Is Business Practice Morally Significant?
James Dempsey
Introduction
This paper takes as its starting point the recent development of approaches to tackling ethical
questions in business that are based on the social contract model1. These approaches have sought to
establish a methodology to identify action-guiding norms that apply to people engaged in business
activity, in particular they have been aimed at those operating in a corporate environment. The
defining theory in this area remains Integrative Social Contracts Theory2 (Donaldson & Dunfee, 1999;
Dunfee, 2006), although as both an approach to understanding corporate morality, and an approach
in the social contracts tradition, it has been subjected to significant criticism. The criticisms have
been wide-ranging, and as Dunfee himself admits there is considerable scope for development of
the theory (Dunfee, 2006). In his 2006 review of the state of ISCT Dunfee identifies nineteen areas
for additional work. In this paper I will focus on one in particular – the theoretical justification of the
macrosocial contract – although implications for many others will flow from any conclusions reached
here. One such implication is worth emphasising, and I will touch on it directly: this is the challenge
posed to the concept of bounded moral rationality, criticism of which, Dunfee notes, has been
largely absent from the extensive commentary on ISCT.
I will start by outlining the main aspects of ISCT, as proposed by Donaldson and Dunfee, and I will
then consider the criticisms of this theory made by Ben Wempe (Wempe, 2007)3. Wempe makes
these criticisms by way of a comparative analysis with successful applications of social contract
theory to questions of political authority (e.g. Hobbes and Rousseau) and to questions of social
justice (e.g. Rawls). From this analysis, Wempe identifies four design criteria that any successful CBE
must satisfy, and argues that, as it stands, ISCT does not satisfy any of them. Working within
Wempe’s framework, I will argue that it is in fact possible to interpret ISCT as satisfying the first of
his design criteria, although this is not how the theory has typically been interpeted by critics nor,
perhaps, by its authors. This first design criterion is that of ‘self-discipline’ with regards to the
theoretical or practical aim of the application of contract theory. The idea is that no application
should try and accomplish more than is reasonable given the nature and the limitations of the
contract model. Having identified an aim within ISCT that is disciplined in this way, I will go on to
argue that a satisfactory rendering of the contract model to achieve this aim promises to satisfy
Wempe’s other design criteria as well. Unfortunately, however, ISCT as it currently stands does not
succeed in doing this. Part of the problem, the part on which I will focus, rests with an initial
contracting situation that is neither independently justified, nor plausible as a means for reaching
1
To follow the convention in current literature on the subject, I shall call such theories ‘contractarian theories
of business ethics’, hereafter CBEs. This title is potentially misleading, however, since the intention is to
capture all theories that utilise a social contract framework, and not a subset that make certain assumptions
about contractors’ motivations, as is the case when ‘contractarian’ is used as a contrast to ‘contractualist’ (for
an outline of this distinction see, for example, the Stanford Encyclopaedia entry on ‘Contractualism’ (Ashford &
Mulgan, 2008))
2
Hereafter ISCT
3
For a development of this criticism, see also (Wempe, 2004), (Wempe, 2005)
1
the desired conclusions. It is here that the concept of bounded moral rationality is supposed to play
its role, and can be found wanting. I conclude by suggesting that, in order to get to the bottom of the
challenges faced by ISCT, more attention should be given to the theory that is undoubtedly its major
inspiration: Rawls’ theory of a ‘political’ conception of justice in his Political Liberalism (Rawls, 1993).
The ISCT Project
To start with, then, I will consider the main points of ISCT. The basic background against which ISCT
is set is one of disagreement4. Dunfee and Donaldson start their book with two examples based on
the oil company Royal / Dutch Shell. The first concerns Shell’s behaviour in Nigeria, where their
efforts to secure a gas development project were attacked by critics as helping to bring about the
trial of nine environmental activists, including the author Ken Saro-Wiwa; moreover, they were also
attacked for making no effort to dissuade the Nigerian government from implementing the death
sentences which were subsequently handed down. The second example concerns Shell’s plans to
dispose of the Brent Spar oil rig in the North Sea, and their televised confrontations with Greenpeace
protestors who tried to halt the operation. Dunfee and Donldson argue that ‘Shell’s travails were
ethical in nature, and harmful to its standing in both the business world and the eyes of the public’
(Donaldson & Dunfee, 1999, p. 2). Shell, it thus appears, had contravened rules established in the
common ethical beliefs of the business world, but why is this important? According to Dunfee and
Donaldson, to understand both the nature of these beliefs and their substance requires ‘a different
approach to business ethics, an approach that exposes the hidden but all-important understandings
or “contracts” that bind industries, companies and economic systems into moral communities. It is in
these economic communities, and in the implicit understandings that provide their ethical glue, that
the stuff of business ethics is found’ (Donaldson & Dunfee, 1999, p. 3).
The disagreement that these examples illustrate is twofold: on the one hand, it illustrates a
disagreement over time, where the Brent Spar episode ‘forced Shell... to recognise that Europeans
had shifted their ethical attitudes towards the environment’ (Donaldson & Dunfee, 1999, p. 5). On
the other hand it illustrates disagreement between contemporary communities since Shell was also
forced ‘to recognise that some countries, Nigeria for example, had distinctly non-European ethical
expectations for companies’ (ibid.). It is here that Dunfee and Donaldson give us an idea of how they
plan to deal with such disagreements; they say:
‘Our approach confirms that the social contracts that arise from specific cultural and geographic
contexts have legitimacy – but only within limits [...] The social contract approach that we will adopt
holds that any social contract existing outside these boundaries must be deemed an illegitimate
one. In this sense, all particular or “microsocial” contracts, whether they exist at the national,
industry, or corporate level, must conform to a hypothetical “macrosocial” contract that lays down
objective moral boundaries for any social contracting.’ (Donaldson & Dunfee, 1999, p. 6)
This approach in itself, however, gestures towards another significant locus of disagreement in
issues of business ethics. Whereas the examples above illustrate substantive differences between
4
It is interesting to think about these conditions of disagreement in the context of Wempe’s fourth criterion
that I will outline later, that of ‘domain-specificity’.
