Ethics Theory and

Business Practice

10.3 The Responsibilities of Business Executives – Part Three

Normative Stakeholder Theory Rationales

aims

• to outline a stakeholder-investments argument, a respect-for-persons argument, and a reciprocity argument in support of normative stakeholder theory

• to highlight some characteristics of normative stakeholder theory rationales and contrast these to some characteristics of shareholder theory rationales

normative stakeholder theory

• proposes that executives should not just focus their efforts on profit and shareholder wealth

• rather, they have responsibilities to all the stakeholders who are associated with their company

• so they should think more broadly about the social and environmental impact of corporate activity

some supporting rationales for normative stakeholder theory

1. stakeholder-investments argument2. respect-for-persons argument3. reciprocity argument

1. stakeholder-investments argument

• shareholder theory emphasises the investments shareholders make in a company

• but other stakeholders also make significant investments in a company

• these may not be so obvious or so easy to quantify as shareholders’ investments

• but they often carry even greater risk

so

• if the investment made by shareholders entitles them to consideration by executives

• so do the investments made by other stakeholders

• therefore, executives should try to balance the interests of all stakeholders

• instead of just focusing on those of their shareholders

2. respect-for-persons argument

• Immanuel Kant: never treat people purely as a means to an end– i.e. don’t use people

• shareholder theory involves treating all other stakeholders purely as a means to the end of maximizing shareholder value – i.e., it uses all other stakeholders to create wealth

for shareholders

putting the respect-for-persons argument into practice through stakeholder discourse

• ‘The very purpose of the firm is … to serve as vehicle for coordinating stakeholder interests’ (Evan and Freeman, 1993: 262)

• ‘each of these stakeholder groups has a right not to be treated as a means to some end, and therefore must participate in determining the future direction of the firm in which they have a stake’ (Evan and Freeman, 1993: 255)

3. reciprocity argument

reciprocity: ‘the practice of exchanging things with others for mutual benefit’ (Oxford English Dictionary)

reciprocity and shareholders• shareholders influence the success of a company by

supporting it• therefore they have, in exchange, a right to expect

that their interests will be taken into account by that company’s executives

reciprocity and other stakeholders• people such as customers, employees, and

suppliers also influence the success of a company by supporting it

• therefore they also have, in exchange, a right to expect that their interests will be taken into account by that company’s executives

reciprocity and society

• society provides a range of essential services to business

• therefore, business owes society a certain amount of consideration in return

• business executives therefore have a responsibility to help to sustain the society that sustains their business

theory in practice

offshoring: good business sense or an abrogation of responsibility to stakeholders?

summarizing shareholder and normative stakeholder rationales

shareholder theory rationales normative stakeholder theory rationales

conceive of business activity in terms of transactions between separate, independent, rights-bearing individuals

emphasise the interdependencies that exist between companies and all their stakeholders

executives should define their responsibilities in relation to the rights of distinct sets of stakeholders

executives should take into account the responsibilities entailed by their relationships of mutual dependency with stakeholders

property rights occupy an especially privileged position in this rights-oriented evaluation

highlight responsibilities associated with membership of an interdependent, mutually supportive community

key points

• normative stakeholder theory proposes that executives have responsibilities to all affected stakeholders, not just shareholders

• some compelling rationales have been offered in support of normative stakeholder theory

• the presuppositions upon which these rationales are built contrast in several ways to those which underpin shareholder theory

references

Evan, W.M. and Freeman, R.E. (1993) ‘A stakeholder theory of the modern corporation: Kantian capitalism’, in G.D. Chryssides and J.H. Kaler, An Introduction to Business Ethics. London: International Thompson Business Press. pp 254–66.