A Precis of a Communicative Theory of the Firm

A precis of a communicativetheory of the firm

Jeffery D.Smithn

Introduction

Over the last two decades there have been

noteworthy attempts to apply normative moral

and political theory to the conduct of business

firms. These applications draw upon the work of

Aristotle, Immanuel Kant, John Rawls, various

figures of the social contract tradition, and the

writings of the so-called communitarians (see

Keeley 1988, Solomon 1993, Etzioni 1998, Do-

naldson & Dunfee 1999, Bowie 1999, Phillips

2003). A body of literature that has received

substantially less attention by business ethicists,

however, is the work of European theorists who

advocate an approach termed discourse, or com-

municative ethics.

This paper proceeds under the assumption that

there is room to develop a communicative theory

of the modern business firm that can provide a

perspective from which to evaluate an array of

normative issues in business ethics, e.g. corporate

social responsibilities, stakeholder entitlements

and obligations, managerial decision making,

and corporate governance. This task, however, is

quite complex and cannot be completed in its

entirety here; as a result, the purpose of this

analysis will be to provide a preview of a more com-

prehensive application of communicative ethics.

My focus will center on the first step of such an

application; that is, whether it is reasonable to

conceive of the relationships between business

stakeholders as part of the communicative, i.e.

consensus-building fabric of modern society, or

whether such relationships are merely strategic in

a way that emphasizes the satisfaction of private

over collective interest. Although the answer to

this general question remains open within the

communicative ethics literature, I take an ap-

proach that maintains that economic organiza-

tions are not only partly communicative in nature

but it is indeed appropriate that the ideals set

forth by communicative action structure the terms

of cooperation between their members. Business

actors, while strategically motivated in basic ways,

cannot be exclusively strategic without jeopardiz-

ing the successful attainment of their shared

interests. I also hold that communicative action

is only enabled through a complicated network of

social institutions. If businesses shape and affect

the possibility of consensual social action in other

spheres of modern society, then they too are

partly subject to the normative constraints pro-

vided by the ideal of communicative interaction.

In what follows, I will develop this position with

exclusive focus on the philosophical work of

arguably the most prominent communicative

ethicist, Juergen Habermas (1990: 43–115,

1996a). Since I do not purport to provide an

interpretation of Habermas as much as an

extension of some of his insights, I assume large,

controversial features of his work without de-

fense. The motive behind this exploration is a

curiosity in uncovering what entitlements and

responsibilities corporate stakeholders assume

when they are engaged in the mutually benefi-

cial acceptance of risk and reward that consti-

tutes business activity. Broadly speaking, I am

nAssistant Professor and Director of the Center for Business, Ethics

and Society, School of Business, University of Redlands, Redlands,

CA, USA.

r Blackwell Publishing Ltd. 2004, 9600 Garsington Road, Oxford OX4 2DQ, UKand 350 Main St, Malden, MA 02148, USA. 317

Business Ethics: A European Review

interested in what moral principles are implied

from the fact that business organizations are

composed of differently situated and differently

interested groups of individuals who sometimes

hold competing and mutually exclusive ends.

How can their diverse economic interests be justly

addressed given that these differences stand

in contrast to the shared interests they have in

the success of the firm? Although I will provide

no definitive answers to these questions in

this paper, I will begin the process of constructing

a communicative perspective from which these

questions can be asked.

Communicative and strategic action

Juergen Habermas maintains that moral princi-

ples are justified, and ultimately conferred valid-

ity, when they meet with the acceptance of

individuals engaged in an argumentative discourse

about the principle’s ability to satisfy the needs

and interests of all affected parties. His commu-

nicative ethics provides a procedure designed to

provide an examination of the principles that can

govern the interaction and cooperation of a

plurality of groups that have disparate value

orientations, interests, and conceptions of the

good. Institutionalizing argumentative discourse

enables a type of coordination of interests by

uncovering an insight into the interests of other

individuals. This, in turn, builds solidarity be-

tween those who reach collective agreement about

how to regulate the terms of their social lives.

Communicative ethics, unlike other contempor-

ary work in ethical theory, maintains that moral

norms governing social interaction are the result

of reasoned, dialogical exchanges between differ-

ently situated individuals. In this respect, com-

municative ethics is centrally procedural in that it

does not recommend substantive moral norms

but, instead, proposes that they result from

institutionalized discourses where those affected

jointly arrive at well-reasoned principles. Impor-

tance is placed on establishing reliable mechan-

isms for discursive interaction where different

constituencies and groups can address competing

interest claims on the basis of mutually recogniz-

able needs and solutions. The promise of com-

municative ethics for business ethicists is that it

can provide a procedural vantage point from

which the relationships that characterize the

modern corporation can be normatively assessed

and managed.

