Stakeholders in perspective

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ISBN 1-84544-037-4

ISSN 1472-0701

Volume 5 Number 2 2005

Corporate Governance The International Journal of Business in Society

Stakeholders in perspective Guest editor: Yvon Pesqueux

A partnership project from:

With the support of:

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Table of contents Special issue: Stakeholders in perspective Guest editor: Yvon Pesqueux Volume 5 Number 2 2005

Departments Access this journal online Editorial

Feature articles 2

Stakeholder theory in perspective

3

Yvon Pesqueux and Salma Damak-Ayadi

5

A critique of stake-holder theory: management science or a sophisticated ideology of control?

22

Elena P. Antonacopoulou and Je´roˆme Me´ric

Some philosophical issues in corporate governance: the role of property in stakeholder theory

34

Maria Bonnafous-Boucher

Human rights as a normative basis for stakeholder legitimacy

48

Bert van de Ven

Towards the relational corporation: from managing stakeholder relationships to building stakeholder relationships (waiting for Copernicus)

60

Josep M. Lozano

In search of new organizational values: the irruption of beauty in an entrepreneurial creation

78

Herve´ Colas

Changing managers’ values towards a broader stakeholder orientation

89

Sybille Sachs and Edwin Ru¨hli

Stakeholder theory, society and social cohesion

99

Franc¸ois Le´pineux

State as a stakeholder

111

Sibel Yamak and O¨mu¨r Su¨er

The stakeholders’ perspective on the international business school

121

Albert Sta¨hli

Towards a stakeholder responsible approach: the constructive role of reporting

130

Stefano Zambon and Adele Del Bello

Organizations which make a difference: a philosophical argument for the ‘‘people focused organization’’

142

Ed Weymes

The measurement of responsible governance and management of NPOs in New Zealand: an evaluation tool for NPOs, donors and government. ‘‘If you have no money – you have no mission’’

159

J. Mueller, D. Williams, A. Higgins and M. Tou

Lead, respond, partner or ignore: the role of business schools on corporate responsibility

174

Louise Gardiner and Peter Lacy

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Editorial s the President of the European Academy of Business in Society (EABIS) and Director General and CEO of the European Foundation of Management Development (EFMD) we would like to warmly welcome you to this special joint edition of the Corporate Governance Journal.

A

We would particularly like to thank this special edition’s editor, Yvon Pesqueux, for all his hard work in pulling this project together. We would also like to thank the journal’s regular editor Nada Kakabadse and the team at Emerald, as well as Matthew Wood from EFMD and Peter Lacy of EABIS.

EABIS and EFMD: a shared vision The publication of this special joint edition is a demonstrable sign of the ongoing spirit of partnership between EABIS and EFMD in working towards a commonly held goal: to raise the bar on knowledge and skills on business in society. We both recognize that for business to be able to create sustainable commercial and societal value, it will need managers with the knowledge and skills to do so. In our partnership, EFMD and EABIS leverage and combine our respective strengths to create a cohesive and ‘‘joined up’’ approach to this issue.

Corporate responsibility in European business education: where are we now? The integration of corporate responsibility in to European business education is at an important crossroads. Many schools have responded, in some shape or form, to the challenge laid down by business for the development of new types of management education that deal with corporate responsibility as an integral part of business operations. However, when looking at the issue from a broader, pan-European perspective, our experience has shown us that there is still a long way to go in achieving true integration of corporate responsibility into the mainstream business curriculum. This was clearly demonstrated by the results of Europe’s first comprehensive assessment of business in society teaching and research, conducted by Nottingham University Business School’s International Centre for Corporate Social Responsibility, in conjunction with EABIS and EFMD. The survey revealed that corporate responsibility is being included in some business education and research, but this is happening in isolated pockets of activity, often led by a specific scholar at a specific school. What is lacking is a coherent institutional commitment to these issues from school leadership downwards. Furthermore, many schools have adopted a ‘‘stand alone’’ framework for including business in society issues in their curriculum, through either compulsory or elective specialist modules: an approach in contradiction to the view of enlightened companies that see corporate responsibility as an integral part of all core business operations. Schools are also overlooking the value of an inter-disciplinary approach to the issue of corporate responsibility: the traditional divisions between disciplines at business schools and at their associated universities often obstruct collaboration on an issue which, by its very nature, requires a diverse approach across different disciplines. This lack of diversity can also be seen in the scarcity of creative thinking regarding the teaching methods employed by business educators in corporate responsibility. Given the diverse social and economic nature of the subject, the traditional boundaries of teaching need to be pushed back to make way for new forms of cognitive and experiential learning.

Business – academic partnerships A creative approach is also required in shaping the corporate responsibility issues included in the management education agenda. In order to prepare students for the real world situations

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they will inevitably encounter and to develop the future managers they will need, business needs to work with its educators to feed practical knowledge and ‘‘real life’’ issues concerning corporate responsibility into contemporary management education. So far, though, cooperation between the academic and business communities has been slow and uneven. At EABIS and EFMD we have been forging new methods of addressing this disconnect between supply and demand on business in society education. We draw on the EABIS network of leading European companies, business schools and other key stakeholders, and the EFMD global network of over 500 international business schools and companies to develop collaborative and innovative solutions for integrating corporate responsibility into business theory and practice. Our joint experience has highlighted some key learnings on business – academic partnerships. As Peter Lacy, EABIS Executive Director, touches on in his article later in this edition, business schools have several options as to how they can choose to ‘‘lead, respond, partner or ignore’’ their role on corporate responsibility. Due to the nuances of corporate responsibility across geographies and industry sectors, there can be no one prescriptive approach to this issue in business education. What is essential is that business schools work in partnership with companies to ensure they adopt a balanced and business relevant approach that brings value through diversity.

Conclusion In today’s global economy, the social impact of business is being felt on an ever-increasing scale. Business schools, therefore, not only have an essential part to play in developing business leaders that have the skills and knowledge to manage this impact, but they also play a part in setting the agenda for business’ future role in society. As such, corporate responsibility is starting to take on new meaning in the minds of some business educators, and enlightened business schools realize that corporate responsibility, and with it a commitment to combined economic, environmental and social growth, will only progress to the next stage of sustained value creation through effective knowledge and learning partnerships. However, we are now merely at the start of the learning curve, and there is a long way to go before both companies and business schools find ways to embed corporate responsibility as just another element of ‘‘business as usual’’.

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Stakeholder theory in perspective Yvon Pesqueux and Salma Damak-Ayadi

Yvon Pesqueux is a Professor and Holder of the ‘‘Development of Organisational Systems’’ Chair at CNAM, Paris, France. Tel: +33 (0)1 40 27 21 63, Fax: +33 (0)1 40 27 26 55, E-mail: [email protected] Site Web: www.cnam.fr/lipsor Salma Damak-Ayadi is an Associate Teaching and Research Fellow and PhD student at the European Centre for Research in Finance and Management (CREFIGE) at Universite´ de Paris IX Dauphine, Paris, France. E-mail: [email protected]

Abstract Those who use stakeholder theory as a reference are both underlining the correlation between facts and a certain conceptualization thereof, and trying to make the necessary shift from a ‘‘panoptic’’ analysis akin to a panoramic vision of texts and positions, to an ‘‘in-depth’’ one geared towards an understanding of their foundations. As a ‘‘theory of organizations’’, stakeholder theory helps to nourish a relational model of organizations by revisiting questions about ‘‘who’’ is actually working with (and in) the firm. Stakeholder theory is part of a comprehensive project that views the organization-group relationship as both a foundation and a norm. Keywords Business ethics, Stakeholders, Management theory

Introduction Stakeholder theory has become the focal point of a great many debates. It frequently serves as a point of reference in agents’ discourses, in their acts and in a host of ‘‘management science’’ studies (and even political analyses). Its current tendency is to impose itself as a point of reference by imitating corporate social responsibility policies, to such an extent that it has taken on the allures of a dominant discourse. This explains the proliferation of false arguments currently circulating on this subject. The purpose of the present text will be to recall those elements of comprehension that are a requisite in any references to stakeholder theory, and to suggest elements of evaluation. The question we ultimately ask is whether it is because of stakeholder theory’s apparent facility that it is so pleasing – even though its false evidence may in fact be masking ambiguities that could lead many analysts astray, whether or not they lend any credence to this school of thought. This theory constitutes a core issue in ‘‘pseudo’’ disputes today, a state of affairs attesting to the status of ‘‘the serious thing’’ that is the firm, and translating the existence of an US intellectualism in the field of management sciences. Texts derived from such discussions have gone forth and multiplied, filling up our libraries with cross-references and book synopses, and with ‘‘reviewers’’ and alternatively ‘‘reviewees’’ happy to join one or the other of the categories underpinning this construction of ‘‘academic capitalism’’. In truth, the very same criticism can also be made of the present text, even though its ambition is to position the elements needed to ‘‘decode’’ stakeholder theory at a level beyond the evidential one that would appear to be its lot. The very expression ‘‘stakeholder’’ has become so widespread today that many pundits have forgotten that it first arose in the USA as a liberal reaction (remember that what our US friends

DOI 10.1108/14720700510562622

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call ‘‘liberal’’ is what we would call oppositional) to the primacy being bestowed upon financial value, led by the figure of the shareholder – a primacy that became legitimate during President Reagan’s time in office. Here it is worth remembering the operation suggested by Ricoeur (1997) in the title of his book devoted to questions of ideology: utopia asks questions where ideology legitimizes, in which case stakeholder theory plays the role of a utopia. However, Ricoeur also warns us against the way in which utopia is co-opted by ideology. This is yet another issue we will have to deal with, given stakeholders’ presence inside of the old managerial utopia of agonism[1], i.e. the utopia of refusing to recognize the existence of antagonisms in the firm. Workers, shareholders, we are all in it together! Note first of all the speed with which this corpus has developed, as witnessed by the proliferation of articles and conferences on this subject. Academic research has reserved a special place for stakeholder theory over the past few years. According to Donaldson and Preston (1995), more than 100 articles and a dozen books have been devoted to this topic, with most having been published in reviews like Business Ethics Quarterly and Academy of Management Review. However, when taken out of its US cultural context, the stakeholder concept becomes a relatively vague one. It benefits from an ‘‘imperialist’’ effect relating both to the fact that it belongs to the field of management sciences and also to its US origins. The idea here is management sciences are so indebted to US sources that it might as well accept the stakeholder construct without any further to do . . . Yet culturalist understanding is rich with potential. Stakeholder theory could be construed as existing along the same lines of understanding as those that we inherited from de Tocqueville (1835), with his vision of US democracy and its ‘‘heritage of pious merchants’’ whose interests can best be seen in the light of their ‘‘moral equality’’. It may also be congruent with the vision that Max Weber described in 1904 when commenting on Benjamin Franklin’s 1748 opus, Advice to a Young Tradesman. What we should not forget is the absence of this figure of the tradesman (or of his more generic version, the businessman) in Continental Europe, where the bourgeois was much more of a reference point. According to Mercier (1999), stakeholders are ‘‘all of the agents for whom the firm’s development and good health are of prime concern’’. Freeman (1984) defines them as ‘‘any group or individual that can affect or be affected by the realization of a company’s objectives’’. Ethical considerations are what have driven stakeholder theory’s rise, having been deployed as a way of constructing its normative aspect (the idea being that we are all stakeholders). For Donaldson and Preston (1995), stakeholders are defined by their legitimate interest in an organization. This implies that: J claimants are groups or persons with legitimate interests; that they are known; and that they have been identified; and J all stakeholder groups’ interests have at least a modicum of intrinsic value. Nowadays (Caroll, 1989), we usually distinguish between: J ‘‘primary’’ stakeholders, referring to those actors who entertain a direct and contractually determined relationship, as the name indicates, with the company (and who are sometimes still called ‘‘contractual’’ stakeholders); and J ‘‘secondary’’ stakeholders, combining actors who are situated at the borders of a firm and who may be impacted by its actions without having any contractual connection to it (a group that is still described as ‘‘diffuse’’ sometimes). Other distinctions exist as well, including between internal stakeholders; ‘‘traditional’’ external ones; and other external ones with the power to influence matters. Pelle Culpin (1998) offers a further distinction between institutional stakeholders (those involved in laws, regulations, interorganizational entities, plus professional organizations that may be specific to a given industry); economic stakeholders (actors operating in the markets of the company in question); and ‘‘ethical’’ stakeholders emanating from ethical and political pressure groups (a group whose figuration may be more difficult to define).

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Those who use stakeholder theory as a reference are both underlining the correlation between facts and a certain conceptualization thereof (section 1), and trying to make the necessary shift from a ‘‘panoptic’’ analysis akin to a panoramic vision of texts and positions (section 2), to an ‘‘in-depth’’ one geared towards an understanding of their foundations and highlighting its ambiguities (section 3).

1. Correlation between facts and conceptualization As indicated by Le´pineux (2003), stakeholder theory sprang out of a maelstrom of ‘‘affairs’’. In 1967, community groups in the USA invited themselves to an Eastman Kodak AGM against a backdrop of racial tension and mass unemployment among Greater Cleveland’s black population. In the USA again, consumer organizations invited themselves to a General Motors’ 1970 AGM to complain about safety defects on the cars being sold, and to ask other questions about group social practices. The grilling of GM’s board of directors received a great deal of media airtime. Both of these ‘‘generating facts’’ attest to the significance that executives in these large companies attached to the ‘‘societal’’ dimension, and to shareholder activism’s potential for criticism. In the UK in 1997, several shareholders began to ask questions about the political nature of Shell’s relationships with the Nigerian government of the time, thereby highlighting a whole series of human rights and environmental protection issues. This ‘‘affair’’ is considered the starting point for stakeholder governance, i.e. for the emergence of shareholder activism. 1.1. Stakeholders and corporate governance Facts of this ilk (some of which are still imbued with a symbolic dimension) are the forces that gave birth to the shareholder capitalism-stakeholder capitalism debate for which stakeholder theory has been a bedrock (Friedman, 1970; Jensen, 2002). Corporate governance issues highlight any and all relationships that may exist between a firm and its partners. In other words, they have contributed greatly to the development of stakeholder theory’s practical aspects.

1.2. Counting all stakeholders The stakeholder issue raises questions about how such parties are to be counted. Le´pineux (2003) suggests classifying them into different categories of actors: J shareholders; J internal stakeholders (employees; labor unions focused on issues such as employees’ direct and indirect participation – via their pension funds – in the firm’s capital structure, and on issues pertaining to union representation and/or to a shareholder activism that can be implemented either working alone or else with other investors who also want to get their resolutions adopted); J operational partners (customers; suppliers – including subcontractors; banks acting as creditors but also as parties that expect stability and solvency; and insurance companies having to contend with classes of risk currently undergoing a substantive and in-depth renewal, i.e. ‘‘greater’’ catastrophes related with climatic changes today); and J the social community (state authorities; specialized organizations like trade unions; nongovernmental organizations; and civil society). For this latter category, NGO interventions were what first triggered the current debate. One example is the denunciation of the environmental spoliation being caused by oil, mineral and chemical companies, etc. (air and water pollution, deforestation, toxic waste, etc.). Wellpublicized trials by media have progressively mutated into greater collaboration with the companies involved. Modern NGOs unite a host of different entities that can be quite disparate in nature, both in terms of their scope and also as regards their geographic reach (with the largest ones being structured into international networks). Moreover, their areas of competency

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have expanded from green issues in the 1980s to include human rights now, such as these are conceived of by the ‘‘stakeholder’’ concept using the ethical and political precepts it tries to apply. 1.3. The ambiguity of ‘‘social community’’ when seen as something ‘‘singular’’ or ‘‘plural’’ The US construct of ‘‘community’’ is often mentioned as one of the stakeholders in regards to which firms are supposed to behave responsibly. Waddock and Boyle (1995) noted a shift in focus from relationships geared towards a single (close) community, towards more complex relationships with a multitude of communities that can be both close and more distant. This shift has led to greater reliance on the stakeholder concept. The challenge here is how to define the community in its stakeholder form (Altman, 2000) in such a way as to account for the multiplicity of groups concerned, while covering whatever they may have in common among themselves (as well as the modalities for managing such relationships). 1.4. Stakeholders’ changing action modes Le´pineux (2003) tried to classify these relationships by distinguishing between: J the shift from dialogue to partnership (i.e. NGO representatives’ presence in decision-making processes and/or the acquisition of shares so as to have the right to question executives at AGMs – all portrayed as shareholder activism in full flow); and J the proliferation of the sorts of instruments of pressure that can be brought to bear within a conflictual context, including suggesting resolutions at AGMs, hijacking a company’s communications resources (‘‘right-wrong’’ Web sites, counter-advertising, etc.) opinionshaping campaigns, organizing boycotts and lawsuits. But stakeholder theory is different from a mere classification exercise. As shown by an analysis of the texts comprising this school of thought, it is in fact a plan to rearrange the theory of organizations by incorporating ethical perspectives or, if one prefers, by enhancing said theory.

2. A ‘‘panoptic’’ analysis of stakeholder theory Before suggesting any investigations of the field covered by stakeholder theory, we should remember its postulates: J An organization will maintain relationships with several groups that affect or are affected by its decisions (Freeman, 1984). J Theory will be dependent on the nature of such relationships because of the way in which the processes involved, and the outcomes achieved can affect society and stakeholders. J Stakeholders’ interests have some intrinsic value, but no one interest should be able to dominate all of the others (Clarkson, 1995; Donaldson and Preston, 1995). J Theory is interested in managerial decisions (Donaldson and Preston, 1995). In regards to the concept of (corporate social) responsibility, stakeholder theory has two variants: J The first relates to the empirical nature of responsibility. Theory here is based on the idea that an organization’s interests are the first to be taken into account, and that its subsequent efforts are then ‘‘divided’’ up among its various stakeholders in a way reflecting their respective levels of importance. Here information is seen as a crucial element allowing the organization to ‘‘manage’’ its relationships: at the very least to avoid stakeholder opposition; and where possible to gain their adherence. J The second relates to the organization-stakeholders relationship, conceived of here as a social relationship implying the genesis of an organization’s responsibility to its stakeholders. This is a normative approach to responsibility. The article by Donaldson and Preston (1995) offers a taxonomy of the different stakeholder theories by placing them into three separate categories. Based on the following elements, this taxonomy has served ever since as a benchmark for this field:

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J Firms and managers act with moral perspectives in mind (category 1, which is normative). J Achieving results becomes more doable if managers act with moral perspectives in mind (category 2, which is empirical and instrumental). J Organizations and managers behave with specifiable moral perspectives in mind (category 3, which is empirical and descriptive). Jones and Wicks (1999) think that this typology helps to delineate the intellectual areas that are covered by stakeholder theory’s two founding schools: the empirical stakeholder theory (based on descriptive and instrumental perspectives); and the normative theory (based on ethics). Hence their suggestion, above and beyond the aforementioned ‘‘disputes’’, of a ‘‘convergent’’ stakeholder theory predicated on the following arguments: J Postulates: organizations operate publicly in an economic marketplace that can be described as competitive; decisions are taken by professional managers; and behaviors are contingent (on circumstances and contexts). J Theory focuses on the manager-stakeholder relationship, which is deemed to have moral foundations. J At the same time, theory is also empirical and normative since it offers practical results, i.e. describable norms. It remains that this perspective has been criticized as lacking in formal construction or empirically testable variables (Donaldson, 1999; Trevino and Gray, 1999). Another distinction traverses this corpus (Mitchell et al., 1997) between those who refer to stakeholders as representatives of a moral or economic interest (with ‘‘diffuse’’ stakeholders not necessarily entering the equation). 2.1. Is stakeholder theory empirical in nature? This initial question requires first of all a precise delineation of the framework that surrounds stakeholder theory in its two variants. 2.1.1. Descriptive stakeholder theory This is the thesis that Donaldson and Preston (1995) put forward. In their opinion, this theory considers that organization is what one finds at the center of cooperation and competition situations, each of which possesses its own intrinsic value. Here the theory is being used to describe (and sometimes to explain) specific characteristics and behaviors, including for example firms’ nature (Brenner and Cochran, 1991), how executives’ management of their firms should be conceived of (Brenner and Molander, 1977), how some organizations are actually being managed (Halal, 1990; Clarkson, 1991; Kreiner and Bhambri, 1991), the diffusion of societal information (Ullmann, 1995; Pelle Culpin, 1998), the notion of target stakeholders (Mitchell et al., 1997) and the significance attributed to each stakeholder, something that will vary depending on the phase that a firm has reached in its lifecycle (Jawahar and Mclaughin, 2001). This descriptive approach only allows for exploratory propositions, however. It does not enable any connection to be made between stakeholder management and traditional business objectives (growth, earnings, etc.). 2.1.2. Instrumental stakeholder theory Instrumental stakeholder theory was advanced by Jones (1995). The main idea here is that everything else being equal, firms that practice stakeholder management will perform better in profitability, stability, growth, etc. terms. One accepts that ‘‘certain’’ results can be obtained if ‘‘certain’’ behaviors are adopted. In other words, the instrumental theory is a contingent one (meaning that it involves reliance on certain types of behavior).

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Several recent studies have referred to the instrumental theory implicitly or explicitly by using conventional statistical methodologies focused on: J the relationship between the pressure that stakeholders can bring to bear and the way in which strategy is formulated (Weaver et al., 1999); and J the relationship between social and financial performance (Cochran and Wood, 1984; Cornell and Shapiro, 1987; Barton et al., 1989; McGuine et al., 1988; Preston and Sapienza, 1990; Preston et al., 1991). Due to the diverse nature of the outcomes obtained, however, no clear relationship in one direction or the other can be affirmed. 2.2. Is stakeholder theory normative in nature? Donaldson and Preston (1995) also stress stakeholder theory’s normative bases. In their opinion, this perspective is distinct from the functionalism found in empirical theory. Instead of compiling data and using ad hoc quantitative methods to test hypotheses, the focus here is on normative outcomes, hence on specifying the moral obligations found beneath stakeholders’ positions. What the various approaches of this kind have in common is the fact that they treat stakeholders both as an end and also as having interests that possess an intrinsic value. The narrative interpretation also characterizes the normative perspective by offering narrative representations of firms’ moral behavior. Here emphasis is placed on the ethical obligations a firm faces, and on how it can satisfy them without denying its interest in achieving economic success. A further goal is that of explaining how it is that the objectives being pursued by the actors themselves (by the stakeholders and by the organization) can be mutually reinforcing. Researchers adhering to this school of thought will try to uncover the ‘‘best’’ alternative so as to steer corporate activities in ethically more constructive directions. They aver that individuals will modify the language they use (expressing conceptual schemes through images and metaphors) depending on how they think and act. In other words, actors’ underlying representations will influence the individual conceptions via which ‘‘reasonable’’ strategic actions are developed.