2
community norms both over time and between contemporaneous communities, this new
disagreement is methodological5. In fact, it is this methodological disagreement that Dunfee and
Donaldson identify as being at the root of the problems that have hindered progress in the field of
business ethics. They characterise it as follows:
‘One group of researchers approaches business ethics through empirical or behavioural ideas, i.e.,
through concepts that describe and explain factual states of affairs, such as managerial motivation,
organisational accountability structures, and relationships between ethical behaviour and financial
performance. In other words, this camp focuses on the “is” of economic affairs. The other camp
focuses on normative concepts, i.e., ideas that, while not necessarily grounded in existing business
practices and structures, are what ethicists call “prescriptive.”’ (Donaldson & Dunfee, 1999, p. 9)
What Dunfee and Donaldson are ultimately interested in is a normative theory of business ethics,
but while they refer to the two approaches that they have characterised as the ‘empirical’ and
‘normative’ approaches respectively, they do not side exclusively with the normative side of the
disagreement. In fact, they do not look to solve this disagreement by demonstrating the superiority
of one of the approaches over the other, but rather to reconcile the two; this is due to the fact that,
considered purely from a normative point of view, approaches from both the empirical and
normative traditions have their strengths and weaknesses, the weakness of one being the strength
of the other. The weakness of the empirical approach they deal with quickly, referencing Moore by
saying that ‘*t+o suppose that one can deduce an “ought” from an “is,” or, what amounts to the
same thing, that one can deduce a normative ethical conclusion from empirical research, is to
commit a logical mistake some dub the “naturalistic fallacy”’ (Donaldson & Dunfee, 1999, p. 9).
Normative approaches do not make this mistake, since they draw upon specifically normative
evidence and arguments. However, and significantly, Dunfee and Donaldson argue that they face
their own particular problem. By ‘normative approaches’ they specify that they have in mind ‘the
pivotal traditions of ethical theory – in other words, [...] the broad normative theories of
consequentialism, virtue ethics, Kantian deontology, and pragmatism’ (Donaldson & Dunfee, 1999,
p. 12) and they argue that ‘the difficulty of such approaches lies largely in their imprecision’
(Donaldson & Dunfee, 1999, p. 13). In essence, the basis of this argument runs back to the
substantive disagreements that they discussed earlier. Their assertion is that, although any
substantive ethical judgment must be normatively justified in order to be legitimate, the kinds of
disagreements that we find regarding substantive ethical judgments in business are ones that are
not capable of being resolved by traditional ethical theories. They are not capable of saying, of
conflicting judgments, that one and only one is legitimate: they either appear to legitimise both
judgments, or appear unable to reach a firm conclusion on either.
While this is a general problem with normative ethical theory, Dunfee and Donaldson argue that it is
particularly acute within the business environment, for the reason that ‘the world of business *...] is
inescapably “artifactual,” or, in other words, inescapably dependent upon convention and
agreement for its shape and character *...+ This “artifactual” character of business means that the
rules and structure of business can vary dramatically from culture to culture, from industry to
industry, and from company to company’ (Donaldson & Dunfee, 1999, p. 14)6. In other words, they
5
Moreover, as a methodological disagreement, it exists not amongst communities that form part of society,
but rather amongst students of business, both academic and in the practicing community
6
This feature is another we might add to the list of those characteristic of the business environment
3
seem to be suggesting that the range of substantive judgments over which traditional normative
theory will not be able to resolve conflict is greater in business situations, simply because the
cultural environments in which each judgment is embedded are both complex and relevant to the
legitimacy of those judgments. They provide two examples of such conflicting judgments: ‘[s]ome
cultures emphasise property-rights dimensions of intellectual property, while others emphasise
cooperative behaviour and societal sharing of innovations. Some tightly constrain the use of firmderived (inside) information in securities markets, while others show considerable indifference to
the phenomenon’ (Donaldson & Dunfee, 1999, p. 16). The idea is that, in order to judge any action
relating to intellectual property or insider information ethical or unethical, reference must be made
to local customs. Without such reference, traditional normative theories are blind.
It is the normative validity of arguments in the normative tradition, and the focus necessary to make
substantive judgments in diverse business situations, drawn from the empirical tradition, that
Dunfee and Donaldson seek to integrate. Thus, they aim to manage disagreement at the level of
substantive ethical judgment by reconciling disagreement at the level of methodology. Exactly how
they propose this is done I will consider next. However, first I can make the point that I believe is
central to finding a way forward with the ISCT project: most commentators have taken the practical,
and theoretical, aim of ISCT to be the use of the macro contract to manage disagreement at the level
of substantive ethical judgment by providing the tools to adjudicate between competing judgments.