Habermas limits his normative theory to an

exploration of the moral principles that can be

rationally justified in the face of the persistent

disagreement that characterizes modern, pluralis-

tic societies. He begins this account with the

assumption that moral claims have the feature of

being made with the anticipation and expectation

that there are good reasons to support the validity

of the claim that every listener can, in principle,

acknowledge. Moral claims, thus, are a species of

what I have been calling communicative action, or

consent-oriented action (Habermas 1984: 286,

Baynes 1992: 80). Communicative action is social

activity with the primary aim of bringing about

mutual understanding, rational agreement, or

consent. Since communicative action is typically

mediated by language, Habermas focuses his

attention on moral claims and their purported

end of enabling the recognition of certain reasons

as warranted grounds upon which to accept a

normative, action-oriented claim about what

ought to be done. Moral assertions are distinctive

in that they specify universally valid human

interests that are capable of obliging individuals

whatever their specific value orientations or

limited set of interests. Linguistically mediated

moral action, then, is pragmatically based on the

presupposition that moral claims can lead to a

mutual recognition of the claim through inter-

subjectively acceptable reasons.

In this light, Habermas’ work can be broadly

viewed as an attempt to redeem the Kantian

project of uncovering a universal basis for moral

principles without appealing to an overly formal

conception of practical reason or otherwise

controversial metaphysical assumptions about

human autonomy. The possibility of universal

moral principles rests, instead, on the pragmatic

necessity of individuals to coordinate their activ-

ities amongst each other on the basis of shared

reasons. Habermas maintains that the reasons

that support the universal validity of moral claims

Volume 13 Number 4 October 2004

318 r Blackwell Publishing Ltd. 2004

can be uncovered through a process of dialogic

interaction among participants who may have

very different interests or conceptions of the good

life; hence, by identifying principles that express

universal interests, he takes seriously the liberal

notion that certain human interests can be

recognized by all individuals whatever their

concrete world views or particular ends. A society

that is able to coordinate its activities must rely on

claims that everyone can, even if only implicitly,

offer their assent. In Habermas’ terms (1984: 286–

287; 1990: 102), the restoration of communicative

action, oriented toward consensus, is necessary

for the basic processes of socialization, social

integration, and shared cultural reproduction.

Although much of our day-to-day interaction

proceeds in a communicative fashion – i.e., we

act and speak in ways that implicitly rely on

agreement – Habermas admits that communica-

tive action often breaks down because of the

inability of certain claims to generate consensus.

The inability of individuals to act in consensual

fashion runs the risk of leading to what Habermas

(1990: 58) calls rational–purposive action – action

that is not oriented toward rational understanding

and mutual consent but premised on the attain-

ment of certain ends not tied to consensus as such.

Rational–purposive actions come in two forms:

instrumental actions that are goal-oriented inter-

ventions in the physical world, and strategic

actions that are attempts to influence the thoughts

and behavior of others for the purpose of

achieving private ends. Although there is an

overlapping area between instrumental and stra-

tegic action, strategic action is particularly worri-

some for Habermas because it is social interaction

that subordinates, or perhaps purposely avoids,

mutual understanding in order to achieve other

ends like power, economic efficiency, or other

egocentric aims. Breakdowns in communicative

action can naturally lead to strategic action

because coordination needs to take place even

without consensus.

Strategic acts such as deception, coercion,

manipulation, and instrumental purpose can be

avoided if breaks in the fabric of communicative

consensus are repaired through a discursive

process of argumentation; that is to say, action

oriented toward mutual understanding and con-

sensus can be preserved in the face of ongoing

disagreement when those who disagree ‘thematize

contested validity claims and attempt to vindicate

or criticize them through arguments’ (Habermas

1984: 18). For the special case of moral claims, the

efforts to preserve rational consensus through a

process of argumentative discourse presuppose a

number of rules. Indeed, Habermas (1990: 86–93)

explains that these rules are inescapable assump-

tions behind the very effort to engage in commu-

nicative action. As long as you are a participant

using language to make claims that are designed

to secure recognition from listeners, you presup-

pose that there can be reasons uncovered that

support your assertion. The ideal process of

presenting and reconstructing this search for

reasons just is the pragmatic expression of the

very rules that guide Habermasian discourse.

These rules include the equal rights of all affected

parties to participate in the process of argumenta-

tion, an absence of coercive actions, consistency in

the use of language, the right of everyone to offer

any relevant objection, the truthfulness of all

participants, and the right of everyone to express

their needs and interests (cf. Baynes 1992: 80).