Such studies entertain close relationships with the search for paradigms found beneath the interpretative theory of organizations, which affirms that individuals will build and maintain their own organizational realities at the social and symbolic levels. 2.3. How are the different stakeholder theory approaches related? The typology we have just presented can be criticized as being derived from a positivism whereby it is assumed that descriptive theory will tell us how the world really is; that normative theory will prescribe how it should be; and that instrumental theory will indicate the shape we can give to it. The main points of divergence between the two theoretical perspectives are as follows: J Stakeholder theory’s descriptive side reflects and explains the past, present and future. It tends to generate exploratory and predictive propositions, whereas instrumental precepts try to apprehend the connection between stakeholder approaches and mutually beneficial outcomes such as profitability. The instrumental approach is generally used to explore the relationship between causes (the management of stakeholders) and effects (organizational performance). Normative theory tries to study these relations based on their ethical aspects and philosophical principles. In other words, the instrumental approach is mainly hypothetical (i.e. to achieve an objective ‘‘X’’ one needs to adopt – or not to adopt – principles and practices ‘‘Y’’), whereas the normative approach is categorical rather than hypothetical (doing or not doing something because it is the right – or wrong – thing). Hence the qualifier of ‘‘Kantian capitalism’’ given to some of its avatars. J Depending on the point of reference being used, there may be some disagreement about Donaldson and Preston’s (1995) typology. In an interpretative perspective, there is nothing

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automatic about the empirical-normative distinction (for instance, what is the interpretation based on?). Furthermore, certain ‘‘normative’’ studies affirm that moral behavior has no need of being justified, since morality possesses its own innate merits. Such studies consider that the biggest contribution of the instrumental theory’s habitual variant is that it allows for the prediction of certain forms of moral behavior will be sanctioned in the end, even though this may not occur in the short or medium term. J ‘‘Narrative’’ modes seem unable to achieve the status of ‘‘good research’’, even if one does accept that it is possible to derive acceptable theory from narrative representations. After all, how does one distinguish between ‘‘good’’ and ‘‘bad’’ representations given that theoretical representations of this sort spring from their narrators’ own imaginary worlds? J Jones and Wicks (1999) believe that ‘‘good’’ theory must help individuals to lead ‘‘better lives’’ within organizations. The question here is whether one should in fact validate the idea that narrative representations do actually help people to lead ‘‘better lives’’ in the absence of any empirical verification for this proposition. J The interpretative theory contrasts with attempts to give higher marks to studies that try to create consensual paradigms. Weaver and Trevino (1994) have suggested a hierarchy of interactions between empirical and normative theoretical perspectives based on three different conceptions: 1. parallelism; 2. symbiosis; and 3. integration. This perspective is grounded in two main ideas. The first is practical in nature and refers to stylistic and methodological differences amongst different empirical and normative requirements. The second is conceptual and involves theoretical conceptions and hypotheses, mainly as regards human behavior, which is portrayed as being mechanistic in the empirical approach and autonomous and responsible in the normative one: J For conceptual and practical reasons, parallelism rejects any connection between the empirical and the normative. In a sense, the only items that the two perspectives have in common are a ‘‘certain’’ interest in ‘‘certain’’ types of behavior. There is no connection between the two, however. Empirical research is carried out without any reference to philosophical, ethical or religious developments. The opposite holds true as well. J Symbiosis signifies that the two perspectives (empirical and normative) feed into one another but remain distinct in terms of their theoretical principles, methodologies and hypotheses. A symbiosis principle is conducive to the existence of at least a modicum of agreement in given areas, i.e. in addition to both approaches’ interest in the same area of research they also share certain values and explanations. The shared values include the idea that stakeholders’ demands do possess some intrinsic merit, and that egotism is to be rejected since it is impossible for an individual or an organization to serve its own purposes and nothing else. Interest in others is therefore a norm that the two theories share. This theme has been covered in several studies including the debate on corporate social responsibility (Jones, 1995), the moral debate (Konrad, 1982), ‘‘Kantian capitalism’’ (Evan and Freeman, 1983; Bowie, 1994), feminist approaches and property (Donaldson and Preston, 1995) and agents’ morality (Quinn and Jones, 1995). Regarding the compatibility between morality and capitalism, the two aforementioned values do not intimate that acting in one’s own interest necessarily constitutes something suspicious. What is suspicious, however, is the strict search for profit. A ‘‘reasonable’’ consensus exists around the idea that if capitalism is to be in good health it will require a ‘‘modicum’’ of morality. There is only partial agreement on these values, however. Normative theory considers morality as something that ‘‘by its very nature’’ is a given, even though the actual source of this morality has long been a topic of heated philosophical debate. Empirical and normative studies also share certain general explanations. Jones and Wicks (1999) believe a consensus exists that it is unlikely that descriptive theory will develop much further in the short run. They also consider economic

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theories’ opportunism hypotheses as being much too simplistic. Elements like irrationality, altruism, generosity, cooperation, trust, honesty, interest in others, etc. are just as typical a characteristic of human behavior. Lastly, there is widespread conviction that those organizations that focus on stakeholders and behave in a socially responsible manner perform better than those that only seek financial gain. J Integration signifies that the two perspectives can be seen as belonging to one and the same theoretical framework; and that they manifest themselves via the importing of concepts (with one approach evoking concepts found in the conceptual framework of the other), theoretical reciprocity (incorporation of both empirical and normative theory in one and the same study) and theoretical unity (rejection of distinctions between the empirical and the normative at the methodological and meta-theoretical levels). Authors from this school consider that all theory is incomplete when it is exclusively empirical or normative in nature. Methodologies and hypotheses can be combined if such an action is grounded in a partial consensus driven by whatever points are shared by the different components involved. Integration leads to a recognition of empirical theory’s normative foundations (principles of mutual trust and cooperation), thereby increasing their credibility. It remains that integration has been sharply criticized by Freeman (1999) as being incapable of avoiding the deontologism-consequentialism debate. Stakeholder theory also contains ambiguities that an in-depth examination should be able to reveal.

3. An in-depth analysis of stakeholder theory Despite its ostensible facility and ‘‘false’’ evidences, stakeholder theory was born in correlation to the ‘‘liberal movement’’ of the 1980s and is therefore rooted in the developments of the philosophical school of thought that we can call ‘‘neo-liberal’’. It is with regards to the various categories that make up this particular school that we can offer the modalities for a comprehensive and ‘‘in-depth’’ analysis, once we have taken all necessary precautions against the ‘‘exoticism’’ that one needs to mention when referring to this particular corpus. Indeed, it appears to be entirely unacceptable for an analyst to make any remarks whatsoever regarding stakeholder theory without simultaneously commenting upon its presuppositions, grounded as they are in the pragmatic foundations of this particular school of philosophy. The authors themselves recognize this affiliation (at least Donaldson, Goodpaster and Freeman do). Didn’t they all used to study philosophy? Phillips et al. (2003) have been forced to express themselves on the incorrect usages being made of this theory. Among other things, they have affirmed that it constitutes an ethical theory of organizations – a point of view to which we will return at the end of our argument, albeit in regards to other elements. The analysis we are pursuing here is based on arguments that are quite different from the ones put forward by these two authors. This is because the theory is not actually a contractualist one. It is born in US ‘‘neo-liberal’’ philosophical perspectives whose central purpose is to develop a theory of justice. The stakeholder concept can be seen as referring to a communitarian perspective, with the stakeholder thereby helping to define the contours of a group to which actors can belong on a nonexclusionary basis. Indeed, this is what constitutes the theory’s wealth and its ambiguity. A citizen can simultaneously be a customer, shareholder, employee and a ‘‘diffuse’’ stakeholder. Analysis of his/her position should be organized in terms of the category (defined by the particular type of search for fairness involved) that is relevant to the specific stakeholder role s/he is playing at a given moment in time. 3.1. ‘‘False evidence’’ in stakeholder theory The first false evidence in stakeholder theory relates to its ostensibly descriptive status, which may justify using a ‘‘Mintzberg complex’’ (1999) to qualify this theoretical perspective. In much the same way as organizations that used to live ‘‘happily’’ before it came along allegedly suddenly turned into adhocracies or professional bureaucracies, now they are deemed to have become the central foci for stakeholders! In which case it is possible to assert that stakeholder theory is merely a reformulation of the old introductory lesson in corporations and partners, this

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time around using an ostensibly more ‘‘modern’’ discourse. This viewpoint raises questions about the not always very obvious dichotomy that is said to exist between the theory’s descriptive usage (does it create better descriptions?) and its normative usage (are we all stakeholders or else destined to turn into one?). A further usage is supposedly found in the strategy categories. This involves an intermediary expression that one can apply in its vaguest connotation, with the stakeholder reference being seen as something enabling a superior formulation of strategy (or strategic discourse). The idea here is that stakeholder theory serves to reinvigorate functionalism by not answering any questions about what it is that constitutes an organization’s actual foundations. What we would then be dealing with is an organizational metaphor that is ideological in scope. Simplification and incantation would be some of the traits of this construct, which is capable of specifying ‘‘friendly’’ or ‘‘enemy’’ factors at both the conceptual and the ‘‘real’’ levels (this being the place where we uncover one aspect of its embeddedness in pragmatism). The second false evidence pertains to the possible merger between stakeholder theory and ‘‘the new theories of the firm’’. Hill and Jones (1992) see the former as being generalized throughout the different categories of agency theory, in the sense that they focus mainly on the stakeholder-manager relationship. In this sort of ‘‘forced’’ contractualist perspective, managers are depicted as agents, whereas stakeholders are distinguished from one another on the basis of their importance and power vis-a`-vis managers. When reinterpreted thus, agency relationship involves, in accord with market ‘‘mechanisms’’ and the ingredients comprising its logic, a balancing of interests. Freeman and Evan (1990) integrated stakeholder theory into the transaction cost theory that Coase (1937) and Williamson (1985) had developed based on the assertion that managers are there to ‘‘manage’’ contracts with employees, owners, suppliers, customers, communities, etc., with a view towards developing ‘‘fair contracts’’ that should be analyzed as the necessary moral precondition before the different parties can commit themselves. Since all parties have an equal right to sign contracts, any group is capable of investing in specific transactions that might affect the other groups, but in so doing the goal should remain that of developing a mode that enables conflict resolution and safeguards the rights of all committed parties. Here the concept of ‘‘fairness’’ becomes a key benchmark since it is based on the normative perspectives that are inherent to human behavior. Donaldson and Preston (1995) tried to connect stakeholder theory to property rights theory to justify the idea of getting property rights categories to represent the interests of stakeholders other than shareholders. The main difficulty here is how to connect different stakeholders by means of property rights that have been reduced to their formal dimension, and to do this within a distributive justice perspective. Remember that distributive justice is a key concept in modern neo-liberal philosophy, with its reference to Becker (1992) and especially Rawls (1987). The reference to Becker seem particularly strange given the fact that many ‘‘much more’’ important philosophies have already dealt with this question. This reference was primarily chosen in an attempt to devise a property theory that can be correlated with stakeholder theory (so that each stakeholder can be allocated legal rights and formal property rights). Freeman (1994) has in fact already validated this stance. Jensen (2000) severely criticized stakeholder theory in this respect, however, when he complained that it does not allow for a sufficiently objective substantiation of a company’s mission, and that it provides an excuse for executive opportunism. It remains that these attempts to connect stakeholder theory to ‘‘the new theories of the firm’’ have stumbled over several postulates and their underlying hypotheses. These include: J the market efficiency postulate, since the normative foundation of stakeholders’ interests leads to their being recognized as possessing social ‘‘depth’’, in turn disturbing the ‘‘purity’’ of the economic signals being diffused; J the normative perspective, which is not in tune with the methodological individualism postulate; and J inter-individual contractualism is replaced by a categories-based contractualism that imbues it with a metaphorical dimension.

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The third false evidence relates to the theory’s psychological aspect and is part of a drive to refuse egotistical subjects and to accept more reflective ones that are merely expressing a desire that they may have. In referring to a ‘‘generic’’ subject, however, the theory is seeking less of a footing in neo-liberal perspectives (particularly those found in an ultra-liberalism predicated upon the bestowal of radical primacy upon individuals, and therefore on the proliferation of rights that can be valued in a ‘‘market’’). Instead, it is sinking roots into a civic type of republicanism (belief in the existence of a ‘‘common good’’ that adapts stakeholder interests so they can encompass ‘‘civic virtues’’; plus a denunciation of deviations like the type of corruption that is caused by a conflict of interests – this being the place where we spill over into governance questions). The fourth false evidence relates to its sociological aspect. Stakeholder theory features subjects that are ‘‘generic’’ (customers, suppliers, employees, etc.) but which do not constitute social categories. What we should be mostly discussing here is stakeholder theory’s contribution to the anthropological conception of organizations that benefits from this genericity. The generic subject that is the subject of the organization still appears here in his/her daily reality, i.e. in the concrete and peculiar form of ‘‘being in situation’’. As such, stakeholder theory paves the way for kinds of categories where subjects can have two reasons for belonging: one as the fully formed human beings they are; and the other as a specific form thereof. By so doing, stakeholder theory offers a sort of false validation for cultural studies that, it should be remembered, advises rethinking about cultures no longer in terms of any culture-nation links but instead in light of the culture-social groups connection (Hoggart, 1973; Hall and Jefferson, 1975; Willis, 1977; Hall and Jacques, 1990, etc.). Cultural studies of this ilk currently enjoy a great deal of media-driven success in business school education and research. The ‘‘masses’’ and the perspectives for understanding them have replaced ‘‘class’’-oriented reasoning, with stakeholders constituting the figures used to enhance understanding of these ‘‘masses’’ based on a ‘‘complex equality’’ between each of their individual interests. Of course, with its reference to a roles concept, stakeholder theory does have something to contribute to the sociology of organizations. Along with Crozier and Friedberg (1977), it should be remembered that an actor is someone who plays a role in an organization based both on his/her imaginary world (possibility of identifying with an ideal person or of masking one’s personality) and functional aspect (involvement in a specific situation). As such, the stakeholder concept offers the socialization process a comprehensive perspective whereby it becomes possible to design an ideal-type role combining organizational and personal aims. This would also mean being able to imagine stakeholders being brought back into the ‘‘old’’ categories, as analyzed by Katz and Kahn (1966, 1978) when they distinguished among varying expectations of role, role transmission, role reception and behavior within a role. It is also by starting out with this role concept that we can move on to a games concept related to cultural models of society. Here stakeholders are seen as concrete evidence of such ‘‘games’’ socialization power – in which case the stakeholder concept does indeed lie at the heart of the role-game-strategy trilogy – and of the influence concept. After all, influence is what creates a perspective that can be both intentional and interactional. It also creates a duality between substantive rationality (values) and procedural rationality (codifiable behaviors). At the same time, stakeholders are characterized by an erosion of the universalistic nature of social contracts. They open the door to a cultural relativism that is connected to each and every one of them. We should also stress, from an ideological point of view, the theory’s absorbent characteristics: J From a descriptive point of view (since it appears to ‘‘use up’’ organizational description due to its exhaustive nature). J From a normative point of view (since as many stakeholders crop up as are necessary, with ‘‘diffuse’’ ones following in the steps of their ‘‘contractual’’ counterparts). J From a deterministic point of view (in which case all stakeholders are to be viewed as the structuring agents of an organization, this being the very expression of their ‘‘essence’’).

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J From a theoretical point of view (with stakeholder theory being seen as a parallel to the transaction cost theory that it echoes – and the same applying to the contractualist perspective, even though what we are dealing with in the present case is a ‘‘pseudocontract’’). The two corpuses benefit, in a multiplicative manner, from their respective outlooks. The moralism found in stakeholder theory combines with the contractualism and economicism found in transaction cost and agency theories (Clarkson, 1995). J From a justificatory point of view (with philosophy and ethics entering alongside of it into the domain of ‘‘affairs’’). J From a ‘‘spontaneist’’ point of view (given stakeholders’ ‘‘indisputable’’ existence). Here we are having to contend with the fact that it is relatively easy for many of the theories that one finds in the social science fields to be turned into ideologies (Boudon, 1986). All this requires is: J simplification; J a semblance of representativity; J a vehicle for comprehensive presuppositions; and J a sympathetic aspect. This justifies our questioning of the quality or inversely the relative mediocrity of any references to this theory, particularly given the way its legitimacy has developed over time. Built in opposition to the figure of the shareholder, the stakeholder first appeared as a means for preventing the merry-go-round of excessive dividend distribution, before being ‘‘co-opted’’ (as is so often the case with criticisms) to such an extent that stakeholders are now viewed as the expression of a communitarian liberalism that has started to ‘‘sag’’ due to the ‘‘spontaneist’’ nature of its occurrence. Of course, its main ambiguity stems from the fact that ‘‘non-stakeholders’’ are ‘‘legitimately’’ excluded – raising questions as to what society these excluded parties belong to. Stakeholder theory is neither economic, nor psychological, nor sociological, nor (and this is crucial for anyone interested in ‘‘the theory of organizations’’) psycho-sociological. Ultimately it is ethical, with all the ambiguity and richness that this entails. 3.2. The ethical foundations of stakeholder theory All in all, stakeholder theory raises a number of questions about the actual ethical bases upon which it is based. At the very least, authors in this field agree that it requires some ‘‘practical’’ aspects so that it can be grounded in ‘‘applied ethics’’ from the very outset. Nevertheless, this formal perspective does not resolve all of the questions pertaining to the theory’s foundations. Is stakeholder theory rooted in needs or in desires? This question is a source of ambiguity. We find both aspects with so-called contractual stakeholders (expression of the need for ‘‘honest’’ sourcing from suppliers; the confusion between needs and the desire for honesty from customers; the desire with shareholders for honest gains). On the other hand, neither needs nor desires are capable of accounting for the foundations of the expectations of diffuse stakeholders working to develop ‘‘good lives’’ that they can use as a benchmark. For this group, the goal is to ‘‘wake up’’ at the right time, that is, whenever their ‘‘good life’’ starts to be perturbed by the consequences of a firm’s actions. More generically, and above and beyond the duality between needs and desires, we might be able to use the concept of people’s interests to ascertain the foundations for stakeholdership. Here stakeholders are situated in categories defined by the modern reinterpretation of moral sentiments. Remember the simultaneously ontological and normative perspective by which moral sentiments are characterized. In this vision, honesty is construed as a moral sentiment, and is connected to the subject at a fundamental level because of the honest subject’s presuppositions, and because of the way in which s/he normalizes his/her behavior depending on circumstances. To a certain extent, moral sentiment is situated between reason and emotion: reason because it provides an axiological foundation for behavior (which can be either

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‘‘good’’ or ‘‘bad’’); and emotion because of its deeply subjective underpinnings. Stakeholder theory is therefore a means for narrating one’s ‘‘good life’’ to oneself, against the backdrop of the moral substance of today’s economic activities, and from an eudemonistic perspective (based on a conception of happiness) as opposed to a hedonistic one (solely based on desires). In fact, it is at this level that the theory can be truly described as a ‘‘theory of organizations’’. It is also here that stakeholder theory can be linked to countless organizational narratives (Pesqueux, 2001). The present text will not linger on this question of narratives, but it should be noted that it is in this sense that the stakeholder concept is attached to membership categories as opposed to citizenship ones (Walzer, 1998). Having started out with the theory’s ethical foundations, we can now shift to its political consequences, and discuss the contours of stakeholder capitalism (creation of value for customers, suppliers, communities, employees . . . with shareholders and banks only coming at the end of the chain). Freeman is one of the most fervent defenders of this construct, but also of stakeholder society, a vision that Hutton (1999) helped to found. Yet is not true that both these schools raise the question of democracy only after having first embedded it in capitalism, which they construe as a political order? And don’t both perspectives lead to a conception of democracy in which it is defined using the stakeholder construct? There is little doubt that these visions constitute a reversion to the contours of ideology, in the ‘‘initial’’ political sense of the term, an ideology whose existence was evoked at the beginning of the present text in regards to the stakeholder concept. In turn, this helps us to talk about how the stakeholder concept has been used to substantiate the political validity of a society that is reticular, i.e. where categories are not treated equivalently, but where treatments are differentiated by territory and by institution.

Or else, might it be that stakeholders are the drivers of a new strategic organizational discourse, leading to the formulation of a strategy that is no longer merely responsive, but which is in fact proactive in its efforts to create greater value (the initial vision having turned out to be excessively anchored in the short-term)?

3.3. Stakeholders as a potential foundation for deliberative democracy The issues raised by the deliberative democracy construct are relatively subtle ones, since the categories it uses are currently being developed within the confines of representative democracy categories. Of course, this latter system is still being presented as a palliative – although we view it, through the reference to the stakeholder construct, as akin to a fullyfledged democratic structure. Remember first of all the reduced contours that Gutmann and Thompson (1996) lent to deliberative democracy by depicting it as a situation where forms of politeness are the only things that need to be respected – a stance that disturbingly resembles the codes of conduct that usually prevail in acts of discussion undertaken in the attempt to develop norms. As such, deliberative democracy indicates the significance that has been attributed to reciprocity in such deliberations; to the publicity surrounding announcements of the stances held by the different protagonists (stakeholders whose positions, however extreme, have to be broadcast in the name of some transparency principle); and to the responsibility of the debater towards the community s/he is representing during the debate. To a certain extent, this operates ‘‘independently’’ of the general representativity of this community, much as is the case with stakeholders. Making references to deliberative democracy means distinguishing between politics construed as a place for reconciling divergent interests and based on the antagonism dimension (polemos) – and politics whose purpose is to ‘‘establish an order’’, organize coexistence (polis) and enable actors to live together in a dimension of agonism. The deliberative democracy project is, therefore, one that is based on a pluralistic order where the transformation of enemies into adversaries constitutes a pre-condition for democracy’s existence in society and within firms – this being a society that we can describe as being reticular since it does not imply the equivalent treatment of all parties located on a territory at a given moment in time, be it a geographic territory and/or in the ‘‘institutional’’ sense. Using stakeholder capitalism categorizations,

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modern societies can be portrayed as reticular since the groups by which they are comprised are said to result from more or less stable relationships that are built upon the expression of preferences, affiliation and interests, and not on a territorial and/or institutional (i.e. citizenbased) type of belonging. This would appear to result from the fact that relationships here are easier to modify and therefore more ‘‘plastic’’ than traditional social stratifications are. It is because of this pluralistic expression of points of view, and due to this innovation-related interplay, that we are given permission to envision stakeholders from a global governance perspective. In this view, multiculturalism is equated to confrontation with a plurality of interests in a world where such a pluralism of positions (and of their underlying values) itself tends to constitute a value. The deliberative democracy that ensues is simply construed as lack of coercion as regards stakeholders’ possibilities for expression. It is important to put this position into perspective when dealing with republicanism traditions and the proliferation of the new political spaces that mark the ‘‘liberal moment in time’’. In any event, due to the implicit primacy being attributed to individual freedom, categories of this sort are destined to ‘‘stumble’’ over equality issues in a society where the possibilities for communication have increased due to the proliferation of information and communications networks. To explain the ever-greater legitimacy being awarded to deliberative democracy categories, one thing we can do is reproduce arguments that Boblio first formulated in 1987 when discussing modern life’s excessive scale, the growing bureaucratization of the state apparatus (and of corporate apparatuses, we should hasten to add), the increasing technicity of decision-making and civil society’s tendency to become a mass society. The democratic challenge here is how to create compatibility between pluralism and individualism – and, given the connections between the different ‘‘flexible’’ specialization’s one finds in society and in organizations that have become reticular in nature, how to act out the increasing significance being attributed to decentralized economic regulations. ‘‘Common good’’ issues are raised in this reference to democracy, be they representative or deliberative in nature. With the latter, ‘‘common good’’ neither derives from a generalized will nor is it the product of whatever legitimacy may have been attributed to individuals’ atomistic nature or to the marketplace. In the different categories found in deliberative democracy, the point of reference is the role attributed to the notion of ‘‘merit’’, when associated with the different stakeholder-specific avatars of the ‘‘common good’’ (Macintyre, 1984). Merit becomes the basis for those constituent commitments that serve to unite members of a given community (Sandel, 1982) around the representation of a ‘‘common good’’ – the idea being that this constitutes a reasonable plan. Here the thought that the common good comprises something ‘‘moral’’ replaces another perspective in which it is viewed as something ‘‘political’’ in the aspects of a complex equality in relation with these different ‘‘common goods’’ (Walzer, 1983). This might explain why some areas are dealt with an inter-stakeholder discourse like sustainable development and global responsibility. This led to the idea that policies should be designed ‘‘in their time’’, hence that deliberations should be organized in a way that interconnects the members of the community. The goal becomes that of establishing a technical democracy as an alternative to a state intervention that is deemed to be excessively ‘‘unequivocal’’. It is within this framework that ‘‘technicized’’ civic virtue can materialize and be used to denounce, observe and enable expression. In short, stakeholder deliberations should be organized in a way that allows for the constitution of a civic consciousness without the imposition of any eudemonia. Such an organization should be positioned between a negative conception of liberty (the absence of coercion) and a positive one (the individual’s desire to be his/her own master without such a desire being nothing more than mere individualism). The deliberation’s organization would then enable the formulation of ‘‘reasonable interests’’ within the framework of an effective response to a pluralism in which power, laws and knowledge would be marked by a lack of determination. This would create the possibility that a truly reticular society could take shape, and that modern democracy could be designed both with and against the ‘‘total’’ state – paving the way for a deliberative democracy that is freed from the facade and the deforming intermediation of political parties, thus

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reoccupying spaces in political discussion. As a material form, this organization could constitute an alternative to the forces of persuasion and symbolic violence that come with the exercise of power. It would offer the guarantee of pluralism as a value. This could also constitute a shared identification framework for both individuals and citizens, based on a rationalist humanist perspective inherited from technical perfectionism broken down into political dimensions. To a certain extent, this would involve organizing the techno-ideal conditions of a debate that combines reasonableness and neutralism, with a view towards the expression of a reasonable plurality developed using stakeholders as a reference. Deliberative democracy would lead to the implementation of a ‘‘fair effect process’’ that could connect fairness and a feeling of fairness (in a sort of self-fulfilling prophecy that also takes the discourse’s perlocutory effect into account) by using the ‘‘convergent lenses’’ of ‘‘differentiated common goods’’ and thereby leading to yet further justification for the reticular society expression. The organization of the deliberation would pave the way to a self-government perspective (given that it would constitute one of the enabling conditions thereof).