For example, Wempe says: ‘*t+he principal ambition of ISCT is to seek to adjudicate possible conflicts
between microsocial contracts originating from different economic communities by means of
identifying universal, more fundamental principals called hypernorms’ (Wempe, 2007). It is not false
that ISCT aims to do this. However, before it can justify such an aim, it must first establish a more
fundamental principle, and this is the normative legitimacy of the reconciliation of the broad
normative perspective (represented by the macro contract) with the community-specific
agreements (embodied in the micro contracts) that are empirically identified. In other words, it must
establish the normative legitimacy of the micro contracts themselves, and it is this task that is the
primary objective of the macro contract7. That the macro contract then establishes principles in
order to adjudicate between conflicting micro contracts is only its secondary role; without any
reason to give such micro contracts normative weight in the first place, adjudicating between them
is pointless. This claim is supported by Dunfee when he outlines how ethical obligations are justified
under ISCT. He and Donaldson, he says, ‘envision that the initial contractors will recognise the ability
of communities to generate binding ethical norms for their members in what is described as moral
free space’ (Dunfee, 2006). This will be the starting point in my argument for a rehabilitation of the
ISCT framework; first it will be necessary to give an overview of how the contract model is supposed
to justify the normative legitimacy of community agreements, and Wempe’s criticism of this
method.
The ISCT Method
7
While it may be thought that local community agreements have normative weight independent of any macro
contract, it is the strength of the claim that ISCT makes regarding their significance in determining normative
conclusions that requires additional justification. I will explain later what this claim is and why it is so strong.
4
Dunfee and Donaldson start the exposition of their method by considering the contractors who will
be party to the macro agreement. They outline the features that these contractors will have: they
are rational and knowledgeable and they are not as ignorant as Rawlsian contractors, with the only
facts hidden from them being their membership of economic communities, and their level of
personal wealth; Dunfee and Donaldson imagine all qualifying representatives of humanity as being
party to the contract. Importantly, each contractor brings with them moral principles that they hold
prior to the contracting process. Dunfee and Donaldson characterise these as ‘settled
understandings of deep moral values’ and identify them with the ‘hypernorms’ that will be central to
their exposition (Donaldson & Dunfee, 1999, p. 27). It may seem strange to think of an array of
contractors with settled moral positions getting together in order to agree on an approach to
morality. Dunfee and Donaldson explain this by saying:
‘Because the contractors are unaware of other economic preferences and memberships, they lack
detailed knowledge of their economic morality. Yet even though they lack such detailed knowledge,
they know the basic values to which they subscribe. Some may profess philosophical utilitarianism.
Some may profess philosophical Kantianism. Others may adhere to ethical principles articulated in
their preferred religion [...] And some may subscribe to the specific principles that have been handed
down to them historically through their family, their village, or their culture’ (Donaldson & Dunfee,
1999, p. 27)
Moreover, Dunfee and Donaldson specifically acknowledge that the contractors will conclude that ‘it
would be impossible to obtain an intellectual consensus concerning adoption of a single morality as
the framework for global economic ethics...’ (ibid.). This, then, is almost a complete picture of the
contracting situation from which a system of economic ethics is supposed to be derived. However,
they do add two further assumptions: the first is that ‘many’ of the contractors ‘are driven by an
innate moral sense which leads them to recognise elements of a foundational morality’ (ibid.); the
second is that, given we are interested in economic ethics, there will be certain things of particular
concern to the contractors, in particular they will recognise the importance of a framework of
morality in order to avoid something akin to a Hobbesian state of nature in the realm of economic
interactions. Following these two assumptions, Dunfee and Donaldson assert that their rational
contractors would accept three core assumptions as they go about the contracting process, the
implication being that these follow from the characterisation of the contractors that they have
stipulated. These assumptions are as follows (Donaldson & Dunfee, 1999, p. 28):
1. All humans are constrained by bounded moral rationality
2. The nature of ethical behaviour in economics systems and communities helps determine the
quality and efficiency of economic interactions. Higher-quality and more efficient economic
interactions are preferable to lower-quality and less efficient economic interactions
3. Ceteris paribus, economic activity that is consistent with the cultural, philosophical, or
religious attitudes of economic actors is preferable to economic activity that is not
This first assumption is particularly important, and consists itself of at least four elements: firstly,
that all humans encounter difficulties in processing and interpreting ethical data; secondly, they
possess limited resources for gathering information to make moral decisions; thirdly, that they have
a limited ability to construct moral theories that account for commonsense moral convictions and
preferences; and finally that ‘one *cannot+ know in advance what the correct rules of business ethics
5
are for a specific system without having detailed information about the system and its participants’
(Donaldson & Dunfee, 1999, p. 32). It is in the establishment of the initial contractual situation that
most fault can be found with the ISCT method. Not only must it persuade us that contractors who
find themselves in that situation will agree to the particular terms set out by the theorist, but it itself
must be justifiable by some external method. On the first point, I will argue that the contractors, as
characterised, will not accept the assumption of bounded moral rationality, and so the argument will
not get off the ground; the second point I will come back to when I consider Wempe’s objections. He
points out that in successful applications of contract theories the initial contractual situation has
been justified as modelling some desirable state of affairs, and it is that state of affairs which gives
the contractors’ deliberations normative weight: in the case of theories of political authority it has
modelled equality before the law, while in theories of social justice it has modelled a situation where
all have equal basic liberties (Wempe, 2007). It is unclear what situation the ISCT contractual set-up
is intended to model.
Before coming back to this, I will outline the actual contracting process that Dunfee and Donaldson
describe, and the terms of the contract that they assert will be established. They reemphasise the
point they made earlier, that, given the contracting situation they have established, it will not be
possible to establish agreement on a ‘thick’ morality that will determine the rules of ethical
behaviour in all situations. In addition, they remind us that contractors will know that moral
rationality is bounded, and emphasise that two of their core motivations will be ‘(1) to enhance
efficiency by reducing uncertainty, and (2) to live in an economic environment compatible with their
underlying cultural, ideological and religious interpretations’ (Donaldson & Dunfee, 1999, p. 37) 8.