Through a complex maneuver, Habermas con-

cludes that from these necessary presuppositions

of argumentative discourse and the idea that

moral claims are justified only if they can generate

consensus to coordinate social action between

individuals, there is one basic rule that all moral

norms must meet in order to carry the force

of reason (Habermas 1990: 57–68; Rehg 1994:

56–84). He labels this rule (U) because, like

Immanuel Kant’s Categorical Imperative, it sti-

pulates that all justifiable principles must be

universalizable. In Habermas’ case, however,

universalizability is not a formal requirement of

maxims of action, but a requirement concerning

the acceptability of a proposed principle within

argumentative discourse.

(U): a moral principle is justified just in case all

affected can freely accept the consequences and

side effects that the general observance of the

principle can be expected to have for the satisfac-

tion of the interests of each individual (Habermas

1990: 93)


r Blackwell Publishing Ltd. 2004 319

(U) summarizes the basic procedural logic behind

moral argumentation and the discovery of accep-

table reasons to support a proposed principle: a

principle is rationally justified only on the

condition that all others who are affected by the

principle are rationally convinced of its validity.

So the consensus required by (U) is significant

because it identifies moral principles that partici-

pants in discourse ‘arrive at together’ by looking

for reasons that every other participant can

endorse (Rehg 1994: 77, 78).

Before exploring the applications of this

approach to themes in business ethics, it is worth

reiterating some important limitations to Haber-

mas’ theory. Moral discourse is a process whereby

individuals who are communicatively oriented

attempt to restore consensus on issues that have

temporarily resulted in disagreement. Habermas

is careful to stress that his theory itself does

not offer any substantive principles; rather, his

theory is purely procedural in that such principles

can only be determined through actual discourses.

Moral claims that are redeemed through dis-

course represent values that are generalizable

because claims that survive the process of moral

discourse are those that can be recognized by

everyone. Moral reasons, thus, can be understood

as discursive reasons, i.e., reasons that can be

recognized as acceptable warrants by participants

within discourse.

The domain of the moral is clearly limited by

Habermas to those normative issues that are

capable of expressing generalizable interests.

Ethical matters concerning individual or group

identity, value-oriented assessment of personal

ends, or questions of the good life are important

to be sure; however, discourses concerning these

questions are not geared toward the ‘mutually

expectable values’ discovered within moral dis-

course. Habermas envisions his communicative

ethics as providing the conceptual framework

needed to develop a theory of justice that

articulates the basic elements of a stable system

of public morality. Although he is reluctant to

specify the content of this system, the demands

of public recognition through individual rights,

liberties, formal opportunities, guarantees to a life

consistent with one’s lifeworld commitments, and

distributive schemes that acknowledge the impor-

tance of economic resources in the attainment of

these entitlements are likely candidates for uni-

versalizable moral principles.

Communicative ethics and business

There are two general ways in which commu-

nicative ethics is relevant to business. First, as an

institution that affects the distribution of rights,

responsibilities, benefits, and burdens in modern

society, businesses and their agents have respon-

sibilities to uphold the principles that are identi-

fied and justified through public moral discourse.

Insofar as consensus emerges about the appro-

priate ways to encourage and regulate business

activity there are norms to which businesses ought

to adhere. In other words, businesses, at a

minimum, need to further the interests of all

who are affected by their activity. Second,

corporations, despite being largely private asso-

ciations, are stable and successful only when it is

recognized that the relationships between their

stakeholders are communicative, and not merely

strategic in nature. This fact yields the interesting

result that discourse is not simply a mechanism to

regulate business at the level Rawls refers to as the

‘basic structure of society’, but is also germane to

the negotiation and management of moral con-

cerns between consociates within organizations. I

will take up each of these applications in turn

(Rawls 1971: 7).

Public morality, law, and business

Habermas’ discourse ethics is a theory of social

morality that governs the entire scope of public

interpersonal and institutional relations. To the

extent that businesses are units of civil society that

impact such core human interests as self-determi-

nation, opportunity, and welfare, there are well-

defined responsibilities to the general interest of

citizens. Reed (1999a, b), for example, has argued

that business activity functions in the general

interest only when three conditions are met. First,

individual profit seeking through cooperative

modes of production is justified only when

the firm intends to provide gains in economic



welfare to its stakeholders and that these gains are

appropriately distributed to everyone who has

contributed to the firm’s productive activities.