Conclusion As a ‘‘theory of organizations’’, stakeholder theory has helped to found a relational model of the organization. The relations in question could in fact start to form an organizational ‘‘substance’’, but the perspective would then remain relatively functionalist in nature. Once again, ‘‘organizational sciences’’ are predicated here on the implicit postulate of the following continuum: individual-group-community-firm-organization-institutions-state. After all, a firm is also an organization. This explains why stakeholder theory is considered a likely way of offering scientific substance to explanation of what institutions are really made out of, since these entities can then be studied by means of organizational concepts. In this way, stakeholder theory leads to the organization being reified in an a-historical dimension, an act that reduces their ‘‘formal diversity’’ and diminishes their institutional and political nature. Let us briefly recall the doubly epistemological dimension of the organizational model (Pesqueux, 2002). This model is based on a ‘‘reduction of reality’’ and on a normative reference – with all of the discursive dimensions associated with these two perspectives and that enable discussions of the model concerned within the lexical field to which it belongs. Here stakeholder theory becomes part of a comprehensive project relating to the organization-groups relationship and is simultaneously viewed as a foundation (‘‘the essence’’ of the organization being born from the relationship with these groups); a norm (so that it is up to the organization to affirm ‘‘perseverance in its being’’ by managing the stakeholder relationships); and a theory of action (enabling analyses of organizations’ relational strategies, c.f. Baron, 1995; Bucholz et. al., 1994). Its current status in organizations correlates to whatever legitimacy is being bestowed upon the management-by-project idea. The upshot is that stakeholders should give voice to any differences in values that may exist at a given moment in time – in which case the project should fall in phase with stakeholders’ federating role.

Note 1 The expression ‘‘agonism’’ derives from the term ‘‘antagonism’’ and indicates a lesser degree of opposition. Corresponding to the enemy (antagonism) is the figure of the adversary (agonism). As such, agonism sketches the contours of a society (or of an organization for our present purposes) in which the quest for consensus has replaced the recognition of conflict.

References Altman, B.W. (2000), Defining ‘Community as Stakeholder’ and Community Stakeholder Management: A Theory Elaboration Study, in Research in Stakeholder Theory 1997-1998, Clarkson Center for Business Ethics, University of Toronto. Baron, D.P. (1995), Business and its Environment, Prentice Hall. Barton, S.L., Hill, N.C. and Sundaran, S. (1989), ‘‘An empirical test of stakeholder theory predictions of capital structures’’, Financial Management, Vol. 18 No. 1, pp. 36-44.

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A critique of stake-holder theory: management science or a sophisticated ideology of control? Elena P. Antonacopoulou and Je´roˆme Me´ric

Abstract In this article a critique of stakeholder theory is presented. The analysis highlights several concerns regarding the scientific rigor of this body of knowledge revealing the assumptions and inconsistencies that underpin its main propositions. The discussion shows in particular some of the internal contradictions between, on the one hand, the ideology of social good, and on the other hand, the ideology of control which we argue is not fully accounted for in the way stakeholder theory was popularized in recent years. Our critique opens up more possibilities for engaging with stakeholder theory acknowledging the underlying values that are at stake, thus, revealing the political and value-laden nature of the concept of stake-holder. What we seek to draw particular attention to is the way stake-holder analysis reveals the challenges when not only subjectivities but identities are at stake. This latter point we hope will encourage greater reflexivity among theorists and researchers in this field, recognizing that their personal biases and partialities influence their scholarship, and the way they shape the ideologies stakeholder theory is presented by.

Elena P. Antonacopoulou is a Fellow at the Advanced Institute of Management Research and Professor of Organizational Behaviour and Director of GNOSIS, Management School, University of Liverpool, Liverpool, UK. Tel: +44 (0)151 795 3727, Fax: +44 (0)151 795 3001, E-mail: [email protected] Je´roˆme Me´ric is Maıˆtre de Confe´rences, CERMAT (Centre d’Etudes en Management de Touraine), IAE (Institut d’Administration des Entreprises), 37206 Tours Cedex 03, France. Tel: +33 (0)2 47 36 10 36, Fax: +33 (0)2 47 36 10 11, E-mail: [email protected]

Keywords Stakeholders, Management theory

Introduction For the last decades, stakeholder theory has become a central discussion point in management science as well as in the field of managerial practice. The swift development of the key concepts proposed in this ‘‘theoretically declared’’ corpus can be explained with their apparent obviousness, that could facilitate their acceptance in both academic and professional worlds. Suddenly, from the middle of the 1980s to the beginning of this century, various examples of managerial situations have converged to prove and to strengthen the accuracy of the main hypotheses on which this so-called theory is based. Descriptive papers have first tried to help identify and classify the main stakeholders. Subsequently, normative and instrumental articles have proposed target decisions, actions and responsibilities that could meet the particular requirements of specific stakeholders. The stakeholder concept has become self-evident, just as natural as breathing or drinking water. Yet, ironically, despite its wide acceptance it remains very fuzzy as a concept, especially because of its apparent clarity and generalizability. It would seem that if anybody were to be asked to define what a stakeholder is, they would respond by saying that it is ‘‘any group or individual who can affect or be affected by the objectives of companies’’ (Freeman, 1984, p. 46). This definition is directly drawn from Freeman’s (1984) first steps in the discovery of stakeholdership. This extensive approach of ‘‘whom can be affected by the organizational goals’’ leads to at least two

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DOI 10.1108/14720700510562631

immediate social and ethical implications: First, the field of management responsibility is extended to the entire society; second, any social actor is legitimately concerned with organizational decisions and actions. When referring to the age of enlightenment’s concepts, citizenship appears to be extended to organizations. Such an intellectual process is nothing new. Since the early days of management science (Chandler, 1969; George, 1972), issues of reification have become key scientific concerns. The mere transfer of strictly human concepts towards non-human entities such as organizations has become common place. This tendency towards anthropomorphism is a key concern in current debates in the field of organizational learning (see Kim, 1993; Simon, 1991; Argyris and Scho¨n, 1978), for instance. Initially, the tendency to transfer human concepts to non-human concepts was seen as unproblematic, even self-evident as part of building management science and learning/transferring and applying knowledge from other sciences, e.g. anthropology, psychology, sociology, biology, etc. However, subsequently some of the modalities of transfer from different scientific perspectives have started to emerge. The main modalities are often the same. Either individuals are considered as the operator for this main transfer (from a single one to a group of ones), or the relational network linking these individuals has to be compared, metaphorically, with images of neural networks (drawing on neurology) or cognitive processes (drawing on psychology). In this paper we seek to provide a systematic critique of stakeholder theory, highlighting some of the epistemological pitfalls in the way it is positioned as a scientific tool, particularly when reference is made to ‘‘stakeholder analysis’’ (Burgoyne, 1994). We explore some of the more fundamental ideological assumptions that underpin the main thrust of the theory, the view of ‘‘stakeholders’’ and, in particular, we focus on the key element of stakeholder theory; what do different stake-holders have at stake to show that power and control issues are unresolved aspects of this management ideology. By revealing some of the strongly political underpinnings of the theory, we question whether instead of a scientific management theory it is in fact a sophisticated ideology of control. By exploring stakeholder theory as an extension of the theories of control, and, as it is declared to belong to the field of science, it could be analyzed in epistemological terms. For instance, agency theory sets a framework for analyzing problems of delegation in a contractual context. Control has often been approached as a set of processes that allow principals to influence and check their agents’ decisions. Enlarging the scope of responsibility to other actors from the environment of firms, stakeholder theory stresses the limits of contractual models, and thus proposes to absorb them in a wider framework. The strength of such a theory is based on the fact that this enlarged responsibility seems a positive as much as an obvious one. This basic hypothesis could be contested, and, along with this, so could be contested the scientific rigor of the theory. At least two types of issues may lead us to contest the hypothesis on which stakeholder theory rests. First, under which conditions and assumptions did this corpus of ideas emerge? Second, the use of this theory – as far as its implementation principles are not fully detailed (for instance, how are the problems of information asymmetry taken into account?) – can become purely political. In fact, it can be implemented as a simple communication vector, or as a way to dilute the power of official ‘‘principals’’ (primarily shareholders). This instrumentation of what could be considered as a solid and normative description of organizational concerns leads to more questions such as: does the appearance of science (simplicity, rigor of the later implementations of concepts) hide a deeper ideological meaning of stakeholder theory? These questions lie at the core of the systematic critique this article seeks to present. We embark on our critique by analyzing the very nature of stakeholder theory, to identify if it belongs to the field of science, or to the domain of instrumental management ideology. As a first step, a general method is adopted to confront stakeholder theory with the criteria of scientificity to which it implicitly refers. This analysis helps to underline the ambitions for generalization and absorption that this new corpus has proven to have. The effectiveness of such ambitions are further analyzed through the case of the assimilation attempt of contractual theories, thus highlighting only more clearly how power and control issues remain key political underpinnings

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of stakeholder theory. The discussion concludes with the implications of this critique of stakeholder theory in highlighting how what is at stake is often what defines how agents are conceived and how stakeholder theory translates in the analysis of social interactions in organizations. Our analysis leads us to conclude that stakeholder theory is an ideological product rather than a scientific one.

Does stakeholder theory belong to the field of (management) science? As far as human sciences, including management, have acknowledged that their evolution could not be propelled by periodic revolutions (Kuhn, 1996), they seem to have accepted that their nature is deeply multi-paradigmatic. Nevertheless, our aversion towards contradictions incites us to consider that our new ideas just enrich an existing theoretical corpus, and that they offer the synthesis for which our discipline was looking. This may be the case of stakeholder theory, which does not hide its ambitions in this context. Nevertheless, the problem is to know if these attempts of absorption, as well as the general method that surrounds these new concepts, is identifiable within a scientific evolution process.

Stakeholder theory and its ambitions: a brief overview Pesqueux and Damak-Ayadi (2003) offer the most up-to-date review of the developments of stakeholder theory. They precisely underline both dimensions of it. First, an empirical view, based on descriptive and instrumental aspects, and second, a normative approach, which leads to ethical considerations. Jones and Wicks (1999) propose to go beyond this distinction in order to integrate the moral basis of relations between managers and stakeholders, and the practical implications that the theory can stimulate. As far as its descriptive aspects are concerned, stakeholder theory provides many classifications of cooperative or competitive stakeholders (Donaldson and Preston, 1995). Beyond these identification processes, the descriptive side of the theory is used to analyze organizational phenomena such as decision processes, information disclosure, or stakeholders’ attractiveness. This process naturally leads to instrumentation. The concomitance of observed results and attitudes leads to a consideration of the effects of stakeholders’ attitudes over managerial decisions, or even the financial benefits companies can draw from taking into account social concerns (see, for instance, the incremental analysis proposed by Balmer and Greyser, 2002, or the wide-range survey by Florida and Davison, 2001). This concomitance is measured through statistical tools and leads to the formulation of purely instrumental recommendations. Using other methodologies, like case studies, some contributions try to classify stakeholders according to their positions inside a three-dimensional strategic setting (resource base, industry structure, and social-political arena, see Post et al., 2002a). Another stream of investigations tries to identify the moral foundations that should animate organizational directions (Jones and Wicks, 1999).

The traditional distinction between the descriptive, instrumental, and normative dimensions seems obvious inside the academic field, whereas practice seems to mix all of them in a single stakeholder approach, where wealth-creation objectives and moral concerns are considered altogether. The instrumentality of the theory is declared to harmoniously join the firm’s interests and its implication inside the ‘‘larger society’’ (see the Cummins or the Motorola case in Post et al., 2002b). ‘‘Ethics pay’’: firms that respect the integrity of individuals inside and outside the organization, ensure the avoidance of costs due to crises, their recognition from the professional community (especially the consulting area), and finally their own survival inside competitive markets. Causes are ‘‘ethics’’, even if they are not the only ones (Koll, 2003), and consequences are ‘‘economic’’ ones (see the model proposed by Greenley and Foxall, 1998). Stakeholder theory clearly expresses its ambitions for absorption and generalization. Extending the organizational frontiers to all stakeholders is assumed to lead to a panacea view of the organizational phenomenon. First, all stakeholders have to be listed. Then, all stakeholders are supposed to shape the organizational structures and decisions. Moreover, this corpus combines pragmatism and ethics in order to encapsulate a variety of view points. Finally, the

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idea of stakeholder seems obvious, because it is identifiable to observed objects. Absorption is much more a matter of theories. This corpus is declared to be compatible with all organizational theories that have been proposed before, and, at the same time, it is supposed to offer a wider explicative power.

The scientific status of stakeholder theory First concern: instrumental approaches and causality As a process of knowledge production in management science, stakeholder theory has favored the development of many instrumental conclusions. The point of this critique is not to discuss the only case of this corpus, but to question a main characteristic of management knowledge creation, which consists of modeling causal relations from observation, and to extract directly implementable conclusions once these causalities are confirmed. As far as the instrumental approaches are concerned, one ought to be reminded that many fundamental sciences have abandoned the models based on pure causality or contingency (Blanche´, 1975). It is time for management science to become aware of such limitations as well. The notion of cause is everything but precise. It has been denounced as being a purely utilitarian and anthropomorphic concept. Causality is one of the first constitutive elements of human intelligence. The experience of action leads to biased approaches of causal relations. First, any effect is supposed to come from an agent. Moreover, looking for causes is an ‘‘interested’’ quest: we are used to looking for what we can control. As a result, according to the most natural processes, we analyze human relations as an agents-effects nexus, trying to isolate ‘‘real’’ causes (the agents) from the conditions that could lead to effective consequences (the context). Science is often defined as the process that formalizes the ‘‘natural laws’’, these laws being represented as causal relations. Epistemologists have adopted a much more rigorous image of what science is supposed to look for. The problem of causality lies in the fact that causes and effects are a matter of scope. If causes are ‘‘perfectly’’ isolated from other phenomena (ceteris paribus), they will be confused with their effects, because they constitute a single and indivisible fact (Russel, 1921). On the contrary, causes will tend to infinity if all the conditions for the phenomenon to occur are considered (Blanche´, 1976). When physicians (a domain for which the isolation of factors seems much easier than in human phenomena) have abandoned the idea of cause for seeking functional laws, management science is still at the stage of looking for the causal intelligibility of situations. Of course, the acceptance of research conclusions in professional contexts appears much easier when they are crafted in the ‘‘if you do this, so this will happen’’ way. At most, we can formulate propositions that are based on the concomitance of observed (when not declared) phenomena. These propositions in turn can guide the formulation of tentative causal presumptions that can inform contextually specific recommendations. There can be no doubt that attempting to generalize from this proposition can only lead to broad brushed statements, which are meaningless in practice. The most rigorous researchers would introduce the term of ‘‘probability’’ between causes and effects, but, in such an approach, is an assumed cause still a cause? This first discussion leads us to reconsider the scientific nature of stakeholder theory (as well as one of many managerial concepts). The main counter-arguments we can find to this observation is that many researches tend to prove the real efficiency of such concepts, but does this assertion offer any guarantee of scientificity from the stakeholder view? The concerns of falsification and generalization should help provide a clearer answer to this question. Second concern: falsification, generalization and ideology To prove its scientificity, any theory should offer guarantees for either its generalization, or for its falsification. Two epistemological streams have emerged in the 20th century which propose two opposite conceptions of science. The Vienna Circle has defended generalization criteria (i.e. confirmative processes), whereas Popper (who took part in the Vienna Circle, 1963), developed the concept of falsification. His inaugural thought found its origins in the criticism of the

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‘‘explicative power’’ traditionally attached to scientific theories. From the simple statement that all events could be explained through some corpuses (Marxist, Freudian, or Adlerian), Popper started discussing their validity. Cumulative confirmation appears as a powerful proof, because it seems an obvious process, and because it hinders any shape of contradiction. Nevertheless, this methodology leads to the development of auto-confirmative circles. When a researcher like Adler (Popper, 1963, p. 62) considers a new case as a confirmation of his theory, he assumes at the same time that he interpreted the case through his past experience. Such a recursive explanation cannot authenticate a scientific approach. Thus, Popper proposes that we consider these types of corpuses as ideological, say dogmatic, products (as opposed to Einstein’s relativity, for instance, which was formulated without any confirmative observation). Psychoanalysis, according to Popper, cannot be tested nor refuted. The origins of dogmatism lie in the fact that the regularity of observations is the source of science. On the contrary, tending to prove the ‘‘falseness’’ of theories should be the main attribute of science. Instrumental approaches of scientific knowledge provide one of the best examples of the prejudicial effects of confirmation. Popper compares instrumental theories with any technical components that could be tested before assembling. According to this approach, an instrumental theory is considered to be usable under certain conditions that have to be defined; it is just an ad hoc object of knowledge. Refutations that could appear lead to no rejection, but to more restrictive conditions of use: ‘‘If the theory works under certain circumstances, it is still valid’’. This attitude underpinned Heisenberg’s statement that: ‘‘Therefore, we do not assert that Newtonian physics are false . . . Classical mechanics are perfectly ‘right’ when their conceptions are applicable’’ (Popper, 1963, p. 173). Because it confuses ‘‘rightness’’ and applicability, instrumentalism is a dogma as well. When referring to social sciences, Popper underlines the ambition to provide predictive frameworks, but, once again, this ambition leads to formulations of corpuses that will be confirmed in any case, whatever events may occur. Based on the example of Marx, his criticism of historicism is based on the idea that predictions provided by this theory are confused with their usefulness. If the quest for predictiveness had to be abandoned, social sciences could be seen as studying the behavior of collective categories. But Popper objects that social groups like ‘‘bourgeoisie’’ are ideal constructs more than the result of empirical observations. This should lead social sciences to consider individual interests and actions instead, but only if social phenomena are not exhaustively explained with human willingness. Otherwise, social ‘‘pests’’ like economic crises or unemployment would be interpreted as having individual origins: social sciences would run the risk of producing theories of conspiracy. On the contrary, Popper suggests that this research field ought to focus on the unexpected and involuntary consequences of human actions.

As far as stakeholder theory is concerned, we can easily observe that the main debates it arouses have nothing to do with its falsification. On the contrary, many academic productions are attempts to enrich its contents. Confirmation does not appear as necessary: the general framework is already admitted as a non-discussable model of organizational relations. Most of the literature dealing with stakeholder theory just proposes to analyze implementations or derived productions from the initial propositions. The theoretical legitimacy of this approach is also reinforced when some authors try to identify its precursors (see the case of Penrose, in Pitelis and Wahl, 1998). The descriptive aspect of the stakeholder view proposes a categorization of society according to the functional analysis of firms. These categories have never been questioned, probably because they seem obvious to the professional and the academic worlds. The only discussions we could find around this approach have to do with the regrouping and the non-functional role of already accepted categories. As far as we know, no alternative view of how a stakeholder could be identified among social groups has been proposed until now. As far as instrumental approaches are concerned, some contributions aim at restricting the conditions of use of this framework, just because of the existence of other contingencies. Moreover, a pure instrumental approach cannot be compatible with Popper’s suggestions on how social sciences (as a general meaning) should evolve. Indeed,

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instrumentalism aims at establishing cause-and-effect propositions that exclude any shape of unexpected and involuntary consequences of action. Stakeholder theory seems to have reached a status of an unquestioned obviousness – common sense. When surveys are proposed only for applying the concepts to new contexts (organizations or countries), they tend to follow the Adlerian process denounced by Popper. A new confirmatory research is based on the frameworks that it is supposed to confirm. All this turns out to create a self-fulfilling prophecy. The problem is to identify why such a process can occur inside a scientific field. There is probably some responsibility from academics, who accept such a corpus without questioning it, and restrict their investigations to descriptive and instrumental approaches. But this attitude is probably due to the intrinsic aspects of the stakeholder view. This theory fits with one necessary but insufficient criterion of scientificity: it is based on a simple idea (Popper, 1963). The aesthetics of simplicity have always been an attractive pole for science. Moreover, it seems to refer to other connected sciences such as economics, and not merely to psychology and to sociology, which bring much more legitimacy to its contents. Finally, it is declared to be compatible with pre-existing frames of organizational science. The last two points have to do with the ‘‘generalization-by-absorption’’ process in which the stakeholder theory has been inserted since it was proposed for the first time. According to Popper, a theoretical corpus that can provide exhaustive explanations of observed phenomena and that, at the same time, can integrate previously formulated knowledge, belongs to the field of ideology. Criticizing such an absorption process should help underline the ideological aspect of stakeholder theory. In a detailed analysis of the stakeholder view, Pesqueux and Damak-Ayadi (2003) strongly criticize the ‘‘misleading obviousness’’ of stakeholder theory. They first consider its descriptive appearance as a pragmatic screen that hides the militant discourse that it supports. For instance, it seems obvious that stakeholder theory is based on psychological and sociological concerns. The psychological aspect of this corpus is supposed to present individuals as volunteers and at least partially altruist people. Damak-Ayadi and Pesqueux (2003) explain that this assertion is inspired from a republican representation of ‘‘civic virtues’’, that promote the transcending of conflicting interests and of all their prejudicial consequences. From another point of view, the stakeholder theory proposes classifications of stakeholders that are the generics of management science (customers, providers, employees, etc. . . .), but these categories have nothing to do with the ones of sociology. Due to the fact it focuses on roles and behaviors, it would be much closer to systemic approaches of organizations (Katz and Kahn, 1966). In the field of management science, the case of control theories provides a fine example of how stakeholder theory apparently absorbs the original contractual frames, whereas it finally fails in its attempts to generalize the pre-existing concepts.

Stakeholder theory as an extension of control theories: the effects of enforced generalizations. The theories of control are mainly based on the concept of contractual agreements. Agency theory provides a conceptual framework to analyze both intra- and extra-organizational relations. The agency relationship is defined as ‘‘a contract under which one or more persons (the principal(s) ) engage another person (the agent) to perform some service on his or her behalf which involves some decision-making authority to the agent’’ (Jensen and Meckling, 1976, p. 308). Using altogether the key hypotheses of agency, stakeholder theories have become integral to management and professional discourse. Freeman and Evan (1990) integrate the theory of Coase (1937) to explain that the relations between stakeholders cannot be imagined outside the formulation of fair contracts. Hill and Jones (1992) propose to consider that managers should be the agents of multiple and variably important stakeholders, within a nexus of unequally formalized contracts. Multiplying those relations should lead to a balance of partly or completely diverging interests. Such a statement concurs with the most recent approach in stakeholder theory which is an ‘‘absorbing’’ corpus, a synthesis, or a meta-theory that can reconcile the diverging aspects of former ideas.

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Unconsciously (as far as its conceivers and users are concerned), management science follows the Hegelian scheme of ‘‘going beyond’’ perpetually. Nevertheless, it seems that agency relations and the stakeholders’ considerations are not necessarily compatible. It is now necessary to provide details on the failures of stakeholder theory in its attempts to absorb another theoretical field. The attempt to generalize legitimacy Both theories are focusing on the idea of legitimacy of control processes, but legitimacy cannot be understood in the same way for these two corpuses. Contracts constitute the main basement for legitimacy in the agency theory, whereas the stakeholder approach considers that all the interests that can be aroused from the consequences of organizational action are legitimate (Donaldson and Preston, 1995). Here lies the first contradiction between contractual approaches and the stakeholder theory. Of course, the absorption of ‘‘contracts’’ into the new conception of managerial responsibility can set a fine argument against this first statement. But it can be questioned, because the foundations of contractual theories are individualistic ones, whereas multilateral and ‘‘non-economic’’ contracts promoted by the stakeholders’ theory (even in critical approaches, see Sutton and Arnold, 1998) are no more than a metaphor to express managerial appointments (Damak-Ayadi and Pesqueux, 2003). When managers are exhorted to consider ‘‘nature as a customer’’ (Florida and Davison, 2001), there is no other way for interpreting such a discourse than the metaphoric one. The attempt to generalize the informational role It is now admitted (Caroll, 1989) that stakeholders have to be split into two categories, namely: the ‘‘primary’’ ones (contractual stakeholders) and the ‘‘diffuse’’ ones (diffuse stakeholders). This distinction leads us to consider that classical control processes, because they were conceived in the context of formal (even though not formalized) contractual agreements, cannot be implemented towards all stakeholders. Agency theory proposes that control should be defined as the processes that can concur to reduce informational asymmetry. This phenomenon is the pure product of contracts, that focus on results and on a certain scope of methods, but it still guarantees the agent’s autonomy in the accomplishment of his/her tasks. At a time when the acceptance of informational asymmetry is highly criticized, when ‘‘transparency’’ is referred to as a magic spell, the social control over companies cannot be thought in exclusively informational terms. It also consists of taking part in the ownership or in setting lobbying means. In such a context, information is no longer a way to help principals check the achievement of organizational objectives. It turns into a key-factor to convince or at least to avoid any protest from the stakeholders (McPhail, 2002). The reversal of the informational function casts light over a second field of contradictions between contractual approaches and the stakeholder theory. The attempt to generalize ‘‘fair contracts’’ What about the ‘‘fairness’’ of relations? Contracts are said to be fair when they are conceived to be prejudicial to no party. In traditional theories of organizational control, the fairness of contracts is guaranteed through the efficiency of markets. Thus, the criteria for measuring to what extent a contract is supposed to be fair are mainly economic ones. The extensiveness of approaches induced by the stakeholder’s theory tends to diversify the points of view, and thus the criteria to be taken into account. Social and moral responsibility seems to go beyond what is assignable to formal contracts. As a result, fairness cannot be defined in the same terms in the stakeholders’ approach and in the ‘‘new theories of the firm’’. To a wider extent, the conception of contracts used in the agency or the transaction costs approach is essentially a business-related one. It supposes both parts enter a contractual agreement only if they consider that the sharing of revenues (or profit) compensates the sharing of responsibilities in all considered alternatives (Hirshleifer and Riley, 1979). This framework is perfectly applicable within shareholders-managers relations. As Boatright (2002) contends, these specific relations can engender a market for decisions to enter (or not to enter) contractual agreements. It seems

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much more complicated when considering other stakeholders, just as NGOs or consumers. In these particular cases, it is not possible to determine any shape of reciprocal obligations. For instance, what could be the duty of an environmental association towards a company that could not contradict the independence of the first constituency? Though Boatright (2002) assumes that contracts are the only means to ensure constituencies’ protection, and thus the fairness of relationships, it seems difficult, not to say impossible, to determine their precise content. In such a context, the model for basic contractual relations is no longer receivable, and ‘‘fairness’’ becomes something else that has to be redefined in a wider perspective. The sharing of ‘‘ownership rights’’ is used by Donaldson and Preston (1995) to justify the interests of non-shareholders social agents. This argument, based on neo-liberal conceptions of society (Rawls, 2001), can also bring some explanations on how the responsibilities of managers and stakeholders could be shared, though this conception remains highly hypothetical and hardly applicable. Moreover, this theoretical framework does not provide any idea of what could be the model for contractual agreement. If a contract were to be considered, it would be a ‘‘social contract’’, in the terms of Rousseau (1762). In fact, the generalization of social responsibility seems to be the only framework that would allow us to talk about ‘‘contracts’’ when considering the relations between organizational structures and an enlarged scope of stakeholders. We must acknowledge that such a view has nothing to do with the traditional two-parts contract supported by traditional theories of control. In a context of general, diffuse, and multi-criteria responsibility, fairness is no longer guaranteed by bipolar relations: it is more specifically the role of the general will, that is to say, the role of law and regulation. Facing such a contradiction leads some stakeholder promoters to develop ‘‘legal imagination’’, a way to build legal foundations for stakeholder theory (Radin, 2002).