This said, they derive the following four terms of the macrosocial contract:
1. Local economic communities have moral free space in which they may generate ethical
norms for their members through microsocial contracts
2. Norm-generating microsocial constracts must be grounded in consent, buttressed by the
rights of individual members to exercise voice and exit
3. In order to become obligatory (legitimate), a microsocial contract norm must be compatible
with hypernorms
4. In cases of conflicts among norms satisfying macrosocial contract terms 1-3, priority must be
established through the application of rules consistent with the spirit and letter of the
macrosocial contract
Having set this out, it is worth returning to my earlier assertion that the primary aim of the
macrosocial contract in ISCT is not to adjudicate between competing microsocial contracts, but
rather to establish their normative legitimacy in the first place. This claim is reinforced by noticing
that the first three terms of the contract deal precisely with this aim, while only the fourth concerns
competing norms. While the notion of a microsocial contract as it is being used here is somewhat
loose, it is not hard to specify more concrete examples of interactions that would fall under the
heading: written contracts, for example, or explicit promises. More abstract notions of obligation8
The contractors’ inability to agree on a ‘thick’ morality is clearly at odds with their desire to reduce
uncertainty, although not implausible given how they are characterised. When considering the plausibility of
this characterisation, however, it is interesting to note how the basic picture of contractor motivation is
somewhat unclear, compared with those found in the work of, for example, Hobbes and Rawls.
6
generating relations of the kind often supposed to generate ‘political’ obligations might well also fall
under this heading. What all these relations have in common, particularly in the first two cases, is
that it is uncontroversial that they generate moral obligations. If demonstrating this were the only
aim of ISCT, then it would be a rather trivial theory. However, the aim of ISCT is significantly more
substantial than this and the first term of the macrosocial contract is particularly important since it
serves to make clear the strength of the claim that is being made: it is not just that microsocial
contracts are prima facie normatively significant, but that they are so all told. That is, if a microsocial
contract is legitimate, then it is not just one consideration amongst many that we must take into
account in our moral reasoning, but rather it is the last word in moral matters for members of that
community. In fact, the only time a legitimate microsocial contract might not be authoritative in this
way is when it clashes with another legitimate microsocial contract. At the centre of this
characterisation of the normative supremacy of the legitimate microsocial contract is the notion of
‘moral free space’, which appears in the first term of the contract, and ‘implies that communities will
have significant leeway in the manner in which they choose to generate their own moral rules’
(Donaldson & Dunfee, 1999, p. 38). This leeway is not absolute, however, and is dependent on the
support of the clear majority of the community and the ability of individual members who do not
support particular rules to voice their dissent or exit the community (embodied in the second term
of the contract). A rule that has the support of the majority of a community is called an ‘authentic’
norm, but an authentic norm is not yet ‘legitimate’; in order to be legitimate it must also be
compatible with ‘hypernorms’, universal principles which demarcate the bounds of moral free space.
It is in these concepts of hypernorms and moral free space that we see the reconciliation between
the empirical and normative methodological approaches to business ethics that were discussed
earlier. Moral free space gives explicit license to local communities to determine normatively
significant moral rules for themselves, and so empirical study of actual ethical behaviour is shown to
have normative weight. On the other hand, the existence of hypernorms acknowledges the need for
community agreements to be held to certain standards in order to be able to claim normative
legitimacy. By bounding the realm of moral free space, hypernorms provide this legitimacy in the
tradition of broad and universal ethical theory. This established, it remains to identify which
hypernorms exist. Dunfee and Donaldson divide them into three categories, which they call
‘procedural’, ‘structural’ and ‘substantive’9: procedural hypernorms are those that flow from the
second term of the macrosocial contract, those required to ensure consent and the rights of voice
and exit; structural hypernorms are those ‘that are necessary for political and social organisation’
(Donaldson & Dunfee, 1999, p. 51). The example of structural hypernorms provided by Dunfee and
Donaldson is one that ‘obliges members of society to honour institutions that promote justice and
economic welfare’ (ibid.) and thus supports the right to property. The final category of hypernorms,
the ‘substantive’ one, is more problematic and has been the subject of much debate and criticism of
the ISCT method. These hypernorms ‘specify fundamental conceptions of the right and the good’,
and unlike the first two kinds are neither specified nor implicit in the terms of the macrosocial
contract. All that the macrosocial contract has to say about them is that they do, in fact, exist and
Dunfee and Donaldson consider that this is enough for ‘decision makers’ to be going on with,
9
It is worth noting that a presumption of any contract theory approach must be that some hypernorm exists
to the effect that contracts are morally binding on the contractors (when undertaken under appropriate
conditions), although Dunfee and Donaldson do not explicitly identify such a hypernorm in any of their three
categories.
7
allowing them to commence their search for such norms. Criticism of this approach to substantive
hypernorms has taken two opposing lines; most has focused upon Dunfee and Donaldson’s refusal
to produce a list of substantive hypernorms that may be applied to practical decision making
situations. Dunfee and Donaldson justify this refusal by arguing that moral concepts and linguistic
terms are culturally specific, even if they do point to universal hypernorms, so any single list using
certain concepts and terms would be misleading (Donaldson & Dunfee, 1999, p. 55). Wempe,
although largely critical of ISCT, agrees with them on the substance, if not the justification, of this
point, arguing that any application of the contract model must be ‘self-disciplined’, or in other words
it must only attempt tasks for which it is fit for purpose, and that it is unrealistic to expect it to
generate concrete substantive hypernorms (Wempe, 2007). Wempe’s criticism of the account of
these norms, on the other hand, focuses on the method that Dunfee and Donaldson do propose for
their identification, which appears to boil down to little more than an appeal to common sense.
