’s value proposition and brand identity. This brand identity shift
occurs even more strongly as the view on the nature of humankind shifts toward being comprised
of a complex set of values and motivations.
The SWM paradigm leads toward the adoption of a relatively narrow construction of
business ethics. Under SKH, business ethics are driven by the moral duty to respect the inherent
dignity of persons and the natural environment. STW/AWDB expands the moral duty of
business in its expectation that business should actively pursue doing the most good possible, in
addition to doing no harm.
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IMPROVING BUSINESS ETHICS EDUCATION
Business ethics coverage in introductory or even capstone-level courses typically does
not directly question the underlying purpose of business. Between the lines, most texts frame the
purpose of business using an admixture of SWM and SKH constructs. An SKH flavor is
discernable in coverage of the business environment and in business ethics chapters, but SWM is
an underlying presence throughout.
Using this paper as a supplemental reading assignment can contribute additional
perspectives on the purpose of business. It can be a useful springboard for discussing other
ethics topics as students more explicitly consider the underlying values base of the paradigms
and their implications for business. Helping students understand the worldviews underlying
these alternative paradigms will give them a basis for reflecting on the alignment of the
paradigms with the ways they would prefer the institution of business to function in society and
on the various business practices they are studying.
Instructors could engage students with several discussion questions either in class or online. The following questions are reasonable discussion starters:

Where on the spectrum of emphasizing economic, social, or both, outcomes do you find
yourself in regards to the role and purpose of business?

Are profits the raison d’être of business, or are profits better understood as a necessary
resource for business?

Does the economic self-interest view of people make more sense to you, or does the
more complex view which involves economic and social, self and other-oriented aspects?
Why?
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Which approach do you prefer for conducting business relationships: contractual;
mutuality (the duty to respect human dignity); or, affirmative duty (the duty to do the
right thing regardless of what the other side does)? Why?

Which paradigm seems more likely to contribute to reaching the goal of improving
business ethics? Why?

If you were running a business, which paradigm would you choose as the bedrock for it?
Why?

If you could design your own paradigm, what would be its values base and what
attributes would you give it?

What stands in the way of gaining acceptance of a reformed vision for the purpose of
business? What can be done to overcome such obstacles?
CONCLUSION
The worldviews of the SWM, SKH and STW/AWDB paradigms reflect differing values
commitments that have far reaching implications for the practice of business. As the dominant
paradigm, SWM, with its commitments to economic self-interest motivation, profits as property
rights of stockholders, and agency and contractual oriented relationships, has become woven into
the fabric of people’s understanding of business and public policy leading to a relatively
impersonal business world – ‘It’s not personal, it’s just business.’ SKH offers increased concern
for others and the common good as not only a legitimate, but a requisite aspect of business.
While SKH upholds both social and economic outcomes, its focus on the process of balancing
stakeholder interests muddies the purpose of business – business should be more than merely just
reaching a negotiated settlement of varied, and often conflicting, interests. STW/AWDB offers
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clear directionality for the purpose of business, commitment to moral relationships and processes
in the practice of business, and cooperative, respectful partnership with other social institutions.
The calls for reformation of business to be more ethical have been loud and clear.
Certainly all efforts underway to improve the ethical conduct of individuals and firms must
continue. This reformation effort also involves re-thinking the purpose of business. A renewed
understanding of the purpose of business may capture the imagination of business people and
encourage them to pursue a better posture for business in society. Incorporating a discussion of
this paper about these paradigms’ worldviews into business classes can play a helpful role in this
grand project.
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Figure 1: Shareholder wealth maximization paradigm
Profits
Owners
Business
Activity
Agency
Social Sphere
Managers
Law & Social
Contract
Contract
Resources
Natural
Environment
Government
Customers
Employees
Lenders
Other Value
Chain Members
Economic Sphere
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Figure 2: Stakeholder paradigm
Economic Sphere
Social Sphere
Profits
Owners &
Other
“Investors”
Natural
Environment
Social Good
Responsible
Business
Activity
Society
Managers as
agents of all
stakeholders
Customers
Employees
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Rome, Italy
Other Value Chain
Members
20
10th Global Conference on Business & Economics
ISBN : 978-0-9830452-1-2
Figure 3: Stewardship/AWDB paradigm
Human Flourishing
Customers
Employees
Community
Natural
Environment
Responsible
Business as
Service
Social
Sphere
Value
Chain
Members
Managers
as
Stewards
Profits
Economic
Sphere
October 15-16, 2010
Rome, Italy
Owners &
Other
“Investors”
Resources
21
Other
Institutions
10th Global Conference on Business & Economics
ISBN : 978-0-9830452-1-2
Table 1: Comparative worldviews of the paradigms
Nature of
Humankind:
Economic self-interest with emphasis on
private property rights & agency
Relationships
& Ethical
Duty:
Contractual;
Within
legal/moral
boundaries
Purpose:
Wealth
creation
Mutual;
Respect
for
human
dignity
Positive duty
with
emphasis on
covenantal
relationships
Self- & other-interested with emphasis
on higher-order needs & alignment of
values
Contractual; Mutual; Positive duty
Within
Respect
with
legal/moral
for
emphasis on
boundaries
human
covenantal
dignity
relationships
SWM
Creative
Capitalism
SKH
Conscious
Capitalism
Stewardship
Theory of Mgt
Profit and
social ends
STW/AWDB
October 15-16, 2010
Rome, Italy
22