This criticism seems to be acknowledged by later theorists, like Post et al. (2002a, b), who propose to distinguish the traditional transactions based model with the one of relationships, that can combine conflicting interests as well as collaborative elements. Striking is the fact that the same authors promote the development of opportunities for ‘‘mutual benefits’’. It would be quite naive to think all diverging attitudes could be erased with the help of simple contractual agreements. People normally engage into contracts when they find a common point of view and develop shared interests. In economic models people enter into exchanges, because they feel they gain from the exchange. Even social contract models portray an exchange as taking place. The only variants for such situations are the ones of ‘‘non-aggression pacts’’ (see the Second World War), or informal ‘‘balances of terror’’ (see the Cold War). Can we still consider such agreements as a special shape of contracts to be inserted into a general model for an harmonious society?

Here are the reasons why, in spite of appearances and declarations, it seems particularly difficult to consider that stakeholder theory can absorb the contractual concepts that have founded organizational control. Although this assertion may be seen as a gross generalization we argue that non-the-less it reveals the ideological nature of the stakeholder theory.

If stakeholder theory is not science then what is it? The main argument of the previous section is that stakeholder theory does not stand up to the test of scientific rigor and, therefore, cannot be treated as a science. If, however, stakeholder theory does not belong to the field of science, what is its function? Is it a purely normative discourse based on ethic concerns? Is it a framework that helps managers cope with a growingly complex environment? The acceptance of stakeholder theory among academics and professionals cannot be seen as a simple managerial fashion (though there is enough hype around the concept) (Abrahamson, 1996). It seems to come from a deeper ‘‘social fact’’, as if Durkheim’s (1893) ‘‘organic solidarity’’ was no longer sufficient to ensure social cohesion, as if economics were no longer acknowledged for their moral substance. The stakeholder concept is both highly functional in its definition, and ethical as far as its implications are concerned. The implementations to which

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it necessarily leads answer to economic representations of performance, but they also insert organizations in a ‘‘moralizing’’ process. It appears as a restoration of the Smithian philosophical idea of ‘‘moral feelings’’ (Smith, 1776). In other words, it reintroduces the alliance of reason and emotion in the construction and in the protection of ‘‘good lives’’. As a consequence, stakeholder theory is much more a remedy for a contemporary presumed lack of civic sense than a revolutionary scientific framework for analyzing organizational relations. What makes stakeholder theory ideologically appealing is that it brings to the forefront of our attention the relational nature of organizational life, helping us to acknowledge the different kinds of relationships and the stakes on which these relationships are based. Much stakeholder theory is presented in utilitarian terms relying on Kantian ideas, giving stakeholder intrinsic value (see Gray and Hay, 1986; McCann and Gray, 1986). We cannot look upon the various relationships between stakeholders with Kantian detachment. Contractual relationships, as we have argued in the previous sections, provide only a limited view of relationality, predominantly based on rationality. We would prefer to take a more concerted view of relationality focusing on the socio-political forces and the dynamic negotiations (not exchanges) in relationships between stakeholders. Applying a psychodynamically informed perspective on stakeholder relationships extends alternative approaches to stakeholder theory, which rely on feminist philosophy for their grounding (see Wicks et al., 1994). The latter, account mainly for the importance of ‘‘caring’’ as the cause and consequence of relationships between stakeholders. With some echoes of the theory of psychological contract (see Rousseau, 1990, 1995) the feminist interpretation of stakeholder theory places relationships at the heart of what organizations do, and, concretely rather than abstractly, promotes a personal connection to relationships. In other words, unlike an abstract relationship management view different stakeholders are interrelated, not only because of contractual or legal obligations, but also because of social obligation and a sense of care which is in fact self-imposed according to Burton and Dunn (1996). The caring perspective of stakeholder theory emphasizes the sense of duty towards others as a key dimension, and as Calton and Kurland (1996, pp. 160-70) argue, it fosters an affirmative ‘‘ethics of care’’ and an ‘‘institutional capacity for intimacy’’ that allows stakeholders to share their concerns through decentered voice mechanisms and pluralistic discursive practices. Stakeholders thus become co-authors of their destiny rather than means of development and growth. This degree of self-discipline central to the notion of duty and care can be equally a technique of control as Grey (1994) convincingly argues. Calton and Kurland (1996, pp. 164-7) support this view when they state that: Stakeholder theory would then be recognized for what it is, a thick cloak of bright-eyed ‘‘affirmative postmodernism’’ covering strategies of organizational seduction and manufactured consent. Our critique does not dismiss the possibility that stakeholder theory as an ideology of caring relationships and interdependencies would add value. What we do critique, however, is any naive presupposition that stakeholder theory is value free. In fact, the very essence of our analysis is to problematize further the key issue in stake-holder theory, by highlighting that what is at stake by definition is socially defined and pursued both individually and in community depending on the degree of interdependence between one or more parties. As we have argued elsewhere (Antonacopoulou, 2002, 2003), for a community to review its values and assumptions it needs to be more conscientized (from Freire’s (1973) concept of conscientization, i.e. a critical reading of commonsense reality) to the impact of ethical dilemmas embedded in day-to-day practices. Perhaps more importantly, a community needs to shift the discussion of such dilemmas and values from the realm of the unconscious and un-discussable into the realm of discussable and actionable (Argyris, 1994). If a community becomes more conscientized towards the implications of individual and collective actions then social negotiations could stand a better chance of being more constructive. Therefore, the socio-political ideology underlying stake-holder theory being value-laden as it is, reminds us to pay attention to the multiple and competing values of different participants which form part of the community at different points in time. Developing ways in which we can study and better account for the nature of the interconnections between agents and the structures they create (Latour, 1986; Antonacopoulou and Grac¸a, 2004) would seem to be a critical next

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step. This could be a useful avenue for advancing further stakeholder analysis which is currently methodologically lacking. Perhaps this may be one way of adding scientific substance to this (stakeholder theory) management ideology. Our next steps in advancing stakeholder theory need also take into account the socio-political ideologies of knowledge production in management and organization studies. Adopting a more critically reflexive (see Antonacopoulou, 2004) stance towards stakeholder theory, enables us also to reflect on some of the biases and values which underpin our theorizing in the academic community. These values are evidently shaping the development of different perspectives around stakeholder theory. Some of these values clearly shape the ideologically driven view of stakeholder theory. Other sets of values seem to be driving the scientifically positioned accounts. And other values still are motivating a critical analysis of knowledge production in management and organization studies. These latter set of values reflect a commitment to unveiling hidden aspects and biases in our own theorizing but they are still reflective of certain values. It is in this latter category that the authors of this paper and the intended contribution of this critique also rests. Ultimately, viewing organizational phenomena is a matter of choice but choice is not value free when identities are at stake!

Conclusions This paper sought to provide a critique of stakeholder theory focusing in particular to unravel the tensions in its identity as a body of knowledge. It is presented both as an ideology as well as a scientific method for analyzing contractual relationships between parties. We are not disputing its usefulness, but we do caution about its scientific rigor and some of the ideological assumptions about control shaping the nature of the relationship and interaction between stakeholders. It is the very nature of these relationships and the dynamics of the interactions between different individuals and groups that we argue, ought to be the focus of future research in this field. Our analysis also makes the case for the need to engage and critically reflect further on the various assumptions underpinning different perspectives informing stakeholder theory, so that greater conscientization on the values underlying knowledge production processes in management and organization studies can lead to more insightful and pragmatic representations of these complex and multifaceted aspects of social relations that stakeholder theory is committed to address.

Acknowledgement The author would like to acknowledge the support of the ESRC/EPSRC Advanced Institute of Management Research under grant number RES-331-25-0024 for this research.

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Koll, O. (2003), ‘‘Stakeholder value creation and firm success’’, Advances in Business Marketing and Purchasing, Vol. 12, pp. 141-262. Kuhn, T.S. (1996), The Structure of Scientific Revolutions, 3rd Edition, The University of Chicago Press. Latour, B. (1987), Science in Action, Harvard University Press, Cambridge, MA. McCann, J.E. and Gray, B. (1986), ‘‘Power and collaboration in human service domains’’, The International Journal of Sociology and Social Policy, Vol. 6 No. 3, pp. 58-67. McPhail, T.L. (2002), Global Communication: Theories, Stakeholders, and Trends, Allyn and Bacon, Boston, MA. Pesqueux, Y. and Damak-Ayadi, S. (2003). Pitelis, C.N. and Wahl, M.W. (1998), ‘‘Edith Penrose: pioneer of stakeholder theory’’, Long Range Planning, Vol. 31 No. 2, pp. 252-68. Popper, K.R. (1963), Conjectures and Refutations, Routledge and Keagan Paul, London. Post, J., Preston, L. and Sachs, S. (2002a), Redefining the Corporation: Stakeholder Management and Organizational Wealth, Stanford University Press. Post, J., Preston, L. and Sachs, S. (2002b), ‘‘Managing the extended enterprise: the new stakeholder view’’, California Management Review, Vol. 45 No. 1, pp. 6-28. Radin, T.J. (2002), ‘‘From imagination to realization: a legal foundation for stakeholder theory’’, Research in Ethical Issues in Organizations, Vol. 4, pp. 31-49. Rawls, J. (2001), Justice as Fairness: A Restatement, Harvard University Press, Cambridge, MA. Rousseau, D.M. (1990), ‘‘New hire perceptions of their own and their employer’s obligations: a study of psychological contracts’’, Journal of Organizational Behavior, Vol. 11, pp. 389-400. Rousseau, D.M. (1995), Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements, Newbury Park, CA. Rousseau, J.J. (1762), Le Contrat Social, Translated by Cranston, M. (1968), Penguin Books. Russel, B. (1921), ‘‘The analysis of mind’’, Outline of Philosophy, Unwin Hyman. Simon, H.A. (1991), ‘‘Bounded rationality and organisational learning’’, Organisation Science, Vol. 2 No. 1, pp. 125-34. Smith, A. (1776), The Wealth of Nations, Bantam, 2003. Sutton, S.G. and Arnold, V. (1998), ‘‘Deconstructing economic stakeholder theories or is might really right?’’, Critical Perspectives on Accounting, Vol. 9, pp. 251-60. Wicks, A.C., Gilbert, D.R., Jr. and Freeman, R.E. (1994), ‘‘A feminist reinterpretation of the stakeholder concept’’, Business Ethics Quarterly, Vol. 4, pp. 475-97.

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Some philosophical issues in corporate governance: the role of property in stakeholder theory Maria Bonnafous-Boucher

Abstract Focuses on what can be referred to as the ‘‘fundamental philosophical issues of corporate governance’’. Outlines the interdependence of various kinds of governance. Demonstrates that corporate governance is part of a bundle of governances and that, in this respect, it occupies a leading place to the degree that its principles are becoming consolidated. Then discusses in a more detailed manner what is meant by the term ‘‘dominant functionalism’’. Then deals with the question of the equilibrium between sovereignty and legitimacy from the point of view of corporate governance. In effect, rules of governance (considered as the designation of a sovereign power) are searching for a legitimizing instance originating outside the framework of those rules. Finally, covers the proprietarialist origins of stakeholder theory, origins which correspond to a moderate liberal tradition.

Maria Bonnafous-Boucheris is an Associate Professor and Chair of Organisation Systems Development at the French Academy of Sciences and Techniques (Conservatoire national des arts et me´tiers), Paris, France. Tel: 01 40 27 21 63, E-mail: [email protected] and [email protected]

Keywords Corporate governance, Philosophical concepts, Management theory

Introduction Due to the technical nature of theories about corporate governance, the status of the concept is distinct from that designated by the more general term ‘‘governance’’. The field is, in fact, dominated, in management science, by a functionalist and descriptive conception of corporate governance based on a theory that is either orthodox (property rights) or heterodox (stakeholder theory). Since its objective is essentially to perfect the principles of governance applied in what Chandler terms ‘‘big business’’, the functionalist approach turns away from other forms of governance, even though the essential meaning of all governance is to reveal the transformation taking place in power mechanisms and the wavering of the idea of sovereignty, and to expose the precarious equilibrium between principles of sovereignty (which attempt to base themselves on the credit provided by all the firm’s stakeholders) and a legitimacy based on shareholder value that is open to question by stakeholders. These questions cover what can be referred to as the ‘‘fundamental philosophical issues of corporate governance’’. In the first part of this article, I shall outline the interdependence of various kinds of governance. I shall demonstrate that corporate governance is part of a bundle of governances and that, in this respect, it occupies a leading place to the degree that its principles are – in spite of the fact that they are continually discussed in function of the model of governance adopted – becoming consolidated.

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DOI 10.1108/14720700510569229

In the second part of the article, I shall discuss in a more detailed manner what is meant by the term ‘‘dominant functionalism’’. The third section will deal with the question of the equilibrium between sovereignty and legitimacy from the point of view of corporate governance. In effect, for the first time in the history of the firm, or even of capitalism, rules of governance (considered as the designation of a sovereign power) are searching for a legitimizing instance originating outside the framework of those rules. Stakeholder theory is, in this regard, remarkable, since it envisages this new dimension of capitalism in terms of the development of the principles of governance of big business. The final part of the article will cover the proprietarialist origins of stakeholder theory, origins which, from my point of view, correspond to a moderate liberal tradition.

1. The interdependence of various approaches to governance 1.1. The inclusion of corporate governance in the bundle of approaches to governance Governance designates the entire raft of rules and practices – either in gestation or being put through their paces – which are the object of incessant compromises within an organization, whether the juridical status of that organization is private or public. Unlike government, governance is characterized by this compromise, which must always be renewed, between the various actors who produce rules, as if the stability of the principles of governance were not only historical (and, consequently, provisional), but also uncertain. Thus, governance in the plurality of its meanings and forms, manifests, first and foremost, a permanent reconsideration of the bedrock on which the mechanisms of governance are founded. This process of reconsideration gives rise to a power struggle between different governances, to a rivalry between sovereignties. I shall call ‘‘sovereignty’’ ‘‘the plenitude of power’’ ( plenitudo potestatis)[1] of the ‘‘public thing’’[2]. I shall call ‘‘legitimacy’’ the production of rules affecting and orienting ‘‘the plenitude of power’’ by a process of compromise initiated by the producers of rules. More generally, legitimacy is the quality of a power to conform to the aspirations of those governed, both in terms of its origin and its form, and to make possible the adherence or acceptance of those who govern[3]. In the context of corporate governance, the producers of rules are at once the shareholders and the stakeholders. These two parties influence corporate governance and are affected by it, but the first govern with the increase in the value of their shares and thus of their representation on governing bodies in mind, while the second are, in a certain manner, governed, but not overwhelmed by the power of shareholders, since they relativize that power by appealing to values that are, if not alternative, then at least complementary. Since the introduction of the NRE (‘‘New Economic Regulations’’) law in France, theses values have become integral to share value notation. In this sense, the governed are also affected by the principles of governance. We must also be clear about what we mean by the ‘‘public thing’’. If, in traditional thought, sovereignty is the sovereignty of a republic assimilated to a state[4] (according to Jean Bodin, Charles Loyseau and Thomas Hobbes, there is no sovereignty without the state), it is not too much to envisage that the objective of corporate governance is, through its shareholders, to achieve sovereignty as absolute (if not perpetual) power over the ‘‘public thing’’[5], or, in other words, in this context, over a public good. In the 16th and 17th centuries, the power of the ‘‘public thing’’ was, for the state, based on: 1. a power to command that was not private but public; 2. (a consequence of 1), this power was intended to be perennial, as sovereignty transcended the order of time; and 3. it was an unconditional power that was thus independent of burdens and conditions. However, it is not these characteristics that we shall retain, but, rather, the idea that sovereignty is the ideal of a normative power which implies the erection of a system of political right and the organization of a government which negotiates with internal and external parties. This is the spirit, if not the letter, expressed by theorists of sovereignty: families or ‘‘households’’ are the parts of a republic, while sovereignty is its form and expresses its essence.

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In the history of liberal democracies and of the capitalist economy, the relationship between sovereignty and legitimacy is characterized by a fine balance between, on the one hand, a regime of political liberty symbolized by representative democracy, whose first principle, to use Rawls’ terminology, is liberty (as well as respect and the right to property), and a regime of economic freedom to which free enterprise and the right of circulation of people and goods give concrete expression. These two complementary regimes have, within the context of this tradition, always existed concurrently. For the moment, this equilibrium has not been totally destroyed. But, still dependent on complementarity, it has become fragile and could collapse if the waning sovereignty of the nation-states were to find itself in a position of dependency vis-a`-vis emerging sovereignties such as that of corporate governance. As is well known, the French debate on pensions reveals nothing other than the dependence of the government on resources derived from pension funds, mutual funds and banks which concentrate capital, while at the same time, ‘‘the quantity of capital moved around in a single day of speculation is superior to all the reserves in the central banks combined’’. Of course, certain prerogatives of the nation-states remain intact[6]: they develop and apply laws and regulations concerning taxation, the functioning of the stock exchange, policies concerning competition and the protection of intellectual property, and they also offer important outlets to companies from whom they buy goods and services. For example, although it was presented as the most emblematic success of the free enterprise system, the Silicon Valley story can be reread as an example of one of the most important interventions of the US federal government into any young industry: 70 per cent of funds for research into IT science and engineering was provided by that same federal government. 1.2. Variously successful competing methods of governance Certain forms of governance seem to be more successful than others. In spite of the number of publications produced and the amount of investment poured in by the EC, political governance – European political governance – is probably still in its early days[7]. By comparison, the principles of corporate governance are relatively advanced. On the one hand, we have a governance still in search of its principles and, on the other, a consolidated governance which combines several ideals: a narrow ideal in Berle and Means, which calls for the development of a ‘‘neutral technocracy’’ providing checks and balances for the various groups; a wider ideal which finds its origins in two articles by Freeman (1984, 1994); and the appearance of the concept of stakeholder, the definition of which is now well known: ‘‘an individual or group of individuals that can affect or be affected by the realization of organizational objectives’’[8].

1.2.1. Mechanisms of public governance in search of themselves In Political Studies[9], Rhodes writes that governance refers to ‘‘the action of governing without government’’. This idea had previously been developed, in 1992, by Roseneau and Czempiel[10], who had published a book entitled, Une gouvernance sans gouvernement, Ordre et changement dans le monde politique (A governance without government: order and change in the political world). ‘‘Without government’’ does not mean that there are no decision-making or representative bodies, but that the legitimacy of these bodies and the limits of the exercise of power of these organs is redefined as a function of a series of compromises and various uncertain factors. What are these uncertain factors? The expectations of civil society, the transformations of international capitalism and their impact on the economy of the member states, and the constitutional design of a geographical zone. ‘‘The singularity of the European process of decision-making reflects the characteristics generally credited to governance.’’ Upstream, the EC has been obliged to practice concertation by various means: committees of experts whose job it is to take account of interest groups; selecting and introducing decisions examined by committees made up of civil servants from various countries (comitology); concerted long-term objectives proposed to member states by means of green and white papers. For example, the white paper on European governance adopted in July 2001 expresses an unstable conception of the rules of governance dependent on an ill-defined exteriority. In this white paper, governance is defined as ‘‘the rules, processes

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and modes of behavior which influence the exercise of powers at the European level, particularly from the point of view of openness, participation, responsibility, efficiency and coherence’’. Governance thus defined seems, consequently, to be constructed as a governance in search of its mechanisms, searching for its legitimacy in an exterior sphere which is not that of the member states, but which invites a more direct relationship with a civil society composed of stakeholders, or, in this context, of associations working at the European level and European federations and organizations dealing with national interests involving unions and lobby groups. 1.2.2. The rules of corporate governance questioned but consolidated Corporate governance is rarely considered from the point of view of compromise and the instability of rules except, insofar, as the interests of stakeholders and a potential or improbable convergence between the interests of shareholders and stakeholders are concerned. Furthermore, there is a hierarchical difference between stakeholders with direct rights and those with indirect rights. Typologies are drawn up, tracing a dividing line between not only a share value and a partnership value[11] of the firm, but also between organizational performance and the search for stakeholder legitimacy. The process of taking these interests into account is subject to the definition of the term ‘‘stakeholder’’. In this regard, many stakeholder theorists establish a hierarchy between direct and indirect stakeholders. However, in most cases, corporate governance is thought of, ‘‘in a wide sense, as the body of principles and rules which guide and limit the action of directors’’[12]. This clear though restrictive approach has been identified as having been established on the basis of agency theory[13] which defines the firm as a network of contracts, and governance as a way of controlling managers via shareholder-creditors: governance is thus considered to be a question of the equilibrium between management and shareholders. Profits generated on the financial markets play the role of an efficiency indicator, which leads, finally, to governance being seen as the technical result of a process of financial optimization: cost of the agency against profits generated. If this theoretical position seems limited, notably due to the fact that it does not take into account the institutional diversity of the firm (the internationalization of financial markets, the development of the legal framework and of stock exchange rights, shareholder activism), it is nevertheless true that a restricted approach to government continues to predominate even in the theories of those who criticize such an approach. For Pastre´[14], for example, the life of companies is, in a given historical framework, governed by the whole body of operational and control rules. Charreaux (1996) defines ‘‘corporate governance as that which covers all the mechanisms whose effect is to limit powers and influence decisions, or, in other words, which govern the behavior of companies and define their discretionary boundaries’’. Gomez (1996) describes, ‘‘the coherent ensemble of institutional frameworks of the firm and the types of behavior which enable it to function’’. He underlines the fact that governance stands in contrast to management. Other definitions exist in the literature, for example Monks and Minow[15], Scott[16], de Norburn[17]. Generally speaking, the most popular approach to governance studies is ways of increasing the efficiency of its mechanisms. The major variants can be found in contexts which are more or less propitious to the development of corporate governance: the crisis of 1929 in the article by Bearl and Means[18], the recognition of the category of big business following Chandler[19], excessive representation of finance in the firm, and the return of the shareholder in the late 1990s and 2000[20]. We can affirm that, within the terms of these commentaries, a functionalist theory of governance is often deployed, a theory, in other words, used to introduce a code for perfecting the principles of governance. In France, we can say that Karine Le Joly and Bertrand Moingeon are the leading exponents of this approach[21]. But although the approach is a useful one, it nevertheless sidelines two essential problematics: the relationships between types of governance and, consequently, the question of the equilibrium between sovereignty and legitimacy, and the link between governance and civil society considered as a stakeholder in that governance.

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2. The dominant functionalist approach to corporate governance Company governance and its related theories are generally characterize by a managerial (auditing, finance, strategic management) and juridical (company law) approach. In order to achieve greater efficiency in terms of operational performance (improving corporate governance), a specialization has been developed in the field. In management science, the new areas opened up by corporate governance are immense (because they lead to an interdisciplinary approach within the discipline). Stakeholder theory provides a further opening of which corporate governance, in its orthodox manifestation, cannot entirely take the measure: Le´pineux[22], Mercier[23], and Laurie[24].