While it is unrealistic to expect the contract model to provide us with a list of substantive norms, a
purported contract-based approach that claims that these norms are entirely independent of the
supposed contract seems somewhat superfluous. Wempe’s suggestion is that a middle ground can
be struck, with the contract model establishing ‘mid-level bridging principles’ (ibid.), although it is
not entirely clear what these may look like.
Wempe’s Criticism of ISCT
I have already mentioned a number of the criticisms that Wempe levels at the ISCT model in the
previous two sections, but it is worth pulling these together and summarising the overall structure of
his argument, since this structure will be useful for framing the ways in which I will argue that ISCT
may be taken forward coherently. Wempe’s criticism is based upon a comparative analysis of two
uses to which the contract model has been put successfully in the past, the establishment of
conditions for a legitimate use of political authority, and the formulation of principles of social
justice. This analysis leads him to identify four main points of comparison for social contract
theories, each of which can be broken down in some more detail. The ‘external logic’ of a theory is
composed of two parts: first is a determination of who is to be a ‘party’ to the contract, although this
appears to be more a nominal description of such parties as ‘citizens’ or ‘representatives of free and
equal citizens’, than a detailed characterisation of what it is to be such a person. That additional
detail comes later. The second part plays a greater role in Wempe’s analysis, and is the ‘theoretical
aim’ of the theory. This is important since, as he argues later, only certain types of theoretical aim
are suited to the social contract approach. The second point of comparison between theories is their
‘internal logic’. This again has two parts: the first is the problem to be addressed, which Wempe
terms the ‘problem solution frame’, the idea being that in solving this problem, the theoretical aim
of the theory will be achieved. For example, by solving the problem of ‘reconciling order with
individual freedom’ Rousseau hoped to achieve the aim of legitimising political authority. The
second aspect of the internal logic of a theory is the ‘function of the initial contract situation’; as
Wempe says, however, this concerns more than just a statement of desired function: it also
concerns how the contractual situation will be modelled to achieve this function. Part of this
modelling will be the detailed characterisation of the parties to the contract. In reality, the
contractual situation must be modelled with two functions in mind, the first is to persuade us that
the contractors, as depicted, will arrive at the appropriate conclusions, the second in to convince us
8
that this contracting situation is independently justified. If it is not, then it is not clear why we should
care about the conclusions that the contractors reach. For example, in the case of Rawls’ theory we
care about the conclusions that his contractors reach since they are all free and equal and possess
no knowledge that might lead them to judge unfairly.
The third point of comparison Wempe calls ‘domain characteristics’. These we may think of as
equating, in Rawls’ theory, to his ‘circumstances of justice’ that characterise the background
conditions against which all questions of social justice are asked. As well as general background
conditions, Wempe explicitly includes the nature of the ‘target group’ under the heading of domain
characteristics, whether this is ‘natural’ in the case of theories of political authority, or ‘fixed’ in the
case of Rawls’ characterisation of a closed society. The final point of comparison, Wempe terms the
‘theoretical assumptions’ which deal with the assumptions made regarding the possibilities of access
to and exit from the contracting group, and the nature or existence of an authority governing that
group.
Having set out these points of comparison, Wempe uses them to derive four key design criteria for
any social contract theory, including theories of business ethics, and uses these criteria as points of
criticism of ISCT. The first of these criteria is quite a general one that relates to the external logic of
the theory, specifically its theoretical aim, that he calls ‘self-disciplinedness’, the idea of which is that
no application should try and accomplish more than is reasonable given the nature and the
limitations of the contract model. In particular, he argues that previous successful applications of
this model have been, and the social contract for business should be, ‘restricted to establishing
general principles rather than concrete solutions to practical problems’ (Wempe, 2007)10. Thus he
suggests that ‘the authors and critics of ISCT may alike be shown to pursue an unrealistic idea of
what the contract model can accomplish – indeed an unrealistic idea of applied theories more in
general’ (ibid.). As I mentioned earlier, when discussing substantive hypernorms, he particularly has
in mind the appeal by critics for Dunfee and Donaldson to endorse a concrete list of such norms; it is
less clear why the theory as presented by Dunfee and Donaldson is unrealistic, although with
relation to hypernorms it is valid criticism that their determination is divorced entirely from the
contractual process: that is, while Dunfee and Donaldson avoid drawing conclusions regarding
substantive hypernorms that are too specific, this is at the expense of drawing any conclusions at all.
As far as what a valid aim of a social contract model might be, Wempe references ‘classical’ social
contract theories that used the contract ‘to specify the conditions of legitimate political authority’
(Wempe, 2007), where this aim is to be distinguished from an attempt to specify any concrete
legislation. With regards to the aims of a social contract theory of business, he suggests ‘normativity
(and contents?) of corporate morality’, although it is not entirely clear what we should understand
by this as an aim. I will come back to this point later.