2.1. What is meant by functionalism? In the case of corporate governance, functionalism means that analysis is limited to the description of functions. These functions can be a number of different kinds: functions of the representative powers on the board of governors in regard to the Cadbury Report of 1992, the Vie´not I Report of 1995 and the Vie´not II Report of 1999; functions of rules and principles indicated in these various reports, and guided by usage and by the function of information: ‘‘administrators must keep each other informed and the chairman of the board of directors must provide administrators with any significant information that they may need’’; and the functions of the actors internal to the process of governance, in which case the analysis focuses more particularly on the strategies of shareholders and stakeholders and on the motives underlying their actions and commitments.

Bearing in mind the degree to which organization theory has attempted to move away from a representation of organization based on functions, it is somewhat surprising that an analysis, which not only limits its perspective to relations between powers of governance and the effects of the principles of governance due to changes in the rules or the construction of convergent interests shared by the actors of corporate governance, enjoys such a high degree of popularity. The functionalist approach does not generate a third party point of view and is essentially analytical, limiting itself to the observation of the functions and dysfunctions of governance, which itself forms a coherent whole, each part of which fulfils an indispensable function.

2.2. Limits of the orthodox functionalist approach as a description of the instances of authority of corporate governance The primary objective of the functionalist approach is to rule on the relationships between the convergent and divergent interests of, on the one hand, parties who have rights over the firm, and, on the other, social representatives, since in order to contribute to the improvement of the principles of governance, those practicing the approach need to know which parties are included in and which excluded from the governance of the firm. Thus, according to Samuel Mercier[25], when a shareholder-type vision of the firm is emphasized, so too are the optimization of shareholder value and its organizational performance (Friedman, 1962, 1970, positive agency theory, Jensen and Meckling, 1976), the legal ownership of the firm (Sternberg, 2001), and ethical egoism (Friedman, 1970); stakeholders are thus reduced to their simplest expression (the shareholder). When emphasis is placed on the social grounding of shareholder value, a partnership-based vision of the firm is revealed, a partially ethical vision based on the concept of expanded ownership rights vis-a`-vis the firm (the Kantian capitalism of Evan and Freeman[26], Freeman’s principles of justice[27], Phillips[28-29] and Etzioni 1998; and the social contract of Donaldson and Preston[30], and Dunfee 1999). These last-mentioned theories are located at the crossroads between a strategic and an ethical conception of the firm.

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I shall distinguish two different functionalist theories, the first orthodox, and the second heterodox. The orthodox theory limits itself to analyzing the application of rules and the current legislation in the countries concerned by corporate governance. It examines the instances of authority within the firm in order to define who does what and in view of which objectives, and does the same thing insofar as the separation of powers between governors and directors is concerned. In France, this type of theoretical method leads to an inventory of the composition and missions of the board of governors, the way in which administrators are selected, the number of mandates exercised by the administrators, the duration of those mandates, the remuneration of the administrators, the formalization of the projects of the board, and the relationship between administrators and information following the Vie´not reports of, respectively, 1995 and 1999, and the Cadbury Report of 1992. This orthodox point of view gives rise to the elaboration of two models of corporate governance: the so-called Anglo-American model, and the model belonging to the Germanic and Latin countries, and Japan. The first model is referred to as ‘‘market-oriented’’, or ‘‘external’’; while the second is referred to as ‘‘bank-’’ or ‘‘networkoriented’’, or ‘‘internal’’. The second, or heterodox, functionalist approach is less concerned with the description of instances of authority than with expanding the number of actors affected by corporate governance: the concept of the ‘‘stakeholder’’ (‘‘non-shareholder’’)[31] as opposed to that of ‘‘shareholder’’, corresponds to this approach, be it empirical or normative. In this respect, Yvon Pesqueux[32] draws attention to the essential presuppositions of stakeholder theory: ‘‘[T]he organization stands in relation to several groups which affect and are affected by its decisions (Freeman), [while] the theory is concerned with the nature of these relations in terms of processes and results vis-a`-vis the firm and the stakeholders; the interests of the stakeholders have an intrinsic value and no one interest should be allowed to dominate the others (Clarkson, Donaldson, Preston)’’. Despite the view expressed by Jones and Wicks (1999), that the heterodox functionalist approach constitutes, ‘‘an attempt to reformulate the nature of the firm’’, the method concentrates on the identification of stakeholders (inclusion/exclusion), on their recognition in terms of interest in and to the organization, and on the extension of the limits of their actions. In effect, even if we accept the broad definition of Caroll and Buchlotz[33] according to whom a, ‘‘stakeholder is an individual or group of individuals who can affect or be affected by the realization of organizational objectives’’, the approach develops an essentially functionalist viewpoint by attempting to promote the influence of or even to introduce yet more interests, rights and stakeholders into the sphere of corporate governance. Most of the theories on corporate social responsibility and receptivity which are closely linked to stakeholder theory can, to my mind, be categorized as heterodox functionalist approaches. 2.3. The limits of the heterodox functionalist approach as a stakeholder typology The approach entails an inherent risk, the risk, in other words, that it produces nothing more than a list of various categories of direct and indirect, and effective and virtual stakeholders. In effect, it not only conceptualizes the question of governance in terms of functions, but also in terms of actors, and the roles, objectives and interests of those actors. Generally speaking, there are three major types of actors: shareholders, directors and stakeholders. The functionalist approach describes the behavior of these three categories, the combination of their interests as a function of a number of rules: those that they impose on themselves, and, more particularly, those imposed by shareholders on directors; those elaborated by management corporations (in France, the CNPF-MEDEF via the Vie´not I and Vie´not II reports); and those that indirect stakeholders attempt to assert (via a defense of the idea of corporate social responsibility based on social and environmental criteria). The description is also carried out in terms of legal obligations.[34] The most effective functionalist approach may be the one that highlights the probabilities of combinations between shareholders and stakeholders: the director is a shareholder; the shareholder is a director; the shareholder is a direct stakeholder (as a shareholder) and an indirect stakeholder (as a consumer and a citizen), etc. As well as the production of these probabilities, the functionalist approach may have to develop not only a

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convergent theory of the interests of stakeholders, but also a convergent theory of the interests of shareholders and stakeholders. It is evident that this virtuous circle cannot be completed without a convergence of the interests of all the parties involved. However, with the multitude of norms emanating from public institutions (the UN, the ILO, the EU, the World Bank) and, indeed, from private ones, the possibility of any real convergence of interests is remote. But, for the moment, stakeholders are – because they are parties who are indirectly affected by the share value of a company – assumed to play an oppositional role in respect of that value. In fact, they are oppositional powers who are or who can be directly (and indirectly) affected by share value and, consequently, who participate in its development. A militant stakeholder in an NGO can, in certain circumstances, become a shareholder demanding the profits generated by his shares; a shareholder in Exxon Mobil might belong to an ornithological association fighting to save endangered birds, in the same way as a salaried director of Exxon Mobil can be both a shareholder in the company for which he works and the chairman of the above-mentioned association. The separation of shareholder and stakeholder interests and roles does not exactly correspond to the range of possible situations and roles in the world of shareholder capital; that is why it is hard to see how a convergent theory of stakeholders would be sufficient. A convergent theory that covered both shareholders and stakeholders would surely be more appropriate. From an operational point of view, the importance of an accurate, typologized list of categories cannot be minimized: such a list would certainly help to measure the influence of a given category on corporate government. Nevertheless, such a perspective probably fails to encapsulate the macro-strategic problems of corporate governance, problems which incorporate both socio-political questions and questions pertaining to political philosophy which touch on areas outside the firm, but which are nevertheless very much relevant to it. In fact, the dominant approach to corporate governance avoids what it contains, for it would certainly be true to say that the various types of governance cover basically one and the same thing: a search for rules and compromises in a context in which institutional sovereignties and legitimacies are being recomposed. And it would also no doubt be true to say that the multiple forms of governance, by their very existence, in fact render it necessary to reconsider the relationship between the spheres of politics and the economy. This relationship, by posing questions about the nature of the duality of the political and the economic – their sacrosanct separateness – also calls into question recent compromise-based models in that the bottom line in corporate governance is that, after all, effective decision-making powers fall to those who hold capital.

Corporate governance leads to the edification of one (or more) forms of governance which struggle to define the principles of their power because, in the long run, those principles only exist thanks to the acceptance of rules based on something more than profit derived from shares. Hence the importance of stakeholder theory! It is nevertheless true that in corporate governance, at least in the short-term, power remains in the hands of the shareholders. However, in the medium-term, corporate governance’s actors will not be able to behave as if shareholder profit were an absolute power untroubled in its use of the newly ratified principles. This sovereign power needs a legitimacy not to be found in the board of governors. In order to locate this legitimacy, its strategy of choice is to expand share ownership or, in other words, gradually to integrate stakeholders into the board of governors. Basically, corporate governance creates a shareholder right similar to a kind of right that might be enjoyed by effective and virtual owners (these last destined to become shareholders). The ‘‘natural’’ and intrinsic justification of corporate governance is share performance and, all in all, corporate governance is, with the aid of stakeholders, able to see that, if the complementary forms of governance are deployed within an unstable framework of rules characterized by an incessant reconfiguration based on compromise, it is more than likely that share performance will be the only thing to regulate. That is the reason why new actors are being invited to exert an influence on corporate governance rather than to submit to its dictates. But to influence corporate governance is to blur the frontiers between corporate governance and stakeholders, between sovereignty and legitimacy. In other words, bearing in mind the immense powers

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of arbitrage of those actors fully integrated into the structures of corporate governance, how can a style of governance largely based on a scattered empire of stakeholders representing any number of divergent interests in a market be made to function? From this point of view, the production of a convergent theory of stakeholders reinforces the idea of a functionalist ambition on the part of stakeholder theory and the regional ethics of the corporate social responsibility becomes an internal arbitrage within the problematic of corporate governance.

3. The proprietorialist roots of corporate governance In management science, corporate governance is assimilated to the principles which govern relations between shareholders and stakeholders. Now, it is by no means self-evident that the relationship between shareholders and stakeholders will be based on either harmonious or conflictual grounds. In other words, while the principles governing the relationship between shareholders and directors were of interest only to management scientists, the relationship between shareholders and stakeholders encompasses the very nature of capitalism and the doctrine and practices of liberalism. In fact, corporate governance brings to the surface two essential terms of the classical liberal doctrine; on the one hand, ‘‘property’’, and on the other, ‘‘contract’’. This article deals only with the question of property. The term ‘‘contract’’ was treated in another article. The argument developed here reveals the clearly proprietorialist foundation of stakeholder theory expressed through the paradoxical transformation of stakeholders into potential shareholders. Moreover, if there could be a contract between shareholders and stakeholders in a firm considered as a network of contracts[35], such a contract would not derive from a theory for which it was seen as a form of distributive justice[36] even though the idea of ‘‘stakeholders’’ has led many commentators working on an articulation between stakeholder theory and civil society to entertain such a hypothesis. A critique of heterodox functionalism would attempt to identify the proprietorialist foundations of stakeholder theory. There are three such foundations: property is immaterial, open to everyone and egalitarian. These three characteristics are in perfect accord with the ideas outlined in the canonical texts of moderate liberalism penned by John Locke, who in the Second Treatise on Civil Government maintained that: 1. in the beginning there was property; 2. that property (considered as ownership of oneself and of one’s work) is the condition of freedom; and 3. that both property and freedom are universal and equal rights to be enjoyed by all and to be guaranteed by a civil government. 3.1. Proprietorialism at the roots of stakeholder theory in corporate governance The argument expressed in this article develops a general hypothesis: stakeholder theory in corporate governance corresponds to a proprietiorialist conception for which the virtual future of a stakeholder is to become a shareholder. This means that a certain amount of pressure is exerted on stakeholders to acquire shares in a company quoted on the stock exchange. This form of ideal, which at first seems to be an innovation in 21st century share capital, is in reality a reflection of the theoretical underpinnings of liberalism and, particularly, the liberalism of John Locke. While the justification of the usage of this process of transformation is generally of an economic order (the more shareholders there are, the easier it will be for them to guarantee their own subsistence), there also exists a philosophical justification correlated to it. At the origin of liberalism is property, indeed the access to property is an egalitarian right enjoyed by all. 3.2. The egalitarian proprietorialism inherited from John Locke’s Second Treatise of Civil Government The chapter, ‘‘Of property’’, in John Locke’s Second Treatise on Civil Government begins with two propositions: on the one hand, ‘‘it is very clear, that God, as King David says, Psal. Cxv. 16. has given the earth to the children of men; given it to mankind in common’’, and on the other, ‘‘God [. . .] hath given [men] reason to make use of [the earth] to the best advantage of life, and convenience. The earth, and all that is therein, is given to men for the support and comfort of

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their being.’’ The sources of the theory of property are difficult to grasp without entering into the heart of the debates that divided Locke from Velthuysen[37], Selden[38], Filmer[39], Grotius[40], and Cumberland[41]. But Locke’s theory of property survived contemporary debates on natural laws and natural right. Thus, according to Locke, in the beginning was property, or, to be more precise, in the beginning was freedom and equality. Since every person has been accorded the same faculties, the preservation of freedom depends on subsistence and property, analyzed in chapter 5 of the Second Treatise. Yves Michaud points out that attention must be paid ‘‘to the heteroclite ensemble covered by the term property: actions, possessions and the person are certainly not possessed in the same way’’[42]. In other words, ‘‘by property, we should not understand, as we do today, the mere ownership of material goods, but what Pufendorf and Grotius, theorists of natural right, called the suum, that which properly belongs to someone and from which others must abstain’’[43]. According to James Tully[44], the term ‘‘property’’ signifies that someone has a right over something and that that right cannot be taken away without their consent. Consequently, property is the basis of the expression of liberty and, from this point of view, Locke produces a modern theory of property. Not only does he determine the rights of the individual in terms of the possession of a particular good, he also defines the appropriation by an individual of a common good, or of the earthly goods that we share in common (the sea and its fruits, the earth, the sky, etc.). But perhaps most importantly, he has us understand by ‘‘property’’, the appropriation of goods through work: ‘‘That labour that was mine, removing them out of that common state they were in, hath fixed my property in them’’[45]. What is so original and important in Locke is that property derives from labor[46], or, in other words, from a process of transformation rather than a convention between people. This is the so-called ‘‘turf’’ passage, which constitutes an important moment in the history of liberalism since with the expression ‘‘the labor that was mine’’, Locke defines ownership of the turf cut from the ground in the example he gives precisely through its having been cut, or, in other word, transformed. To paraphrase Tully (1992), an initial interpretation consists in revealing the resolutely modern character of the Lockean theory of property deriving from work, a theory that can be opposed to the traditional conception according to which work and property are incompatible, and in which people who work cannot possess and those who possess cannot work. The ‘‘turf’’ passage therefore represents a combination of the traditional conception according to which both work and the product of work belong to the master (Filmer), and the modern conception according to which work generates the right of ownership of the product of work (Anna Arendt’s position). Whatever the case may be, what is entirely original in Locke is that – if we accept the division of labor – every craftsman and worker carries out a precise and identifiable task, thereby producing a distinct product in such a manner that, for example, bread belongs to the baker and leather to the tanner, and that contracts governing payment can be established in conformity with the natural principle of justice according to which every man defines his right to property via the product of his ‘‘honest industry’’. Indeed, Locke presents us with the mechanisms of the division of labor that will be explored by Adam Smith, but his version of the phenomenon is dependent not on the hiring out of work, but on the expansion of the right to property. This is, from my point of view, an integral part of stakeholder theory. However, in Locke, the capacity for ownership is limited. It is limited, on the one hand, by personal capacities of consumption and, on the other, by the invention of money. First, I can only appropriate goods privately within the limits of my capacities of consumption and on condition that I leave enough for others to live on. Second, things get difficult with the invention of money, which makes it possible to accumulate goods and thereby destroys primitive equality. This raises the question of what we would call the ‘‘regulatory authority’’ and what Locke called ‘‘civil government’’. Either property is a natural right and the task of government is to protect the individualistic and inegalitarian social order (which is Macpherson’s interpretation[47] ), or to maintain, or re-establish the requirements of natural law by protecting all those excluded from the process of accumulating wealth (Tully’s interpretation[48] ). In this case, even if inequality in ownership in the civil state is, to a certain degree, legitimate, the birth of the monetary economy seems to disrupt the natural order. But it is nevertheless true that property, the fruit of work and the transformation of natural goods, is an inalienable right to be enjoyed by all.

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It is clear that the Lockean sources of liberalism outline two theses[49], which at first sight seem very simple. First, the possibility of acceding to property is an inalienable right for all free men. Second, accession to property acts as a guarantee of exercising one’s freedom. These are the two original principles of the liberal tradition formulated by Locke in his Second Treatise on Civil Government[50]: ‘‘Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this nobody has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his.’’ In fact, because Locke understands the division of labor in terms not of the hiring out of work, but of the transformation of a common natural good into a particular good which becomes the object of ownership, it is possible to posit the hypothesis that the idea of the ownership of work links the Lockean problematic of ownership to the problematic of the accession to property of stakeholders in contemporary stakeholder theory. 3.3. Mass proprietorialism In corporate governance, shareholders are, theoretically, the only actors holding shares. Stakeholders do not hold shares, indeed they are only shareholders in a virtual sense, ‘‘virtually’’ meaning in the near future, but also referring to the fact that their behavior is analyzed hypothetically, ‘‘as if’’ they were going to become shareholders. This virtuality implies that the destiny of the stakeholder is to become a shareholder. The relationship between this potential and shareholder capitalism is probably equivalent to that between consumer society and production capitalism. It is a potential which contains the seeds of a shareholder society. Just as the kind of Fordism established in production capitalism and in rapidly expanding consumer society created a virtuous circle, the new form of capitalism that is shareholder capitalism is attempting to create a new capitalist virtuous circle. During the period of rapid economic expansion in France following the end of the Second World War, the regime of Fordist production created a virtuous circle that accorded to each individual sector (employees, business, government) a precisely defined role. Employers were responsible for productivity and efficiency; employees and their representatives for obtaining increases in salary negotiated within a sector-based framework; and the state for providing a juridical and legislative framework for those negotiations. But unlike the Fordist model, which allotted roles to everyone, the shareholder model is based on a flexibility of roles. From the 1980s, the post-Fordist model of production began to blur these definitions: people begin to talk of ‘‘joint regulation’’, of union advances into management terrain, of negotiations that were less sector-based and more local, i.e. limited to a particular company. The virtuous circle disintegrates leaving a certain suspense as to its replacement. What in fact takes its place is corporate governance which creates a virtuous circle of shareholder capitalism based, first, on the supposed equality of access to property; and second, on the dawn of an era of popular mass capitalism or, in other words, the reconciliation of individual interests and of the interests of companies, and of governments now partially relieved of the burden of providing pensions[51]. (Everyone living in Europe or North America is encouraged to buy into a pension fund immediately in order to guarantee their subsistence until they die.) Third, by transforming ‘‘retirement’’ into a kind of life insurance policy, popular capitalism ‘‘affects’’ everyone and is, in turn, affected if it does not manage to measure the positive or negative consequences of its activity. In this sense, it is a ‘‘partner’’ (and it is in its interest to be so) in the elaboration of norms authorizing either the development or otherwise of the consequences that it produces. The prospect of everyone holding share capital in a company becomes a strategic goal in view of the defense of the basic freedoms of all, since it makes it possible to verify the overall performance of an activity and to construct a durable mechanism which not only creates wealth, but also guarantees physical survival. The field of actors interested, in the true sense of the term (to have an interest in and to be of interest to), in the government of capital thus grows exponentially, creating a mass shareholder society. From this point of view, corporate governance and the stakeholder theory associated with it reinforce the underpinnings of liberalism and provide a new kind of representation of property: action as property. Far from being an oddity, this shared and egalitarian transformation of property is, as we have seen, deeply rooted in Lockean political philosophy. We

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will, however, now try to take account of a substantial modification of the way property is represented, or, in other words, in how this representation has changed from a material to an immaterial one. 3.4. Action as property[52] The political philosophy of John Locke expressed in the Two Treatises on Civil Government is based on the concept of material property (personal property and real estate). Moreover, the introduction of money ruins the egalitarian conception of property because it leads people to become almost obsessive in their desire to amass more than is necessary. Xifaras explains in La Proprie´te´ that, for a long time, a genetic and material conception of property held sway, a conception that manifests itself in French law, in the Civil Code of 1804, which stipulates, ‘‘the right to enjoy and dispose of a material good’’. Ordinary language attests to this conception by designating as property the right to possess a thing and to exploit it as one sees fit. In fact, according to Xifaras, the right to property is understood as ‘‘the absolute power of a person over a material thing destined to reduce the burgeoning diversity of legal property relationships to a single conception: a complete and unitary right’’. And, ‘‘the goal of making ordinary language and legal language coincide by raising the latter to the same status now seems beyond reach’’[53]. Certain commentators, such as Grey[54], talk of the ‘‘disintegration of property’’ to describe the progressive abandonment of the idea of an absolute power of a person over a thing in favor of the different, more obscure notion of a ‘‘bundle of rights’’ which does not necessarily have tangible things as its object. This description corresponds exactly to property considered as the holding of shares. ‘‘This disintegration of the traditional form of property’’, says Xifaras, ‘‘may well be the fruit of the internal development of modern capitalism, which has become, so to speak, post-proprietorial with age’’. By losing its capacity to take into account contemporary economic factors such as financial property (shares, bonds, etc.), immaterial goods (brands, patents, intellectual property, etc.), and social rights and environmental considerations, the absolutist and material definition of property has been obliged to orient itself towards a conception of immaterial property. That is why it would be of interest to examine the role of shares as a type of immaterial property.

Conclusion Corporate governance is based on two interpretations of Lockean liberal logic. When this logic is used to address the strict separation of powers between shareholders and managers, its interest is confined to existing shareholders, even when they represent institutional investors represented by pension funds. When it addresses the question of the expansion of the number of stakeholders, it conditions corporate governance to the emergence of potential owners and, therefore, focuses on an extension of the right to property. But the only guarantors in this expansion are the owner-shareholders: there is no regulating civil government and owners play the role of defenders of their own possessions. In a situation in which those owners, also referred to as investors, worked for a single company but were based in a number of different countries, we would be required, were we to respect Lockean logic, to imagine a worldwide civil government. But such a worldwide civil government would imply a kind of return to a state of nature, or in other words, to an unorganized state. From this point of view, the introduction of a functionalist system of corporate governance is justified for two reasons. First, because there exists a permanent state of conflict between the various actors of the firm concerning the question of how any wealth generated should be shared. And second, because it is impossible to predict every conflict likely to arise in the future and to propose ex ante solutions.

Notes 1. Bodin, Jean, Les six livres de la Re´publique, Book I, Chapter 8, Fayard Corpus des uvres de philosophie de langue franc¸aise, 6 volumes, 1986. 2. ‘‘Sovereignty is the absolute and perpetual power of a republic’’, Bodin, J., 1593, Les Six livres de la Re´publique, Corpus des uvres de philosophie de langue franc¸aise, 6 volumes, Fayard, 1986.

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3. According to Max Weber, the founding principle of the legitimacy of power is the key to understanding a society. He demonstrates that the link uniting those who govern and those who are governed guarantees the adhesion of these last, and creates the necessary preconditions for acceptable and coherent institutions. 4. Goyard-Fabre, S., 1999, L’Etat, figure moderne de la politique, A. Colin. 5. Berns, T., 2004, Droit, Souverainete´ et gouvernementalite´, lectures du politique moderne a` partir de Bodin, Le´o Scheer (forthcoming). 6. Plihon, D., 2003, Le nouveau capitalisme, La De´couverte, Collection Repe`res. 7. Quermonne, J.-L., 2001, L’Europe en queˆte de le´gitimite´, Presses de Sciences Po; Syste`me politique de l’Union europe´enne. 8. Freeman, R.E., 1984, Strategic Management: A Stakeholder Approach, Pitman, Boston; 1994, ‘‘The politics of stakeholder theory: some future directions’’, Business Ethics Quarterly. As Samuel Mercier points out, ‘‘the term ‘stakeholder’ emerged in the 1960s. According to Freeman (1984, p. 31), it appeared for the first time in 1963 during a seminar held at the Stanford Research Institute’’. In ‘‘La the´orie des parties prenantes: une synthe`se de la litte´rature’’, paper delivered in February 2004, Stakeholders and Corporate Social Responsibility, Conservatoire national des arts et me´tiers, Chaire DSO, orgainsed by Y. Pesqueux and M. Bonnafous-Boucher with the Research Institute of the CDC. 9. Political Studies, 1996, Vol. 44, Rhodes, R., ‘‘The new governance: governing without government’’. 10. Roseneau, J.N. and Czempiel, E.-O., 1992, Governance without Government, Order and Change in World Politics, Cambridge University Press. 11. Charreaux, G. and Desbrie`res, P., 1998, ‘‘Gouvernance des entreprises: valeur partenariale contre valeur actionnariale’’, Finance Controˆle Strate´gie, Vol. 1 No. 2, pp. 57-88. 12. Mercier, S., 2004, ibidem. 13. Jensen and Mekling, 1976, Fama, 1980. 14. Pastre´, O., 1994, ‘‘Le gouvernement d’entreprise. Questions de me´thodes et enjeux the´oriques’’, Revue d’Economie financie`re’’, No. 31, pp. 15-32. 15. Monks and Minow, 2001, talk of a system of relations between various participants whose aim is to define management and performance goals in companies. 16. According to Scott, 1998, corporate governance refers to institutions, and covers the ensemble of rules, incentives and behaviors underpinning the relationship with investors and constitutes the system of government of a given company. 17. According to Norburn, 1992, corporate government is a structural mechanism designed to guarantee in a sustainable fashion the prosperity of the company in the interests of shareholders. 18. Bearls and Means, 1932, The Modern Corporation and Private Property, Macmillan. 19. Chandler, A., 1977, The Visible Hand: The Managerial Revolution in American Business, Harvard University Press, 1988, Economica. 20. Pesqueux, Y., 2000, Le gouvernement d’entreprise comme ide´ologie, Ellipses; L’He´lias, 1997, Le Retour de l’actionnaire; Thiveaud, 1994, ‘‘De la gouvernance des grandes socie´te´s’’, Revue e´conomique, No. 31; Aglietta, M., 1997, Re´gulation et crises du capitalisme, Odile Jacob. 21. Le Joly, K. and Moingeon, B., 2001, Gouvernement d’entreprise: de´bats the´oriques et pratiques, Ellipses. 22. Le´pineux, F., 2002, L’entreprise a t-elle une responsabilite´ a` l’e´gard de la cohe´sion sociale?, PhD thesis, Cnam. 23. Mercier, S., 2004, ‘‘La the´orie des parties prenantes: une synthe`se de la litte´rature’’, covering ‘‘stakeholder theory and shareholder models’’, paper delivered during the seminar: ‘‘Stakeholders and Corporate Social Responsibility’’, Cnam, Chaire DSO, Caisse des De´poˆts et Consignations Research Institute. 24. Laurie, N., 2004, paper delivered during the seminar: ‘‘Stakeholders and Corporate Social Responsibility’’, Cnam, Chair of Organisation Systems Development, Caisse des De´poˆts et Consignations Research Institute.

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25. Mercier, S., 2004, ibidem. 26. Evan, W.M. and Freman, R.E., 1993, ‘‘A stakeholder theory of the modern corporation: Kantian capitalism’’, in Beauchamp, T. and Bowie, N. (Eds), Ethical Theory and Business, Prentice Hall, Englewood Cliffs, pp. 75-84; Bowie, N.E., 1998, ‘‘A Kantian theory of capitalism’’, Business Ethics Quarterly, The Ruffin Series 1, pp. 37-60. 27. Freeman, R.E., 1994, ‘‘The politics of stakeholder theory: some future directions’’, Business Ethics Quarterly, Vol. 4 No. 4. 28. Philipps, R.A., 1997, ‘‘Stakeholder theory and a principle of fairness’’, Business Ethics Quaterly, Vol. 7. 29. Philipps, S., 2003, Stakeholder Theory and Organizational Ethics, Berrett-Koelher Publishers, San Francisco, CA. 30. Donaldson, T. and Preston, L.E., 1995, ‘‘The stakeholder theory of the corporation: concepts, evidence and implications’’, Academy of Management Review, Vol. 20. 31. Mercier, S., 2004, ‘‘La the´orie des parties prenantes, une synthe`se de la litte´rature’’: ‘‘[in French, the term ‘stakeholder’ is most frequently translated by ‘partie prenante’, but also by ‘partie inte´resse´e’ (‘interested party’) and ‘ayant droit’ [. . .]. [T]he term ‘stakeholder’ emerged in the 1960s. According to Freeman (1984, p. 31), it appeared for the first time in 1963 during a seminar held at the Stanford Research Institute (SRI). The neologism was coined, at the time, due to a deliberate will to play on the term stockholder in order to underline the fact that other parties had an interest, or stake, in the company.’’ 32. Pesqueux, Y., 2004, Introductory text to the seminar ‘‘Stakeholders and Corporate Social Responsibility’’, Cnam, French Academy of Sciences and Techniques, Chair of Organisation Systems Development, Caisse des De´poˆts et Consignations Institute of Research. 33. Caroll and Buchlotz, 2003, Business and Society: Ethics and Stakeholder Management, 5th Edition, South-Western College Publishing, Cincinnati, OH. 34. In France, a law on the new economic regulations, passed on 15 May 2001 (see Frison Roche, M.-A., 2002, ‘‘Le droit des socie´te´s entre corporate governance et culture de marche´’’, in La monte´e en puissance des fonds d’investissement. Quels enjeux pour les entreprises edited by Dominique Plihon and Jean-Pierre Ponssard, Documentation franc¸aise), but also a process of institutional convergence vergence towards IAS norms and the recognition of those norms on the part of the regulatory authorities of the financial markets (see Dick, W. and Zarlowski, P., 2002, ‘‘La diffusion de normes comptables internationales’’, ibidem. 35. I am, of course, referring to the agency theory of Demsetz and Alchian (1972), which has been used by certain authors to justify the conceptual framework underpinning corporate governance. See Bancel, F., La Gouvernance des entreprises, Economica. 36. Herve´ Mesure (2004), highlights a paradox inherent in this situation: in order for property to exist, something must be owned. Shareholders own their shares, they do not own the company. And they are confronted with other types of ownership, including the ownership of labor. 37. Dissertation de principiis justi et decori, 1651. 38. De Dominio maris jurisbusque ad dominium, London, 1636. 39. Patriarchia and Other Political Works, London, 1949. 40. Of the Freedom of the Sea, 1727. 41. A Treatise of The Laws of Nature, 1727. 42. Michaud, Y., 1998, p. 59. 43. Michaud, Y., ibidem. 44. Tully, J., 1980, A Discourse on Property, Cambridge University Press. 45. Locke, J., Second Treatise on Civil Government, Vol. 2, Section 28. 46. Locke, J., ibidem, Chapter 5, Section 40. ‘‘Nor is it so strange, as perhaps before consideration it may appear, that the property of labor should be able to overbalance the community of land: for it is labor indeed that puts the difference of value on every thing; and let anyone consider what the difference is

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between an acre of land planted with tobacco or sugar, sown with wheat or barley, and an acre of the same land lying in common, without any husbandry upon it, and he will find, that the improvement of labor makes the far greater part of the value.’’ 47. Macpherson, C.B., 1962, La the´orie politique de l’individualisme possessif de Hobbes et de Locke, Gallimard, 1971. 48. Tully, J., 1980, Locke. Droit naturel et proprie´te´, Paris, PUF, 1992. 49. Locke, J., Second Treatise on Civil Government. 50. Locke, J., 1977, Second Treatise on Governu`ent, Chapter 5; Michaud, Y., 1998, Locke, Paris, PUF; 1st Edition, 1986, Bordas. 51. In France, the law on employee savings (Article 21, February 2001); law on the New Economic Regulations (NRE), passed on 15 May 2001; law of July 17, 2001, Section 2, Pension Reserve Funds. 52. This section was written after having read Mikhaı¨l Xifaras’ book La Proprie´te´, Etude de philosophie du droit, Paris, Presses Universitaires de France, 2004. 53. Xifaras, M., 2004, La Proprie´te´, Etude de philosophie du droit, PUF, Fondements de la politique, p. 9. 54. Grey, C.T., 1980, ‘‘The desintegration of property’’, Nomos (Yearbook of the American Society for Political and Legal Philosophy, Vol. 22, J.R Pennock and J.W (Eds), New York University Press.

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Human rights as a normative basis for stakeholder legitimacy Bert van de Ven

Abstract This article discusses the appeal of human rights as a normative basis for stakeholder claims in the context of international business. This appeal to human rights has proven to be an effective way to legitimize (in the sociological sense) the claims of stakeholders due to their proclaimed universal validity and the media interest in stories about human right violations. A problem for corporations that have to deal with claims based on human rights is that there seems to be little room to weigh these claims against the corporation’s interest and other stakeholder claims, since human rights are believed to override self-interest. Furthermore, stakeholder theory as it stands, does not provide for a criterion to weigh human rights claims against the claims of (other) stakeholders. Following recent versions of stakeholder theory, claims based solely on human rights do not even qualify some person or group as a stakeholder. So the position of human rights-based claims within organizational ethics remains unclear in stakeholder theory. The question this article tries to answer, is whether a corporation has a moral obligation to fulfil claims that are based solely on human rights and how this relates to the obligations a firm has to its stakeholders.

Bert van de Ven is a lecturer at the University of Tilburg, Noord-Brabant, The Netherlands. Tel: +31134663091, Fax: +31134662892, E-mail: [email protected]

Keywords Stakeholders, International business, Human rights

Introduction One of the stories embedded in the history of economic globalization is the story about the discovery of the earth and the subsequent exploitation of its peoples and their natural environment. For instance, from the early days of the Dutch United East Indian Company (The VOC) that set out its ships to sail to Asia, these enterprises where meant to give a return on investment. Without these returns these enterprises would not have been able to find enough investment capital. Driven by this economic rationale, these and other enterprises did not care much about the rights of people in the colonies, and they were focused on getting more than enough back on board to keep the moneylenders in the home country satisfied[1]. All of this is well-known and there is no need for detail but to say that the story still continues to some extent in our era. Multinational corporations have been criticized for human rights violations in developing countries all over the world. These human rights violations are almost incomprehensible from the perspective of citizens who are used to the rule of law in a democratic society. The sweating of the workers, the violence used against them, and the blatant disrespect for their rights are outrageous if one considers that the firms that are associated with these practices are often well-known global brands, from which morally correct behavior is expected in their home countries. Yet, as Karl Marx says, it seems true that the first

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DOI 10.1108/14720700510562659

human right that is acknowledged by global capital is the right to be exploited[2]. Was Marx too cynical or does the present state of affairs in a globalized world of business prove him right? Fact is, that the respect for human rights did not spread with the same speed as the activities of the multinationals. Since the latter part of the 1990s, there have been some positive changes in the way some multinationals deal with human rights-based claims. This seems to be especially true for global brands like Heineken, Motorola, Nike, Shell, McDonald’s and the Gap. They have to meet the high expectations of parts of the general public and the consumer because they symbolize the values of globalization. Rightly or wrongly, the public expects a lot from multinational corporations when it comes to respecting the rights of people world-wide and preserving the environment for generations to come. As Naomi Klein has argued, the corporate brands are part of a truly global language of signs that do not only refer to certain products but also to the brand’s identity, that is, the values that are expressed by the brand through marketing (Klein, 2000, p. 175). The meaning of the brand is, however, not restricted to the meaning given to it by the corporation. To some extent, a brand leads a life of its own in different cultural contexts (Van de Ven, 2000). It becomes infused by meanings that are part of the fantasies of the local people. A brand can become the object of projected hope for a better life, for restoring the past or for another way of living, mixing the meaning that is communicated to the public through marketing with cultural meaning[3]. The success of certain human rights-based campaigns like the campaign against doing business in Burma (Myanmar) shows us not only that global brands can successfully be targeted by human rights activists, but that there is a growing expectation among the public that multinational corporations should respect human rights word-wide. A lot of consumers seem to expect and demand that the world of global business is not, or at least should not be, a completely unjust world. The hope for a better and more just world is increasingly projected onto the best known brand names and logos. This new trend is accepted simply because nobody is saying that the consumer and the public are wrong in expecting morally appropriate behavior from firms at home and abroad[4]. Another indication that brands and the corporations behind them are the focus of a projected hope for a better world, is the growing attention for corporate social responsibility by government and businesses themselves. There is growing interest in the question what to expect of firms in an globalized economy, especially in places where the law provides insufficient protection for workers. Fact is, that the public in general seems to expect al lot from multinational corporations. There is, for instance, little or no understanding for the use of child labor and for failing to implement the necessary security procedures in plants that are far from home. But what if playing by the rules means that some stakeholders get in trouble even more? Take for instance the children that have to look for other job opportunities when the plant that supplied the multinational closes down. Will the child be better off? But if on the other hand a multinational firm decides to impose a code of conduct on their suppliers to improve the situation for the children, will this be enough in the eyes of the general public? When is doing good, good enough? Apart from the fact that this question does not seem to allow for a universally valid answer, it is even more difficult to form an idea of what can be expected from a multinational corporation that has also to worry about staying in business. In this article, I will try to give a normative analysis of the question whether a corporation has a moral obligation to fulfil claims that are based solely on human rights and how this relates to the obligations a firm has to its stakeholders. Such normative analyses have been at the center of attention in business ethics. Many articles and books have been written that focus on the duties of multinational corporations in developing or underdeveloped countries[5]. These normative analyses are usually built on a theory of business ethics such as the social contract theory of business (Thomas Donaldson) or a virtueethical approach to business ethics (Robert Solomon, among others). The theory focused on in this paper is stakeholder theory. This does not mean that stakeholder theory is best suited to determine the moral responsibility of multinationals with respect to human rights. On the contrary, it will be argued that stakeholder theory has some important shortcomings when it comes to determining multinational corporate social responsibility. Nevertheless, stakeholder theory remains useful as a theory of organizational ethics when it is supplemented by a theory of moral responsibility.

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The article is set up as follows. Section one[6] discusses recent versions of stakeholder theory and the question whether human rights can serve as a normative basis for stakeholder claims. In section two a philosophical treatment of the moral validity of human rights-based claims is given, based on the work of the French philosopher Emmanuel Levinas. Finally, in section three a framework is presented that integrates the conclusions from sections one and two.

Stakeholder theory and human rights One would be inclined to think, that if anyone is to qualify as a stakeholder of a multinational corporation, it will be those children and exploited workers in poor low-wage countries making the shoes and clothes that are sold with more than 100 percent mark ups, and carrying the logos of multinationals like Nike and the Gap[7]. It is evident that the stakes in these cases are high because they concern the basic goods and facilities to be able to live a life that is worth living. Here we are in the domain of human rights, like the rights to life, liberty and property, as they were formulated in the declaration of the UN of 1948. These human rights are alleged to be universally valid and independent of historical circumstance. To be a person is to have them. This means that every human can make legitimate claims on the basis of human rights, whether or not the rights are legally recognized in a certain society. This alleged validity of human rights independent of the context of a society, is an important reason why human rights can be an inspiration to call for changes. At the same time, however, this context independence also calls forth criticisms like Jeremy Bentham’s, who thought that natural human rights were nonsense exactly because it was claimed that they were valid outside of any established political community. Leaving the question about the moral validity of human rights for further treatment in section two, we will now concentrate on the stakeholder status of those who refer to human rights as a basis for their claims on a firm.

The theoretical core of stakeholder theory At first sight, it seems evident that someone who rightly makes a claim on the basis of her human rights should be granted stakeholder status. As explained above, when human rights are involved the stakes are often high, especially when the most basic rights to liberty and life, and the more specific rights of workers, like the right to join a labor association, are being violated. Thus, we would expect that a person or group that can refer to human rights to base their claim on, will have stakeholder status because of the moral legitimacy of human rights. When one determines the stakeholder status with the help of stakeholder theory, however, a different and ambiguous picture emerges. The answer depends on the version of stakeholder theory that one chooses to adopt. Normative stakeholder theory is any form of stakeholder theory that rests on the moral point of view that a firm’s responsibilities to its various stakeholders should go far beyond what is accepted by contemporary shareholder/stockholder approaches. Normative stakeholder theory has been very influential on management thinking in the past decades, but I agree with John Hendry’s diagnosis that ‘‘attempts to ground stakeholder theory in traditional philosophical ethics have, . . . , run into serious difficulties’’, and that ‘‘normative stakeholder theory itself appears to be in a state of disarray and confusion’’. (Hendry, 2001, p. 159). One indication for this is that R. Edward Freeman[8], who stood at the beginning of stakeholder theory, has cooperated in several attempts to base the theory on different traditions within philosophical ethics such as the Kantian/Rawlsian tradition and feminist ethics, who often oppose the rationalistic ethics of Kant and Rawls. Besides Freeman’s rather loose coupling of stakeholder theory and philosophical ethics, there are still other attempts to ground stakeholder theory like the attempt of Thomas Donaldson and Lee E. Preston who base their version on property rights arguments and D. Reed who uses Habermas’s discourse ethics[9]. Freeman is well aware of his loose coupling of stakeholder theory to philosophical ethics, and he even prefers to speak about stakeholder theory as a number of possible stakeholder theories with different normative cores (Freeman, 2001, p. 62). A normative core of a theory is a set of normative judgments about a certain subject like ‘‘Corporations ought to be governed . . .’’ and ‘‘Managers ought to act to . . .’’. The filling in of the blanks in these judgments are the expression

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of a certain normative core. According to Freeman, one normative core of stakeholder theory might be a feminist standpoint, another might be based on pragmatic liberalism. However, one could oppose that even the stockholder approach contains such a normative core, and that of how we could understand value-creating activity differently (Freeman, 2001, p. 63). Different, of course, from how the shareholder approach understands value-creation (maximization of shareholder value). That is why the stakeholder idea should be understood also as a metaphor to think differently about the value a firm creates and for whom. According to Freeman, stakeholder theory should not prescribe one way of looking at stakeholder relations. But if we were to follow Freeman in his rejection of choosing one normative core as the only possible one, does the stakeholder theory tell us what goes beyond its most basic moral intuition: that a firm’s responsibilities go beyond what is accepted by the stockholder approach? Does it say more than that a corporation is responsible for any group or individual who can affect, or is affected by, the corporation (Freeman’s original wide definition of a stakeholder)[10]? Actually, Freeman and other stakeholder theorists do say a lot more than this. For instance, Freeman proposes six groundrules for fair contracting between stakeholders, but he does so on the basis of Rawls’ theory of justice. That is, he does not need stakeholder theory to come up with an application of Rawls’ model of the original position. Any theorists who tries to build Rawlsian or other moral notions into a theory of organizational ethics, could come up with similar results, simply by elaborating the conditions for fair contracting[11]. In other words, once one assumes that a corporation is a morally responsible actor in the sense that, for instance, Donaldson and Werhane have described[12], one only has to look for those persons and groups that are affected by the actions of the corporation and determine the responsibilities to each of them. So, one does not need stakeholder theory to apply a certain philosophical theory of ethics. But what is the theoretical core of stakeholder theory if it does not coincide with a particular normative core? The disapproval of the stockholder approach is at the heart of the stakeholder approach, but this disapproval itself does not provide for a theory of organizational ethics. Recent developments in normative stakeholder theory point in the direction of a more detailed account of who is really a stakeholder and which stakeholders should be given priority. This angle is used by Mitchell et al. (1997) in their article. This article has influenced many writers on the topic. Among them are some prominent defenders of normative stakeholder theory like Phillips et al. (2003). Below I will concentrate on these authors to see whether according to them, human rights can be a normative ground for stakeholder legitimacy.

Mitchell et al. tries to answer the following normative question: Why should managers consider certain classes of entities as stakeholders? Once one has criteria to identify stakeholders it is easier to explain why certain classes of stakeholder receive more attention from the management of corporations. They come up with three criteria to identify and classify a stakeholder: 1. power; 2. legitimacy of the claim; and 3. urgency of the claim. According to Mitchell et al., stakeholder theory should not only look for the normative core of stakeholders that have a legitimate claim, but should also acknowledge stakeholder power and urgency of a claim: ‘‘because these attributes of entities in a firm’s environment – and their dynamism over periods of time or variation in issues – will make a critical difference in managers’ ability to meet legitimate claims and protect legitimate interests’’ (Mitchell et al., 1997, p. 882). Note that the normative argument to include power and urgency as stakeholder identification criteria is derived from the (moral) norm that legitimate interests of stakeholders should be served. Including powerful stakeholders and urgent claims in the stakeholder management of a firm is instrumental to serving the legitimate interests of stakeholders. Stakeholder legitimacy itself is defined as social legitimacy[13]: ‘‘A generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed systems of norms, values, beliefs and definitions’’ (Mitchell et al., 1997, p. 866).

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In Mitchell et al., this instrumental relationship is not discussed in great detail, nor is a moral foundation given for the claim that a firm should serve the legitimate interests of stakeholders. In a recent article of Phillips (2003) this instrumental relationship is at the center of the distinction between normative and derivative stakeholders, and two types of stakeholder legitimacy. According to Phillips, normative stakeholders are ‘‘those to whom the organization has a moral obligation, an obligation of stakeholder fairness, over and above that due other social actors simply by virtue of them being human’’ (Phillips, 2003, p. 31). Derivative stakeholders ‘‘are those groups whose actions and claims must be accounted for by managers due to their potential effects upon the organization and its normative stakeholders’’ (Phillips, 2003, p. 31). An obligation of stakeholder fairness is created when the organization voluntarily accepts the contributions of some group or individual. This voluntary acceptance is likened to consent, contract, or promise in its capacity for generating obligations. If such a relationship is absent a group or individual should not be qualified as a normative stakeholder. The only other possibility to qualify as a stakeholder is when a claim of a group or individual has an effect upon the organization and its normative stakeholders. Here we recognize the instrumental relationship from Mitchell et al.’s article. The claims of the derivative stakeholders are not worthy of attention from management because of themselves but because they effect the interest of the normative stakeholders[14]. The legitimacy of the claim of a derivative stakeholder is due to its derived character, different from the legitimacy of a claim from a normative stakeholder. In Phillips’ version of stakeholder theory, all depends on the relationship a group or person has with the organization. What are the implications of these different stakeholder theories for the question whether human rights can be a normative ground for stakeholder legitimacy? To answer this question, a distinction must be made between a social concept of legitimacy and a moral concept of legitimacy. Mitchell et al. uses a social concept of legitimacy by referring to the conditions under which a certain entity gains social acceptance within a given social context. Moral legitimacy, however, is not restricted to social legitimacy and should not be reduced to it. Moral norms, for instance, those that are formulated in the declaration of human rights, claim to have universal validity, independent of a certain context. Of course, it is not sure that this claim will be matched by actual consent of all the people on earth, but this does not mean that the claim of a moral norm itself is not of an universal nature. If the social concept of legitimacy, like Mitchell et al. proposes is to be used, the factual acceptance of human rights has to be considered in a certain setting. The context of the international business world immediately confronts us with the problem that multinationals operate in different countries with different sets of shared values and customs. So it could be the case that a certain behavior is considered immoral in one country and morally acceptable in another. This creates a problem with respect to the determination of stakeholder legitimacy. Should a pressure group, that claims that all businesses should leave Burma, be considered a stakeholder because the members of the pressure group live in a country were the human rights are believed to be morally valid? Or are such claims invalid because they relate to a country where the human rights tradition is actually poor? And are the workers in Burma then to be considered stakeholders of a firm because their human rights are violated or because some faraway community believes that this is the case? A shortcoming of the social concept of legitimacy, therefore, is that it cannot deal with the actual cultural diversity with respect to moral legitimacy. It shares the problems of ethical relativism in this respect. As a result, the social concept of legitimacy as proposed by Mitchell et al., does not allow us to say anything conclusive about whether human rights can be a basis for stakeholder legitimacy or not. Contrary to the social concept of legitimacy of Mitchell et al., Phillips’ twofold definition of stakeholder legitimacy enables us to derive a clear answer to our question. According to Phillips, a stakeholder relation exists when the organization voluntarily accepts the contributions of some group or individual. It follows from this definition that a child working directly for a multinational is a stakeholder. But the child is only a stakeholder because the firm voluntarily accepts its contribution and not because it possesses human rights (Phillips, 2003, p. 30). This

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does not mean that Phillips denies the moral validity of human rights. It means that there can be different kinds of moral legitimacy. Obligations based on stakeholder fairness are related to a ‘‘mutually beneficial scheme of co-operation requiring sacrifice or contribution on the parts of the participants, and there exists the possibility of free-riding’’ (Phillips, 2003, p. 26)[15]. Stakeholder obligations are obligations over and above those due to other social actors simply by virtue of their being human. The human rights of non-stakeholders may not be disregarded, but ‘‘no additional moral consideration is due to these groups in managerial decision making, and the organization has no special obligation to attend to their well-being’’ (Phillips, 2003. p. 30)[16]. That is why a non-stakeholder whose human rights are violated by the firm, and who has no foreseeable effect on the firm or its normative stakeholders – that is, no derivative legitimacy exists – may justifiably be omitted from stakeholder analysis. Phillips intends to avoid too broad a definition of the stakeholder concept in order to secure the managerial usability of the framework. Therefore, stakeholder theory should not be used ‘‘to weave a basket big enough to hold the world’s misery’’[17]. Instead, stakeholder theory focuses on the question ‘‘for whose benefit should the firm be managed?’’. This recent narrowing of the stakeholder concept is shared by Freeman and Wicks: ‘‘Violations of the human rights of a constituency group by commercial organizations and the gratuitous destruction of the natural environment are morally wrong, but such judgments rely on concepts outside of stakeholder theory as herein delimited’’ (Phillips et al., 2003, p. 493). Moreover, stakeholder theory need not address issues of supererogation. These issues lie in the moral free space where organizations may take actions that are not obligatory from a stakeholder perspective (Phillips et al., 2003, p. 494).