The second critierion that Wempe highlights relates to the internal logic of the theory, specifically
the problem solution frame, and he calls this ‘argumentativity’. The essence of this criterion is that
the contract model should be used in an argumentative as opposed to purely a stipulative way, so
ensuring that it provides ‘genuine added value’ rather than just a useful metaphor for expressing a
certain point of view; as Wempe says, ‘the contract must somehow render intelligible why the terms
10
Clearly, general principles should guide solutions to practical problems; nonetheless, this does not mean that
the contractors themselves must deliberate on, and pronounce a solution to, each of these problems
individually.
9
of the contract deserve to be subscribed by the contractors, and hence why they deserve to be
adopted by the audience, which the contract theorist addresses’ (Wempe, 2007). This criterion is
fundamental to the success of any social contract theoretical approach, so much so that it seems to
be less an independent criterion in itself and more a requirement for the successful coming together
of all the other criteria around a well defined problem. I agree with Wempe that the argumentaion
of ISCT is less than logically compelling, for reasons that will become clear. However, as I will argue,
this is not for the lack of a clear aim or well defined problem.
The third criterion Wempe calls ‘task-directedness’, which is also derived from the internal logic of
the model, particularly the function of the initial contractual situation, and ‘is based on the
observation that, in the more successful examples of the use of the social contract model, theorists
always appear to work on the basis of a fairly precise task the contract is supposed to fulfil’ (Wempe,
2007). This criterion appears to have two key parts: first the identification of a suitable task, and
secondly the successful and focused direction of the argument to address that task. In his discussion
of task-directedness Wempe focuses on the first part, arguing that ISCT presents an obvious
candidate for the task at hand: the resolution of conflicting microsocial norms. This, however, is not
a suitable task since ‘the problem of “conflicting norms” cannot be solved in general’ (ibid.); in other
words, if this general aim is to be addressed satisfactorily by contractors, then it must be specified in
terms of more clearly defined problems for which contractors could reasonably be expected to find
solutions. He goes on to suggest what a more suitable task might be, proposing the determination of
which parties must be considered legitimate discussion partners in the establishment of microsocial
norms, and the determination of reasonable shares in the product of business. These suggestions
are interesting, but it appears that they would fit in better with his earlier discussions, those relating
to the theoretical aim of the theory and the problem that must be solved to achieve this aim. What
would be most useful to consider under this heading is the second part of the criterion that relates
to the focusing of the proposed theory on the task that this external logic dictates, but this is not
something that Wempe spends time discussing. It would seem reasonable to expect that any effort
to achieve such focus would concentrate on the modelling of the contractual situation itself,
especially the features and situations of the contractors themselves. This is a particularly important
task to highlight with respect to ISCT since it is on this front that it falls down most clearly; the initial
contractual situation neither relating explicitly to a central aim, nor being itself justified with regards
to some desirable state of affairs that it is intended to model. It is this task that I will focus on most
specifically later.
The fourth and final criterion that Wempe discusses he calls ‘domain specificity’. This is derived from
his comparison of the domain characteristics that are modelled by successful applications of social
contract theory, and ‘concerns the fact that the contract model needs to be properly adapted to the
domain to which it is applied’ (Wempe, 2007). The domains in which the classical theories that
aimed at establishing legitimate political authority were set were, he argues, relatively minimalist
since their sole role was to establish the undesirability of the state of nature. Modern theories of
social justice, however, have employed more detailed characterisations of the domains in which
they are set, since the domains themselves have had to play a more significant role in the
argumentation of the theory. Both ‘domain specificity’ and ‘task directedness’ deal with the
characterisation of the initial contracting situation, the distinction being that the former addresses
more specifically the characteristics of the domain in which the contract is reached, while the latter
focuses on the features and situations of the parties to the contract. As far as ISCT’s characterisation
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of the domain of business ethics is concerned, Wempe argues that it relies too much on that
employed by Rawls and does not account sufficiently for the nature of the business enterprise with
which we are concerned. What we need is to account for a ‘backdrop of collective action aimed at
the creation of added value’ where ‘*t+hese activities presuppose the establishment of an effective
political authority to see to it that contractual obligations are honoured and to sanction promises
made’ (Wempe, 2007). In addition we must consider, in the same manner as Rawls, what morally
irrelevant features we want to exclude from deliberation in the ‘state of individual production’
(ibid.).
Rehabilitating ISCT
Drawing on Wempe’s framework, and elaborating the points that I made earlier, I will now argue
that ISCT goes further to satisfying his criteria for a successful application of social contract theory
than he allows. This argument will focus on the claim that ISCT can be interpreted as providing a
clear and self-disciplined aim, albeit one that is not explicitly identified by its authors. I will then
argue that, starting from this aim, ways in which the other criteria may be satisfied become more
clear. At the beginning of this paper I discussed the various forms of disagreement which constitute
the background for Dunfee and Donaldson’s theory; these could be summarised into two basic
types: substantive disagreements on particular ethical judgments, the root of which can be found in
conflicting community norms, and methodological disagreements between those that approach
questions of business ethics in the ‘normative’ and ‘empirical’ traditions. It has usually been
assumed by critics that, if a central aim of ISCT were to be identified, then it would be to resolve
disagreement of the first kind, so determining which of the competing substantive judgments should
be endorsed. As I argued earlier, however, such a task already presupposes that we have reason to
think that any community-derived norms should be given normative weight. It is important here to
remember that this presupposition may be understood in two ways: a weak way and a strong way.
The weak way of understanding it is to say that (legitimate) community-derived norms have prima
facie normative validity, whereas the strong way is to say that they and they alone determine our
appropriate substantive ethical judgements. Provided that the process for arriving at these norms
conforms to certain constraints, the weak assertion is uncontroversial; for example, an analogous
assertion would be that, if I promise to meet you at midday in a certain place then I have a prima
facie obligation to meet you at that place at midday. However, if ISCT were interpreted as being
concerned only with prima facie obligations it would not be a very interesting theory, in part
because it would not tell us much we do not know already, and in part because it would only present
a very partial account of economic morality: it would accept that there is more to economic morality
than legitimate community norms, but not tell us anything about what else we should take into
account. It is clear from the way that Dunfee and Donaldson discuss the microsocial norms,
however, and in particular their characterisation of ‘moral free space’ in which these norms are
situated, that they consider such norms to be valid in the strong sense. This makes the claims of ISCT
much more interesting, but certainly not uncontroversial: it is, therefore, this claim that microsocial
contracts establish ethical norms that determine absolutely ethical requirements in the economic
context that lies as the centre of ISCT, and it is its justification that must be ISCT’s central aim.
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It is this aim that then justifies Dunfee and Donaldson’s attempt to reconcile the disagreement
between normative and empirical approaches to business ethics. Any resulting theory must appeal
to empirical evidence of the actual microsocial contracts in place in order to determine the norms
that they generate; however, it must also establish that these are genuine norms in the tradition of
normative theory. This reconciliation, then, is the problem that the contract method that they
employ is designed to solve; by solving this problem through a discussion of the hypernorms that
circumscribe it, and the elucidation of what counts as an ‘authentic’ community norm they aim to
legitimise the notion of ‘moral free space’. This aim, much more than the secondary one of
adjudicating between competing community norms, conforms to the criterion of ‘selfdisciplinedness’ that Wempe sets out. It is a ‘general principle’ as opposed to a ‘concrete solution to
practical problems’ and as such conforms much more closely to the kind of conclusion that a group
of contractors might agree upon. This can be seen by comparing it to the aims that Wempe identifies
as being pursued by his two comparative theories; if we say that the aim of ISCT is to establish the
legitimacy of moral free space, this is much more in line with the aim of classical social contract
theories to establish the legitimacy of political authority, and with that of theories of social justice
which is to establish the legitimacy of a basic structure. It is certainly the case that this is not the only
aim of ISCT, and the more often discussed goal of arbitrating between competing community norms
also plays a part in the theory. However, this is very much a secondary aim, and moreover, it is not
altogether clear that it is an unreasonable one. Granted, if it is interpreted as requiring the
identification of specific community norms and judging the relative merits of each against the
others, then the criticism is warranted; but insofar as it is interpreted as establishing general or
middle level principles that will be used in such arbitration, then it does not need to stray into the
realm of ‘concrete solutions’. My primary conclusion, then, can be summarised as follows: that the
theoretical aim of ISCT is self-disciplined in the sense that Wempe requires, and this aim is to
establish the legitimacy of moral free space in economic ethics, the space in which legitimate
community moral norms are the absolute arbiters of ethical judgements.
I believe that once we understand the theoretical aim of ISCT in this way it will become much easier
to satisfy the other design criteria that Wempe identifies for a satisfactory social contract theory of
business ethics. I am not going to attempt to propose such a theory, since that would be impossible
in the space available. However, I will draw on some of the comments already made to suggest what
it might look like, and where we may look for further inspiration. Wempe’s second criterion is
‘argumentativity’ which, as I have said, does not in itself appear to be a criterion independent of the
other three. Rather, it is more a coming together of the whole theory to address a well defined
problem, the solution of which will achieve the theory’s aim. In this respect, a suitable problem has
already been identified: if the aim is to legitimise the notion of moral free space, the problem is to
reconcile the method of universal moral theories that establish normative authority with the
method of empirical investigation which identifies community-determined norms. It is in addressing
this problem that ISCT appears to fall down, and the ways in which it does can be seen by
considering the final two criteria, those of task-directedness and domain specificity. The rest of my
comments in this paper will be focused on the first of these. Task-directedness, as I argued earlier, is
best understood as focusing on the contractors, their characteristics and initial situation prior to
contract. This specification must do two things. First, it must lead us to the conclusion that such
contractors would agree to a contract that endorses moral free space as a realm of action in which
empirically determined microsocial contracts have authority, subject to the constraints of
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hypernorms. Secondly, it must convince us that specifying contractors in such a way that they reach
this conclusion is in some way independently justified, thus giving us a reason to accept their
conclusions and likewise endorse the notion of moral free space. If we can endorse the Rawlsian
contracting situation as appropriate because it models a situation in which all have equal basic
liberties, what is it that the contracting situation in the business context models that makes us
willing to endorse its conclusions? ISCT, as it stands, does not appear to be able to provide adequate
justification in these two respects. There is more than a suspicion that the specification of the
contracting situation is conducted entirely with the first aim in mind, with little thought as to the
second; in other words the contractors and their features have been selected with the aim of making
it plausible that they will agree to the existence of moral free space, but not with consideration as to
why we should be interested in such an agreement.
Moreover, it is also doubtful that such contractors would agree to a contract that endorsed moral
free space. It is here that doubt can be cast on the notion of ‘bounded moral rationality’, the
contents of which I outlined earlier. This notion is supposed to be legitimised since it will be
accepted as a starting assumption by all contractors. Each contractor is assumed to arrive already in
possession of moral principles, drawn from across the spectrum of possible moral positions. Many of
these positions will be incompatible with the notion of moral free space: why should the act
utilitarian, who already has a definite normative position regarding any substantive ethical
judgment, endorse an agreement which allows communities to determine their own norms, many of
which will be in opposition his? The answer to this, presumably, is that he has accepted the
assumption of bounded moral rationality. However, despite Dunfee and Donaldson providing
reasons why we may want to adopt this assumption, it does not seem unreasonable for the act
utilitarian simply to decline from adopting it for the very reason that he adheres to act utilitarianism.