So, it can be concluded that if we were to follow Phillips et al., human rights as such cannot be a normative basis for stakeholders’ claims. This version of stakeholder theory may indeed have gained clarity and may be better suited for managerial use in the sense that is easier to use, but it seems to pay a high price for these pragmatic gains. First of all, stakeholder theory loses its contact with morally legitimate claims outside the scope of the mutual beneficial scheme of cooperation. So if you happen to be so unfortunate as to have no mutual beneficial relation with a firm while this firm violates your rights as a human being, you will be considered a nonstakeholder. Phillips et al. emphasizes that this does not mean that your moral claim should be ignored. Nevertheless, if you may justifiably be omitted from stakeholder analysis, how should you address the firm that violates your rights then? You are not included in any stakeholder dialogue, you are not part of any stakeholder management initiative, you are, most probably, out of sight.

Second, stakeholder theory cannot deal with a conflict between human rights-based claims and stakeholder claims. The criterion used by Phillips et al. to decide between conflicting stakeholder claims is that benefits should be distributed based on relative contribution to the organization (meritocracy). This criterion, however, does not function outside the scheme of mutual beneficial co-operation. A claim of person or group based on a violation of their human rights may take precedence over stakeholder-based obligations. Stakeholder theory as it stands does not contain criteria to determine when other moral obligations should take precedence. Hence, a normative theory is needed which specifies how stakeholder-based obligations relate to a variety of non-stakeholder-based obligations. The price of a more narrow definition of the stakeholder concept, therefore, is that stakeholder theory does not suffice as an all encompassing theory of business ethics. From an ethical perspective, stakeholder theory is focused on the continuance of the firm and its stakeholder relations. Enlightened self-interest of management suffices as a moral motive, whereas obligations that are beyond self-interest seem to be less important. Returning to the question whether a firm has a moral obligation to respect human rights, it can be said that stakeholder theory does not deny that such an obligation can exist. But in order to answer this question affirmatively, one needs to go outside the scope of stakeholder theory. In the next section, therefore, the question of the moral validity of human rights will be addressed anew.

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The moral validity of human rights. In the introduction the historical success of appeals to human rights is mentioned. According to Onora O’Neill this success can be explained by the energizing and liberating effect of human rights in the political domain. This is because an approach based on rights emphasizes that one can justifiably claim something: ‘‘The rhetoric of rights disputes established powers and their categories and seeks to empower the powerless; it is the rhetoric of those who lack power but do not accept the status quo’’ (O’Neill, 1989, p. 201). The same can be said of the relative success of action groups and non-governmental organizations that focus on the violation of human rights by international business. Take for instance the campaign for pulling out all business activity from Burma, because of the structural violation of human rights by the military regime. Pepsi, Ericsson, Heineken and Texaco to name just a few, have all disengaged their investments. They did so despite the fact that the link between the activities of these multinationals and the violation of human rights is not straightforward. According to the proponents of withdrawal these multinationals contributed to the legitimacy and economic success of the military regime, and thus they were seen as indirectly responsible for the fate of the Burmese people[18]. Since action groups threatened to boycott firms that stayed in Burma, it was in the interest of most stakeholders (especially the stockholders and the employees in other countries than Burma) that these firms decided to disengage their activities. But were these firms morally obliged to disengage themselves even if this would not be in the interest of most stakeholders? Several problems are connected to the question of the moral validity of human rights. First, human rights are claimed to be universally valid, but actually they are not considered valid all over the world and there is no objective ground to claim that they are nevertheless morally valid (ethical relativism). Second, human rights are primarily meant to protect the individual from the state. It is not clear what the moral responsibilities of a firm are in the area of political rights like the freedom of speech and conscience. Human rights seem more successful as an empowering tool for the emancipation of mankind than as an ethical theory that can claim universal validity. But if this is true, why should we care about the theoretical problems of the approach when it is obvious that it can function as an effective tool against the oppression of the powerless? Does not the goal of improving the living conditions of countless human-beings sanctify the means, even if these means are of a doubtful philosophical quality? This is only possible when one acknowledges the moral priority of improving human wellbeing above the philosophical credibility of a theory. But this would itself be a manifestation of an ethical perspective or ethical theory in use, otherwise, one could not defend that one should give priority to the improvement of human well-being. It is typical for the work of the French philosopher Emmanuel Levinas, that he gives priority to fulfilling the human needs above philosophical foundation. This is possible because his own foundation of morals does not rest on an unshakeable ground of human reason; nor on the contingency of moral sentiments in different cultures. According to Levinas, all human-beings can experience the ethical resistance that becomes manifest in the face of the other. With the expression ‘‘face of the other’’ Levinas refers to the experience that we cannot know another person like we can know an object. The other always absolves him or herself from the relationship with me. This is especially true for the moral meaning of human relationships. Levinas points at the experience that whatever my plans are and no matter how difficult my present situation, I am not able to reduce the meaning of the other to the place he or she gets in my understanding of things. For instance, when the Nazis taught that the Jews were an inferior race that did not deserve the same rights as members of the Aryan race, it did not diminish the actual moral worth of the Jews as human-beings. Another example of how the ethical resistance of the face of the other manifests itself in our experience, is in the prohibition ‘‘thou shall not kill’’ and in the commandment ‘‘thou shall love the stranger’’. These commandments are of course as old as the Bible, and Levinas is convinced that this normative core is not only valid in the context of the Jewish, Christian and Islamic religions, but universally valid from an ethical perspective. It is exactly this ethical perspective on reality that distinguishes between good and evil. The moral insight that I may not enslave the other, is not based on the idea that the other might escape my control, but on the perceived injustice of robbing another human being of his freedom. The ethical resistance is therefore not to be understood as a real objective

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resistance, like a bullet-proof vest, but as a resistance that comes from the transcendence of the other with respect to my desires and objectives (Levinas, 1979, pp. 197-201). For this reason, moral obligations cannot be grounded in a certain philosophical system. The moral validity of these obligations does not depend on theory. On the contrary, ethics as philosophical discipline should acknowledge the moral meaning of human relationships before anything else. According to Levinas, the human rights tradition gives expression to the same moral experience as the biblical commandments that forbid murder and tell us to give shelter to those who need it. Like the biblical commandments, the human rights appeal to the good will: ‘‘Goodness for the first one who happens to come along, a right of man. A right of the other man above all’’ (Levinas, 1998, p. 158). With this formulation Levinas tries to give expression to the asymmetric responsibility of me for the other above the reciprocal responsibility of the other for me. That the other can be the first one who happens to come along, a stranger or a friend, means that we need not to suppose any pre-existing social tie between me and the other, to speak of my responsibility towards his or her well-being. The other concerns me, beyond any social context. This way Levinas comes to interpret the human rights tradition as an expression of the moral obligation ‘‘to spare man the constraints and humiliations of poverty, vagrancy, and even the sorrow and torture which are still inherent in the sequence of natural – physical and psychological – phenomena, and the violence and cruelty of the evil intentions of living beings’’ (Levinas, 1998, pp. 155-6). A interesting consequence of this interpretation of human rights is that the emphasis is not on what someone can justifiably claim, but on everyone’s responsibility to respect these rights before they are violated and before protest is organized. Moral responsibility is not only asymmetrical, but also calls for an active engagement with the faith of others. Active responsibility means that one takes on responsibilities even when it is uncertain what the right thing to do is. According to Levinas, we are never sure whether our actions are just in every aspect and with respect to all those involved. This uncertainty is not a reason to forget about our moral obligations. It is part of human experience that moral responsibility and commitment becomes deeper by every attempt to fulfil moral obligations. This means that there are always new aspects that appeal to our sense of responsibility. It is concluded that according to Levinas the moral validity of human rights, like any moral claim, cannot be based on a philosophical theory. This does not, however, diminish its moral appeal. If one agrees with Levinas, it is clear that the management of a multinational corporation has the moral obligation to refrain from any direct violation of human rights. Furthermore, a firm should determine how it can influence its direct environment of suppliers, competitors and customers to enhance human rights. Finally, a firm should try to contribute to a friendly climate for human rights in a country[19]. This way it can show an active attitude towards its moral responsibility.

Balancing human rights-based claims and stakeholder-based claims After the first two sections, it can be concluded that the management of a firm can be confronted with different moral claims that have different sources of normativity. Human rightsbased claims are based on the moral meaning of being human and of human relationships in general. In contrast, stakeholder-based claims are based on a mutual beneficial scheme of cooperation and are therefore restricted to the circle of stakeholders with which the firm has a mutual beneficial relation. Human rights-based claims are believed to override self-interest, whereas stakeholder-based claims are closely connected to the (enlightened) self-interest of the firm. Because there are different sources of normativity, it becomes difficult to say anything in general about the way these different moral claims can be balanced or prioritized when they conflict. For instance, think of a child whose rights are violated because it has to work too long under hard working conditions for a less than livable wage. The child itself does not perceive that his situation is urgent. Suppose that this child works for a supplier of a multinational corporation. At the same time this multinational corporation is in the midst of a merger with another multinational firm. The stakeholder theory of Phillips et al. would qualify the child as a nonstakeholder and the shareholders as normative stakeholders. Phillips et al. say nothing about

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how to handle a possible conflict of interest between these two groups. The stakeholder theory of Mitchell et al. would probably qualify the child as a discretionary stakeholder, that is, as a stakeholder that has no power and whose claim is not urgent in the sense that it calls for immediate attention. The stockholders would be qualified by Mitchell et al. as highly salient stakeholders, that is, that have power and legitimate interests and whose claims (for example a claim to receive accurate information on time) are urgent in a context of a merger. Mitchell et al. predict that the stockholders will get all the attention of the management as long as the merger has not yet been completed, and most of the management’s attention after the merger is a fact. Furthermore, Mitchell et al. justify this distribution of management’s attention by reference to the interests of all stakeholders (see section one). If a merger is not handled well, there could be less means in the future to improve the working conditions of those who have a relationship of dependency with the corporation. The stakeholder theory of Mitchell et al., therefore, gives more practical guidance than Phillips et al. when it comes to handling the claims of different stakeholders that base their claims on different sources of normativity. The stakeholder theory of Mitchell et al. gives, however, no satisfying answer to the question whether a certain human rights-based claim can be so strong that it should take precedence over other stakeholder claims. Legitimacy is just one attribute of a stakeholder among others. Mitchell et al. would reply that if a claim is not only legitimate, but also perceived as involving a serious moral wrong, it will soon gain rights through power and voice through urgency (Mitchell et al., 1997, p. 870). However, from the ethical perspective of human rights, one does not gain a right through power, but has a right to something by virtue of one’s humanity. Power is not a necessary condition for moral legitimacy, otherwise the least powerful would have nothing to base their claims on. I conclude that stakeholder theory in its recent formulations does not provide for a criterion to weigh human rights claims against the claims of (other) stakeholders. If the Levinasian concept of an active responsibility is applied to the question how a human rights-based claim should be weighed against claims based on stakeholder fairness, the following two principles can be derived:

1. A firm should try to create value for its stakeholders under the condition that no human rights are violated. 2. A firm should take active responsibility in enhancing human rights under the condition that it does not endanger the continuation of the firm[20]. Principle 1 gives priority to the moral obligation to respect human rights above the interest of the firm and its stakeholders. It expresses the more general moral obligation to harm no one intentionally, even if a lot of stakeholders would benefit from it. Principle 1 is deontological in nature because it prioritizes the moral obligation to harm no one intentionally, irrespective of the consequences this may have for the firm. If it means that a firm goes bankrupt, it would be the lesser evil because the firm already lost its license to operate. Principle 2, on the contrary, gives priority to the interests of the stakeholders insofar that it states that efforts to enhance human rights may not endanger the continuation of the firm. If a firm could not enhance human rights without getting into serious trouble, it should refrain from such benevolence. In other words, principle 2 acknowledges that a firm’s primary reason of existence is to create value for its stakeholders, otherwise it would not be a firm but a charitable institution. To avoid misunderstanding of the two principles, I would like to stress that these principles do not imply that the enhancement of human rights is understood never to be beneficial for the interests of stakeholders. There are sound arguments for the proposition that acting responsibly will be beneficial for the firm in the long run, since it can help to avoid boycotts and reduce transaction costs for the firm and its stakeholders (Etzioni, 1988). The two principles can be understood as the boundaries of the moral space for business activities. Principle 1 separates the legitimate pursuit of the interest of the firm from morally illegitimate business behavior. Principle 2 determines the moral free space of a firm to act benevolent. Together,

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these principles offer guidance in cases were human rights-based claims and claims of stakeholder fairness conflict. To illustrate this, let us have another look at the case of the oppressed child and the multinational in the midst of a merger[21]. In this case the multinational firm is indirectly involved in the oppression of the child because the firm benefits from the low labor costs and can influence the situation by demanding changes in working conditions from its suppliers. Since the case has to do with violation of human rights, principle 1 should be applied here. Given the direct influence on the situation the multinational firm’s involvement is high. Therefore, the firm should give priority to changing the working conditions of the workers, before thinking of mergers or acquisitions. Of course, once one is in the midst of a merger, management should deal with all stakeholder interests first, and wait with the new supplier policy until later. Nevertheless, a firm should set its human rights record straight before entering into the next business adventure.

Conclusions This paper examined whether human rights can serve as a normative basis for stakeholder legitimacy. A brief review of recent developments in stakeholder theory allowed us to conclude that the status of human rights-based claims is either unclear or outside of the scope of stakeholder theory. As a consequence, stakeholder theory is not able to give guidance to balance stakeholder claims against human rights-based claims. Given the importance of human rights-related issues for international business, this is an important restriction of the usability of stakeholder theory. The Levinasian concept of an active moral responsibility was used to understand why human rights can be considered to be morally valid. Furthermore, this concept has led to two derived principles to balance human rights-based claims and stakeholder claims in general. Although stakeholder theory has important limitations when used to determine the full scope of moral responsibility of a firm, it can serve as a conceptual means to determine the firm’s positive obligations towards those individuals and groups that have a stake in the firm.

Notes 1 For a historical treatment of the relationship between economic globalization, shipping trade and the cruelty of discoverers, colonists and pirates see: Sloterdijk, P. (1999), Spha¨ren II, Globen, Suhrkamp, Frankfurt am Main, pp. 882, 933-6. 2 Marx, M. (1890), Das Kapital, Kritik der politischen O¨konomie, Erster Band, Internationalen Marx_Engels Stiftung (Ed.), Dietz Verlag Berlin, 1991, p. 263. 3 See, for the relationship between consumption, imagination and lifestyles: Appadurai, A. (1996), Modernity at Large. Cultural Dimensions of Globalization, Minneapolis/London, University of Minnesota Press, pp. 53, 66-85. 4 See, for instance, De George, R.T. (1993), Ethical dilemmas for multinational enterprise: a philosophical overview, in White, T.I. (Ed.), Business Ethics a Philosophical Reader, Prentice Hall, Upper Saddle River, NJ, pp. 784-9; Donaldson, T. (1989), The Ethics of International Business, Oxford University Press, New York/Oxford; Kumar, N. and Steinman, H. (Eds) (1998), Ethics in International Management, Walter de Gruyter, Berlin/New York. 5 For a description of the bad working conditions of workers of firms that supply the fashionable brands see: Klein, N. (2000), No Logo, Flamingo, London. 6 See Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA; Freeman, R.E. and Evan, W.M. (1990), ‘‘Corporate governance: a stakeholder approach’’, Journal of Behavioral Economics, Vol. 19, pp. 337-59; Wicks, A., Gilbert, D. and Freeman, E. (1994), ‘‘A feminist reinterpretation of the stakeholder concept’’, Business Ethics Quarterly, Vol. 4 No. 4, October. 7 Donaldson, T. and Preston, L.E. (1995), ‘‘The stakeholder theory of the corporation: concepts, evidence and implications’’, Academy of Management Review, pp. 65-91; Reed, D. (1999), ‘‘Stakeholder management theory: a critical theory perspective’’, Business Ethics Quarterly, Vol. 9, pp. 453-84. 8 I am aware that such application of Rawls’ theory runs into great difficulties. See Henry (2001) and Child and Marcoux (1999).

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9 Donaldson, T. (1982), Corporations and Morality, Prentice-Hall, Englewood Cliffs, NJ, and Werhane, P. (1985), Persons, Rights and Corporations, Prentince-Hall, Englewood Cliffs, NJ. 10 This definition is taken from Suchman, M.C. (1995), ‘‘Managing legitimacy: strategic and instrumental approaches’’, Academy of Management Review, Vol. 20, pp. 571-610. 11 Emphasis from Phillips (2003). 12 Max Clarkson as quoted in Phillips, 2003, p. 30. 13 Amnesty International and Pax Christi International have proposed similar recommendations with respect to the moral responsibility of multinational corporation for human rights (Amnesty International and Pax Christi International, 1998, pp. 63-4). 14 Wellicht wil de auteur dit toch anders formuleren. Ik ben voor overleg bereikbaar op 06 12 697 698. 15 Geef dan ook aan waar de sections beginnen. 16 Het loopt hiet niet goed, maar ik kan niet uit de context opmaken of mijn aanpassing zo afdoende is. 17 Zijn ze nu wel of geen aandacht waard? Onduidelijk. Bedoelt de schrijver misschien: ‘‘are worthy of attention from management not because of themselves but because of . . .’’? 18 Is dit een juiste quote? Ik ben niet blij met deze zin vanaf hier. 19 Bedoel je lot of geloof? fate = lot. 20 ?? not toegevoegd. 21 Eigenlijk is dit te informeel geformuleerd.

References Amnesty International and Pax Christi International (1998), ‘‘Multinational enterprises and human rights’’, A report by the Dutch sections, Amsterdam/Utrecht, pp. 63-4. Appadurai, A. (1996), Modernity at Large. Cultural Dimensions of Globalization, University of Minnesota Press, Minneapolis/London. Child, J.W. and Marcoux, A.M. (1999), ‘‘Freeman and Evan: stakeholder theory and the original position’’, Business Ethics Quarterly, Vol. 9, pp. 207-24. De George, R.T. (1993), ‘‘Ethical dilemmas for multinational enterprise: a philosophical overview’’, in White, T.I. (Ed.), Business Ethics a Philosophical Reader, Prentice Hall, Upper Saddle River, NJ, pp. 784-9. Donaldson, T. (1982), Corporations and Morality, Prentice-Hall, Englewood Cliffs, NJ. Donaldson, T. (1989), The Ethics of International Business, Oxford University Press, New York/Oxford. Donaldson, T. and Preston, L.E. (1995), ‘‘The stakeholder theory of the corporation: concepts, evidence and implications’’, Academy of Management Review, Vol. 20, pp. 65-91. Etzioni, A. (1988), The Moral Dimension. Toward a New Economics, The Free Press, New York/ London. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston. Freeman, R.E. (2001), ‘‘A stakeholder theory of the modern corporation’’, in Beauchamp, T. and Bowie, N. (Eds), Ethical Theory and Business, Prentice Hall, 6th Edition, Upper Saddle River, NJ, pp. 56-65. Freeman, R.E. and Evan, W.M. (1990), ‘‘Corporate governance: a stakeholder approach’’, Journal of Behavioral Economics, Vol. 19, pp. 337-59. Hendry, J. (2001), ‘‘Missing the target: normative stakeholder theory and the corporate governance debate’’, Business Ethics Quarterly, Vol.11, pp.159-76. Klein, N. (2000), No Logo, Flamingo, London. Kumar, N. and Steinman, H. (Eds) (1998), Ethics in International Management, Walter de Gruyter, Berlin/ New York. Levinas, E. (1979), Totality and Infinity. An Essay on Exteriority, Martinus Nijhoff, the Hague/Boston/ London. Levinas, E. (1998), Entre nous. On Thinking-of-the-Other, The Athlone Press, London. Marx, K. (1890), Das Kapital. Kritik der politischen O¨konomie. Erster Band, Internationalen Marx_Engels Stiftung (Ed.), Berlin, Dietz Verlag, 1991.

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Mitchell, R., Agle, B. and Wood, D. (1997), ‘‘Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts’’, Academy of Management Review, Vol. 22, pp. 853-86. O’Neill, O. (1989), Constructions of Reason. Explorations of Kant’s Practical Philosophy, Cambridge University Press, New York, NY. Phillips, R. (2003), ‘‘Stakeholder legitimacy’’, Business Ethics Quarterly, Vol. 13, pp. 25-41. Phillips, R., Freeman, R.E. and Wicks, A.C. (2003), ‘‘What stakeholder theory is not’’, Business Ethics Quarterly, Vol. 13, pp. 479-502. Reed, D. (1999), ‘‘Stakeholder management theory: a critical theory perspective’’, Business Ethics Quarterly, Vol. 9, pp. 453-84. Sloterdijk, P. (1999), Spha¨ren II, Globen, Suhrkamp, Frankfurt am Main. Suchman, M.C. (1995), ‘‘Managing legitimacy: strategic and instrumental approaches’’, Academy of Management Review, Vol. 20, pp. 571-610. Van de Ven, B. (2000), ‘‘Postmodernism and the advertised life’’, Zeitschrift fu¨r Wirtschafts- und Unternehmensethik, Vol. 1, pp. 155-70. Werhane, P. (1985), Persons, Rights and Corporations, Prentince-Hall, Englewood Cliffs, NJ. Wicks, A., Gilbert, D. and Freeman, E. (1994), ‘‘A feminist reinterpretation of the stakeholder concept’’, Business Ethics Quarterly, Vol. 4, pp. 475-98.

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Towards the relational corporation: from managing stakeholder relationships to building stakeholder relationships (waiting for Copernicus) Josep M. Lozano

Abstract The starting point of this paper is the traditional view of stakeholders (encompassing the binomial affecting – affected by the company), and identifies the analytical, managerial and normative dimensions implicit in this view. It goes on to suggest that all stakeholder approaches should make explicit their models, what we call a company model, a management model, a description model, a values clarification model and a legitimacy model. The next issue raised is how far most stakeholder approaches are constructed from a view of the corporation focused inwards, at the center of a universe with stakeholders revolving round it. The complexity of contemporary society (the network society) may require us to learn how to interpret the company’s economic and social relationships system, so that thinking about the company means thinking about it both within and without the network. This is why we propose the term relational corporation, to refer to a corporation that changes its approach to links with its stakeholders, moving from managing relationships to building relationships.

Josep M. Lozano is a Professor at ESADE Business School, Barcelona, Spain. Tel: 3493 2806162, Fax: 3493 2048105, E-mail: [email protected]

Keywords Stakeholders, Intergroup relations

Still be kind, And eke out our performance with your mind (Shakespeare, Henry V, Act 3, Scene 0)

Talking about stakeholders: a necessarily open question The term stakeholder appeared for the first time in 1963, in a memorandum of Stanford Research Institute[1]. In that first definition stakeholders were conceived in relation to corporate survival: those groups without whose support the organization would cease to exist. Right from the start, then, we have the three elements that have persisted throughout the whole debate around stakeholders: the organization, the other actors who relate there and the nature of this relationship. The whole debate around stakeholders revolved around these three elements. This first definition was followed by others, outstanding among which for its relevance being that of Freeman: ‘‘any individual or group who can affect or is affected by the achievement of the organization’s objectives’’[2]. The apparent simplicity of these definitions has not meant there are no doubts, above all, in as far as we have realized, that diverse approximations have become superimposed over these. These superimpositions have best been expressed by Donaldson and Preston (1995) who

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DOI 10.1108/14720700510562668

have pointed out that talking about stakeholders includes considering three approximations: descriptive, instrumental and normative[3]. From the descriptive viewpoint, talking about stakeholders lets us identify the group of interrelationships that make up an organization. From the instrumental viewpoint, it lets us consider how these interrelationships are managed in relation to the achievement of corporate objectives. From the normative viewpoint, it lets us clarify the quality, hierarchy and value of the interests and needs that emerge in these interrelationships. Consequently we have to assume that when we hear about stakeholders it is not always clear which of these registers we are in, if the issue is not raised explicitly. Mitchell et al. (1997) made a comprehensive summary of the various approaches in current use. Compared to the classification proposed by Donaldson and Preston, the instrumental perspective has a much lower profile, making managing stakeholder relationships the result of an intersection between descriptive and normative processes, seemingly the key elements in classifying any stakeholder approach. The descriptive process includes all approaches alluding mainly to the relationship between stakeholder and firm, specifying who has power over whom. The normative process investigates the legitimacy of the relationship: who has claims and rights therein, and the value and pre-eminence of the interests at stake. However clean-cut these distinctions may seem, they have always been the source of practical and theoretical problems. Since we hold that no stakeholder discourse can be entirely selfsufficient, we summarize below some of the most significant of these problems.