If the assumption of bounded moral rationality does not hold, then the contractors will not agree to
accept moral free space and the most that we may hope from the contracting situation established
in ISCT is that all parties will agree that microsocial contracts are prima facie normatively significant.
Each contractor will have their own explanation for why this is the case, and the contract model
itself is providing nothing beyond a statement of rather trivial agreement. In addition to this point,
two final problems with the argumentativity of the initial contractual situation remain to be
mentioned: the first is that the establishment of substantive hypernorms is left outside the
contractual mechanism. However, if the aim is to legitimise moral free space by reconciling the
normative and empirical view points, then to leave the determination of a substantial part of the
normative apparatus entirely outside the contractual frame would appear to doom the approach to
at best a partial solution, at worst an incoherent one. The second regards motivation. Whereas
theories of political authority tend to assume self-interested contractors, and theories of social
justice a more Kantian motivation of providing public justification of actions to those whose moral
status demands it, a clear characterisation of the motivations of contractors is lacking in ISCT.
Conclusions and Future Research
Having reviewed the ISCT project of Dunfee and Donaldson, and the criticism made of it by Wempe
by way of a comparative analysis with other applications of social contract theory, I have used the
framework that Wempe establishes to argue that ISCT, as it stands, can be seen to satisfy at least
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one of the criteria for a successful social contract theory of business. This criterion, in one sense, is
the most important since it requires the establishment of a clear aim that is ‘self-disciplined’ in the
appropriate way. For ISCT this is to establish the legitimacy of moral free space in economic ethics.
Moreover, ISCT highlights a particular problem, the solution of which promises to achieve this aim:
how to reconcile the method of universal moral theories that establish normative authority with the
method of empirical investigation which identifies community-determined norms. The identification
of this aim, and method of achieving it, goes a long way to re-establishing the ISCT framework as one
of the leading contenders in the race to establish a generally coherent theory of business ethics.
However, much work remains to be done before such a theory can emerge and, using Wempe’s
framework, I have tried to highlight exactly where that work must be done, in particular in the
modelling of the contractors that will be party to the macro contract. This specification must
conform to two criteria: it must contribute to the argument that makes it compelling that we should
reconcile normative and empirical methods in a way that legitimises moral free space; and it must
be independently justifiable, both as a plausible characterisation of human nature, and as modelling
particularly its features that are relevant to the task of determining a theory of economic ethics.
In closing I would like to suggest one place that future research may look in order to help resolve
these issues with ISCT, and this is Rawls’ account of a ‘political’ conception of justice in his Political
Liberalism (Rawls, 1993). Dunfee and Donaldson, it would appear, draw heavily on this account in
their construction of ISCT; at least their theory bears many similarities to that of Rawls. Two of these
similarities especially warrant further attention. Firstly, the parties in both theories come armed with
their own, disparate, ‘comprehensive doctrines’ drawn from philosophical, religious and cultural
sources. Secondly, both theories involve the construction of a ‘thin’ universal moral framework that
circumscribes, but does not maximally specify, what counts as moral action in the domain in
question: for Rawls these are the fundamental ideas that he finds in the public political culture of a
democratic society, for Dunfee and Donaldson these are their ‘hypernorms’. There are distinct
differences between the two approaches, however, further exploration of which may go some way
to explaining the difficulties faced by ISCT. It is not clear that Rawls understands the scenario that he
creates as a contractual situation at all; rather he is interested in identifying those elements of a
concept of justice upon which all members of a liberal society will unanimously agree. This is
important: identification of areas of unanimous agreement does not require us to understand each
party’s motivation for their views, whereas describing a contractual situation does; related to this,
unanimity does not require the parties to compromise, whereas agreement on questions where
there is no unanimity will. The principles that Rawls derives from his exercise are indeed minimal:
citizens should be free and equal and society should be fair; this is particularly the case since he
accepts that there will be various acceptable interpretations of these principles. Moreover, Rawls
specifies that in searching for these principles on which there will be unanimous agreement he has in
mind agreement between reasonable citizens of liberal societies. This specification gives him leeway
to assert that such people will accept as legitimate fully specified theories of justice that conform to
these basic liberal political criteria, but that differ to their own interpretation.
These are all points on which ISCT diverges from the approach taken by Rawls, and thus are
potentially valuable areas for future research to address when trying to develop ISCT. I will finish by
briefly attempting to show why. Dunfee and Donaldson seem to fall between wanting to use a
contractual approach (the macrosocial contract) and appealing to unanimity (substantial
hypernorms). Their contractors, however, not only have disparate comprehensive doctrines, but are
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also not constrained to being either reasonable or liberal (or some appropriate analogy of these).
This being the case, it is optimistic to think that they might show substantive unanimity, or be
prepared to compromise on those issues dictated by the terms of the contract. The determination of
the contractual question is further complicated by the lack of clarity regarding the contractors’
motivations. This issue of compromise is a good one on which to conclude. The prime case for
compromise in ISCT is in the acceptance of bounded moral rationality and the legitimisation of moral
free space, a move that I have argued is central to the whole ISCT argument. Rawls assumes this kind
of compromise when he characterises citizens as reasonable, he does not attempt to derive it from a
contract. Whether this is possible, or even desirable, is a question that future work on ISCT must
answer satisfactorily if its conclusions are to be compelling.
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