Stockholder - stakeholder tension Although brilliant and expressive in use, the term stakeholder raises problems because of its contrast/relationship with the term stockholder. What is the relationship between the stakeholder approach and the stockholder approach? Are they opposites? Does the first include the second? Or go beyond it? Or simply make it more sophisticated? Right from the start, important voices like that of Freeman were raised to say that from both theoretical and management standpoints, reference to stakeholders means a change in direction for thinking on the organizational life: ‘‘namely, the shift from stockholder to stakeholder’’[4]. It should be remembered here that development of the stakeholder theory is intrinsically linked to the debate on corporate social responsibility. Carroll (1999) and Epstein (1998) have shown the evolution of this inter-relationship, and Clarkson has emphasized the need for a stakeholder framework for analyzing and evaluating corporate social performance (Clarkson, 1995). The problem in the relationship between stockholder and stakeholder approaches lies primarily in the managerial context: what managers have to do, how their actions are to be guided and legitimized. Both in its most combative expression (Friedman: the social responsibility of business is to increase its profits[5] ) and most relative (pre-eminence of stockholder relationships over other stakeholder relationships[6] ) the issue of stockholder priority marks a dividing line in approaches to understanding stakeholders. In other words, whenever we propose a stakeholder approach we must make it clear whether it implies a specific change in perspective, or ‘‘simply indicates that companies may profit maximize in the long term through certain social postures’’[7]. Be this as it may, by assuming that all stockholders have the same perspective and interests, this debate systematically ignores an issue of particular importance today. There is in fact no evidence that investors approach the activity of investment in a single minded way (Cragg, 2002), and this diversity in interests, priorities and time perspectives is increasing. As the growth of socially responsible investments shows, some investors use both social and economic criteria when valuing their investments[8]. However, the fact that stockholder appeal is not straightforward enough to allow a single interpretation must not obscure the basic issue underlying this tension between stockholders and stakeholders: the debate on corporate purpose and criteria for company management. ‘‘Whereas the shareholder approach seems to acknowledge only one interest of one stakeholder group, the shareholders, the stakeholder approach acknowledges the many interests, but gives no principle of justice for the process of mediation between the interests. It remains

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a principle of strategic bargaining[9].’’ In other words, if we merely recognize multiplicity of relationships without clarifying their nature or criteria we are walking blindly into a situation of conflicting interests. This means that any debate on the stakeholder approach is a debate about what company model we want.

Tension passed on to managers We have just established that the stakeholder approach is a debate about the company model. This also implies that in the final analysis, the shareholder-stakeholder tension can be viewed as the tension between two dominant competing frameworks for the orientation of management (Mele´, 2002). In attempting to answer the questions whom does management serve? (Sharplin and Phelps, 1989) and for whose benefit and at whose expense should the firm be managed? (Freeman, 1994), the stakeholder approach inseparably links the debates on company models and management models. Although management theory has always contained a strong prescriptive element, we would be wise to question just how far many strategic management approaches are simply reformulations, in corporate terms, of what Moore has called the ‘‘naturalistic fallacy’’ (Moore, 1988). Starting from the premise that stakeholder relations are important for corporate success, we make the conceptual leap to prescription by saying that all management must take them into account. ‘‘What virtually all management theories assume is that the purpose of a management theory is to provide the foundations for successful management. Successful managers are managers who do well what managers are supposed to do. The role of managers is in turn defined by the nature and purpose of the corporation[10].’’

If we allow that ‘‘a stakeholder theory of the firm must redefine the purpose of the firm’’[11], this redefinition will also affect our comprehension of corporate performance and success, and consequently our understanding of how companies should be managed. Further, if we allow that a stakeholder theory permits the reformulation of the relationship between managerial orientation and corporate performance (Mele´, 2002), this will both create strategic prescriptions and redefine how we see corporate success and ‘‘good’’ management. On this point, Cragg (2003) insists that it does not make sense to separate instrumental or managerial aspects, and descriptive or normative aspects. Once the various stakeholders have been identified, this descriptive material is reconstructed by the various management theories and models in line with their respective guiding assumptions, criteria and values. There is no management model (including instrumental or strategic models) that is not based on normative assumptions, and therefore none that substantiates the assumption that options underlying models do not have to be clarified.

Is it really so easy to identify stakeholders? Now that we have avoided the risk of uncritically turning a sociological statement into a managerial prescription, we might think that the criteria for differentiating stakeholder approaches would be evaluational and normative. However, these diverse approaches would depend on the identification of stakeholders, where the only problem would be accuracy of observation. This has been well expressed by Goodpaster, who distinguishes between stakeholder analysis and stakeholder synthesis, where the former would form only part of the latter: ‘‘stakeholder synthesis offers a pattern or channel by which to move from stakeholder identification to a practical response or resolution’’[12]. Mechanisms for such identification or analysis are not universally agreed. ‘‘Who decides which groups are stakeholders in a given context?’’[13] Freeman and Reed (1983) distinguish between the wide sense and the narrow sense of the term, depending on its importance for company survival. Mitroff (1983) draws a distinction between internal and external stakeholders, using the walls of the company as the cut-off point. Frederick et al. (1988) distinguish between primary and secondary links, and Carroll (1989) shows that analysis can be done from either a production or a management perspective.

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Taking the process of identifying stakeholders to its limits leads to a conceptual and management problem. The conceptual problem: what is a company? Because during the deconstruction involved in stakeholder analysis, the company itself becomes, conceptually, an empty space that only acquires content where the various stakeholders intersect. While stakeholders affect or are affected by the company, they are not strictly speaking the company. The management problem: if managers are the only non-stakeholders (and why is this so?) they become the only occupants of this intersection, and have no choice but to seek a balance between the tensions to which they are subjected by the various groupings. The basic issue is that ‘‘the very idea of a purely descriptive value-free, or value-neutral stakeholder theory is a contradiction in terms’’[14]. This is because of the elements used in its description. For instance, Wood and Jones (1995) depict this description as the result of considering the following: the power of each stakeholder vis-a`-vis the firm; the nature of issues involved in the relationship, the ways in which stakeholders express their expectations and evaluations; the way in which the company responds and interprets these, and how it acts. It is clear, then, that ‘‘stakeholder attributes are socially constructed, not objective reality’’[15], and that stakeholders can only be identified from assumptions (Mitroff, 1983). In other words, that when we describe stakeholders, we are in fact describing and demonstrating our understanding of the nature of business itself, which forms the basis of any description we may make (Kaler, 2003). This may be better explained by saying that when we refer to stakeholders, we are constructing a narrative about the company (Freeman, 1999)[16]. This narrative is shaped by assumptions, descriptions, values and criteria. No models for stakeholder can exist without making explicit models for their comprehension (values) and legitimization (principles and criteria).

A framework for making values explicit We cannot refer to stakeholders without setting out the values, criteria and conceptions that allow them to be recognized and classified as such (Lozano, 2000). All stakeholder theories must recognize from the outset that only a value-dense vision of the company and its relationships can lead to the identification of its constituent elements. The actors, interests and powers to be taken into account, the fields that affect or are affected by the theory, who establishes what is meant by success and corporate results, and how they do this, etc. In sum, the stakeholder approach involves articulating, expressing, analyzing and understanding corporate relationships. Beyond the atomistic approach that sees stakeholders as relationship groups defined by the many co-related forces that each creates, we must have a framework from which to locate, understand and consequently integrate them. Only then can we appreciate how a stakeholder approach recognizes that ‘‘stakeholders define the norms for corporate behavior; they are acted upon by firms; and they make judgments about these experiences’’[17]. However, this implies that the company-stakeholder interrelationship cannot be grasped without understanding how and on what basis actors intervene to structure the relationship. Mele´ (2002) has correctly argued that both shareholder and stakeholder models interpret the relationship almost exclusively in terms of the so-called logic of interest. This is usually referred to as interests at stake. They normally obey the separatist thesis that splits business and ethics into separate logics (Carroll and Na¨si, 1997). When establishing the nexus of relationships between the various stakeholders, not only interests, but many other elements are at stake (emotional, evaluative, moral) that cannot be reduced to a reading based on interests alone. This means that as well as interests, the purpose of the relationship and the value given it by each actor must also be considered. Beyond the atomistic approach of an aggregation of relationships, we must ask whether stakeholders have a framework for understanding that gives meaning to and establishes a shared basis for understanding and regulating these relationships (Zadek, 2003). This framework should first make explicit both the company’s purpose and goals, and not only interests. And second, a clear statement of the values, rights and duties of the stakeholders involved in the context of a global view of society, along with the company’s specific contribution to that society (Argandon˜a, 1998)[18]. In the final analysis, any discussion of stakeholder theories is an anthropological and social discussion. Both the descriptive identification and the prescriptive proposals relating to stakeholders pre-suppose some kind of anthropological model and vision of the social role of

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companies (Kaler, 2003). There can be no discussion of stakeholders without considering the values that different actors identify as shaping their relationship. In other words, without specifying its intrinsic internal good (MacIntyre, 1984). Any relationship between stakeholders contain interests, but is also dense in values, and so any discussion on the stakeholder concept needs a model for the comprehension of the values round which the relationship is built.

Beyond anything (or any interest) goes Relationships with stakeholders, then, include more than interests, extending to values and claims as well. And this is precisely why any reflection on stakeholders must sooner or later lead us to address the issue of their hierarchical order. ‘‘Identifying someone as stakeholder does not, of itself, say what interest is, or even what type of interest is; and it does not say how seriously or with what weight that interest should be regarded[19].’’ It is not enough to identify what is at stake in each relationship, we must also try to establish the quality of the relationship: verifying that a relationship exists in itself tells us nothing about its meaning. It has been asserted that consideration of interests is not enough, and that ability and power to influence must also be brought into the equation[20]. But as Kaler rightly insists, ‘‘a definition of stakeholders in terms of a power to influence is perfectly compatible with the demands of strategy in that it entails no presuppositions about what the objectives of a business should be’’[21]. The existence of relationships of power and interest necessarily brings the legitimacy of both these concepts into question. To take an extreme example: a terrorist group can undoubtedly be a company stakeholder. But while verifying its interests and power to influence can give it importance in strategic management, this does not mean it has either ethical preeminence or legitimacy. The first step in justifying the necessarily prescriptive dimension of any stakeholder approach is to evaluate its social relationships (Hendry, 2001). Do all the interests at stake have equal legitimacy, for example. Phillips (2003) has systematized normative justifications for stakeholder theory; and Andriof and Waddock (2002) have done likewise with the various rationales for stakeholder theory. But all these cases illustrate the same problem: theorizing about stakeholders means theorizing about the relationships they set up and their content. For stakeholder hierarchy and legitimacy issues cannot be considered without also looking at stakeholder rights[22].

It is in this context that the approach of Donaldson and Dunfee (1999) is so important, with three aspects particularly relevant for our purposes. First, their concept of the hypernorm (a norm by which all others are judged). Hypernorms[23] are universally generally accepted ethical principles linked to human rights. They take precedence over, but do not replace, the specificity of creating a moral free space, the second highlighted aspect. In a moral free space, individuals create and share the moral norms and values that shape their social and consequently their economic relationships (providing these are compatible with hypernorms). Third, these processes require to varying degrees the consent of those involved. What are the consequences of these ideas for a stakeholder approach? We cannot legitimately understand or manage a relationship between stakeholders without asking what rights come into play. In the previous section we stated that in relationships between stakeholders there can be no interests without values. Now we must add that these values cannot be understood without asking whether rights are also involved. In other words, to consider any stakeholder approach we need two things: a model for understanding its values, and a model for legitimizing the relationship.

Talking about stakeholders: why is this always an open issue? Initially, we said that any discussion of stakeholders involves three elements: 1. The organization. 2. The other actors in the relationship. 3. The nature of the relationship.

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Now so far in our short itinerary we have tried to show that these three elements cannot be addressed without having models: J A company model. J A management model. J A description model. J A comprehension model (values at stake). J A legitimacy model (principles and rights at stake). Our apparently simple initial premise is now looking rather complex, but perhaps the problem lies not so much in the complexity as in our reading of the issue itself. Trevin˜o and Weaver have pointed out that research on stakeholders involves ‘‘converging theorists, not convergent theory’’[24]. It would perhaps be more reasonable to take the view that the stakeholder approach does not need a single master theory that would resolve all the theoretical and practical challenges presented by every approach. This I feel would be neither possible nor indeed desirable partly because, as we have already seen, in theory all stakeholder discourses involve description, strategy, values and principles. In practice too, the nature of stakeholder relationship is not universally consistent, but rather contingent on the situation facing the organization. So perhaps instead of talking about stakeholder theory we should be talking about developing an ‘‘understanding of stakeholder thinking’’[25]. Stakeholder thinking as a concept is neither an instructions manual nor a tool-box, but a key for interpretation. It ‘‘provides a concept for articulating, expressing, analyzing and understanding managers in their relationship with individuals and groups. . . . At a broader level, stakeholder thinking helps us understand the business and society relationship[26].’’ Instead of one convergent stakeholder theory, then, we have a group of elements that, as we have discovered, are as essential when constructing any stakeholder approach as is the method by which it is articulated and justified. The different elements in the stakeholder approach do not allow for a single all-embracing theory. However, they do allow a narrative of the company[27]. This narrative helps us understand it and take sights for action, and can be used to reconstruct a proposed vision of the company, subjected to dialogue and justification. So key to the stakeholder approach are the actors in the context of the relationship itself, not actors pre-existing the establishment of the relationship. Any stakeholder approach that takes itself seriously is based on a relational vision of the company, which goes beyond the concept of who affects, or is affected by, the company (what the stakeholder approach usually refers to). It sometimes seems that everything can be questioned except the corporate purposes that give rise to the definition of this affect-be affected binomial. We think that if the stakeholder approach is really relational, it must accept that the definition of corporate purposes and goals can also form part of the relationship. This leads us to ask in what sense the company is the subject of the stakeholder approach.

Waiting for Copernicus Those of you who read presentations of stakeholder issues will have been struck how the same diagram in various guises is always appearing. The company sits in the middle, with all the stakeholders around it either at the same level or in concentric circles[28]. As if the company could only see its relationships from the inside out, implying that this is the ideal representation of corporate relationships. It seems we are still working with a Ptolemaic concept of the company, assuming that it is natural for the company to be at the center of the universe: at least its own universe. This could explain why stakeholder relationships are routinely seen as basically a problem of managing relationships. Perhaps we need a Copernicus to help us also see the company from the perspective of the system in which it acts, from its place in the system, and considering how it contributes to the system’s dynamic equilibrium, but this time not as the center of the universe. Kuhn (1962) has warned us that our view and experience of the world will depend on the paradigm in which we find ourselves, and that only from within a paradigm can problems and solutions be defined

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that make sense for the scientific community. Continuing with the analogy, we could ask how far many of the discussions, problems and solutions around the stakeholder approach are dependent on a perspective that is limited to a Ptolemaic (corporate-centric) vision of the corporate universe. While waiting for the Copernicus of management to appear, we might get some support from someone who has helped us understand why there are so many ways of tackling value-based problems and decisions, particularly where these are moral values. I am referring to Kohlberg[29]. His findings are centered on the existence of stages in the development of the moral reasoning that occurs when making decisions. These stages involve qualitative differences in the ways of thinking, understanding and judging situations that required a decision. Each stage is a whole, always structured in the same order in individuals, who usually tackle problems according to the highest stage reached. The opportunities and challenges present in their contexts play a fundamental role in this development, particularly opportunities for dialogue and relationship that include differing perspectives for problems. This is why the role played by corporate structures and the organizational climate in moral development has been raised (Trevino, 1992). The debate covers not only the development of individuals within organizations, but also corporate moral development (Reidenbach and Robin, 1991). As with discussion on the relationship between corporate culture and ethics (Lozano, 1998), corporate moral development is not the development of a body that exists in isolation from the individuals who make it up, but a ‘‘dynamic interactional development for the preservation of the character of the system’’[30]. This is an open focus, which postulates that the integration of individual and organizational moral development depends on how stakeholder orientation is dealt with (Logsdon and Yuthas, 1997). Kohlberg presents his evolutionary sequence of moral development in six successive stages, grouped into three levels: pre-conventional, conventional and post-conventional. The two stages of the pre-conventional level are: heteronomous morality linked to avoid punishment and individualism and instrumental purpose. In heteronomous morality, what counts is avoiding unpleasant consequences for oneself, and submission and obedience to the power of authorities through fear of punishment. When applying individualism and the instrumental purpose, what counts is seeking the accomplishment of one’s own interests and needs, in a world where everyone is recognized to have his or her own interests. The two stages of the conventional level are the adoption, respectively, of an interpersonal perspective, and a social system perspective. The stage involving mutual interpersonal expectations is motivated by deference to the expectations of immediate peers, who take primacy over individual interests. In social perspective stage, we are capable of adopting the perspective of keeping the institution going as a whole, differentiating societal points of view from interpersonal agreement or motives. Finally, the post-conventional level, where the two stages are social contract, and universal ethical principles. At the social contract stage, the individual is capable of a prior-to-society perspective, where recognition of pluralism is accompanied by a sense of obligation to law for the protection of all people’s rights because of the social contract. And at the universal ethical principles stage, individuals act in conformance with the validity of universal moral principles of justice, and a sense of personal commitment to them.

We believe that acknowledging Kohlberg’s findings can help explain why no unified theory has appeared on the development of stakeholder thinking. As we have already said, the stakeholder thinking approach is not self-sufficient since its discourse involves stakeholders, always a contingent discourse that can only work in a specific context. In this context, reference to stakeholder relationships means explicitly or implicitly articulating models for the company, management, identification, evaluation and legitimacy. And we know that even with identical elements, these differ when ordered from pre-conventional, conventional or post-conventional perspectives. Practical discussions around the different stakeholder approaches could probably be better understood if instead of concentrating on their component elements we focused on the

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perspective from which they are ordered. We already know that the different stages are incommensurable: although they talk in the same terms, they do so from different mental universes. The perspectives from which stakeholder relationships are tackled differ. The pre-conventional perspective takes into account the power and interests of those taking part. The conventional perspective considers the intrinsic internal good of the relationship established; and further the conventional perspective includes socially shared values that frame the role of the company in society. The post-conventional perspective may subordinate the understanding of the relationships to human rights and hypernorms. We know that each stage creates its own viewpoint on the world, and its own way of understanding and justifying the links and commitments established. Theoretical content alone does not in practice explain the differences between the distinct approaches to stakeholder relationships. Also important, perhaps decisive, is the development of a moral (intellectual and emotional) capacity that prevents them being viewed as just a way of managing the interests of parties involved. We must recognize the values intrinsic to the relationship and coming from its social context, and be able to assume these without turning our backs on principles of justice and human rights. If all these elements are considered our affirmation, that each stakeholder approach leads to a narrative about a company and its actions. This narrative includes analytical, managerial and normative elements, and since human action and its narration are by nature always open, this explains why the stakeholder approach is always an open issue. It should be noted that in this context, open does not mean arbitrary, as the vital flow from a pre-conventional to a post-conventional perspective makes clear. The difference is, that while the pre-conventional perspective tends to treat the logic of power and interest as an absolute, conventional and postconventional perspectives, while not eliminating it completely, move it to a different horizon of understanding[31]. In each perspective, the reply to the inevitable question[32] implicit in the issue before us of ‘‘how can and do corporations contribute to constructing ‘the good society’?’’ acquires a different meaning. The question is whether we can tolerate companies and managers whose only response to this question is what I have called the heteronomy of results (Lozano, 2000). Companies and managers only capable of responding from a mono-thematic perspective, whose sole concern is the logic of interest and power, and whose vision of stakeholder relationships is a Ptolemaic diagram with the company at the center of the universe with all its (subordinate) stakeholders revolving round it. It must also be possible to base our thinking about companies and their relationships on a more global vision of the economic and social system, and the specific contribution these make to the viability and sustainability of that system. The contribution of the evolutionary process pointed out by Kohlberg is in showing that during the transition from a pre-conventional to a conventional or post-conventional perspective, there is both continuity and breach. Continuity, because during this process, subjects learn how to expand their perspective from their own experience and interaction. Breach, because each level of the process brings a change in world views and ways of orienting actions. I would also add that today, getting beyond this corporate-centric view of stakeholder relationships is both a challenge and a necessity.

From the stakeholder corporation to the relational corporation[33] Our debate has moved on from the relationship between company and society – the problem from our current standpoint being that ‘‘and’’. What we must now address is the role and purpose of the corporation in society (Clarkson, 1998). Corporations do no not stand apart from society as a distinct self-justifying organization (Cragg, 2002). We should therefore be asking whether the perspective from which the stakeholder approach and thinking is developed is firmcentered or system-centered (Mitchell et al., 1997), perhaps a Copernican turn. Our advantage when posing this question in the light of Kohlberg’s findings is the knowledge that moving from the former to the latter is not a choice between two opposing, mutually exclusive perspectives, but the result of a process of personal and corporate development that can be a learning process. The ability to see challenges and opportunities in systematic terms is not incompatible (quite the contrary) with focusing on stakeholder relationships from the company standpoint, which can also embrace the social framework. However, an exclusively self-centered vision of

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stakeholders makes them subservient to a relationship management only equipped to see them as a projection of company interests. This movement from firm-centered to system-centered thinking is not just well-intentioned theory but the result of thinking about our world and the role companies play. A stakeholder approach is not the result of approaching a Platonic idea that tells you how to view the relationships with stakeholders, but that is always contextual. And, by the way, the context has changed radically since 1963 when stakeholders first came on the scene. Today, we are newly asking if the world can become a place for us (Barber, 1998) or if we are living in a runaway world (Giddens, 1999). The need for governance of globalization processes now goes beyond governments and political institutions, it absolutely requires the alliance and co-responsibility of the many actors involved, above all in creating basic joint agreements (Held and McGrew, 2002). This is particularly important if we recall that one of the dark sides of globalization is the emergence of the risk society (Beck, 1986, 1997). In this society, the threat comes not from inescapable natural phenomena but the consequence of human actions, including those taken in the name of economic necessity. Such human actions raise the uncomfortable question of whether or not they originate in a kind of organized irresponsibility (Beck, 2000). It is well known that in many forms of social and environmental damage there are many factors but no single cause, and so no-one feels responsible. We are increasingly aware that this new society, built on inter-dependencies, cannot be viable if its actors, including companies, do not all act from the principle of responsibility (Jonas, 1979)[34]. It is natural, then, that there should be talk of ‘‘the new roles and responsibilities of business within a new operating paradigm that has shifted from a ‘do no harm’ approach to a ‘demonstrate positive benefit’ imperative’’[35]. One of the underlying elements in all these new social and business processes is the movement towards the so-called network society. ‘‘As an historical trend, dominant functions and processes in the information age are increasingly organized around networks. Networks constitute the new social morphology of our societies, and the diffusion of networking logic substantially modifies the operation and outcomes in processes of production, experience, power and culture[36].’’ As well as affecting our understanding of management and the role of companies, it underpins the plausibility of a stakeholder approach evolving from firm-centered to system-centered.

The key to understanding the organization is the network concept. The organization is at the node of the networks it occupies, but not at the center, partly because a network is not defined from its center. This means that stakeholder relationships cannot be viewed as segregated or dyadic (one to one) relationships, an assumption that used to form the basis of many stakeholders theories. ‘‘The organization is not necessarily the center of the network; therefore, treating its position as a variable in its complex social system provides one with an opportunity to understand more fully how patterns of stakeholder interactions impact the organization[37].’’ This means seeing the organization as a network of stakeholders, each with its own set of stakeholders. It also implies that the content of a particular stakeholder approach comes from a particular context (Gao and Zhang, 2001), and that instead of ready-made clear, distinctive stakeholder theories we need the capability to develop a stakeholder narrative from each company’s itinerary. In the words of Sandra Waddock: ‘‘No longer can we consider that a company operates independently of its impacts on stakeholders, even if those impacts are emotional, aesthetic, or otherwise not really quantifiable. No longer can we say business and society; we must recognize that business is a holon of the larger holon society, thus the correct terminology is business in society[38].’’ This means changing our assumptions. Relationships with stakeholders can no longer be seen through the lens of the consequentialist binomial