Second, because of specific failures of the market

to deliver such gains in welfare, there are generally

recognizable reasons to prefer regulatory struc-

tures that ensure the protection of the natural

environment, public safety, and competition in

order that the public benefits of individual profit

seeking are realized. Finally, business activity

upholds the general interest as long as it does not

‘invade other realms’ that should be governed by

non-economic ends. Reed is particularly con-

cerned with the ways in which businesses have

been able to supplant reflective individual choice

by contributing to the creation of a ‘consumer cul-

ture’ and how the ends of business have distorted

the communicative aims of other institutions, e.g.,

political parties and administrative agencies.

Another way that the norms of public morality

are brought to bear on business is through the

creation of relevant laws by legislative, adminis-

trative, or judicial means. This issue receives

extensive treatment within Habermas’ (1996b)

theory of law in Between Facts and Norms. There

he develops a principle of democratic law forma-

tion whereby formal political institutions have a

central (although not exclusive) role to play in the

maintenance of legitimate law. According to his

so-called principle of democracy, Habermas

(1996b: 110) maintains that statutes can claim

legitimacy only when they meet ‘with the assent

(Zustimmung) of all citizens in a discursive process

of legislation that . . . has been legally constituted’.

Laws consistent with this principle reflect a kind

of popular autonomy among the citizenry to

reflectively endorse the laws to which they are to

be subjected (Habermas 1988, 1996b: 118–131;

Reed 1999b: 26). Habermas (1996b: 107) draws an

indirect, but important, connection between (U)

and the principle of democracy. Indeed Habermas

holds that both principles are ‘co-original’ in the

sense that the normative realms of morality and

legitimacy are derived from the same core

principle, (D), expressed in the very idea of

communicative action, i.e., that an action norm

is valid only on the condition that all of those who

are possibly affected by it could find reason to

accept its role in regulating social life. The key

difference for the domains of morality and

legitimacy rests in the fact that legal discourses

encompass moral, ethical and pragmatic reasons

in the course of examining the validity of a

proposed law. The creation of law characteristi-

cally takes into consideration a wider array of

functional questions and aims (e.g., assessments

of efficient means and strategies), focuses, at

times, on negotiation and bargaining processes,

and tends to be concerned with concrete problems

and policies rather than the mere implementation

of abstract moral insights (Rehg 1994: 219;

Habermas 1996b: 453). Still, the fact that Haber-

mas (Habermas 1988: 243–244) argues that

‘legality can produce legitimacy only to the extent

that . . . legal discourses are institutionalized in

ways made pervious to moral argumentation’

exposes the deep linkage between legitimacy and

morality that Habermas derives from the ideal of

communicative action. Law, in a fundamental

sense, is a mechanism for the integration of moral

interests into norms that are implemented and

enforced through positive means.

In this light, corporate agents can be said to act

illegitimately when their actions either (a) contra-

vene the established provisions of existing legit-

imate law or (b) undermine the conditions

necessary for the ongoing development of legit-

imate law (cf. Reed 1999b: 27). The former

requirement needs little explanation beyond the

fact that businesses are legal agents subject to the

constraints endorsed through a discursively struc-

tured legislative process. The latter provision is

more complicated, but no less important. Haber-

mas stresses that modern society must be under-

stood as a ‘self-legislating’ legal community that

seeks to organize its common life on the basis

of laws that receive the assent of all affected

individuals. The ideal of a self-legislating polity

necessitates the legal recognition of certain rights,

all of which are necessary to maintain a society

constituted on the basis of law, so construed

(Habermas 1996b: 121–126). Accordingly, basic

rights of private autonomy are necessary to

preserve the freedom of speech, conscience, move-

ment, and association necessary to engage in

public discourse. Habermas also outlines rights to



legal protection and due process under the law so

as to prevent capricious penalties against those

who express dissent or who are otherwise subject

to the authority of other, more powerful institu-

tions. Finally, he argues for two broad categories

of legal rights that protect individuals’ entitlement

to direct and indirect participation in legislative

processes as well as the welfare conditions nece-

ssary for the exercise of all other rights (Baynes

1994: 210–212). It is therefore incumbent upon

corporations to refrain from activities that under-

mine these rights because they serve as necessary

conditions for the development of legitimate laws.

Such expectations may include, for instance,

prohibitions on penalizing employees who are

interested in organizing labor unions, respect for

the privacy of employees in the workplace, an em-

ployer provision of due process before dismissals,

and the responsibility not to engage in political

activities that undermine the ability of individuals

and communities to effect legislative change.

With this said, we should resist the temptation

to conceive of corporate responsibility as arising

merely from the external constraints of public

morality discussed thus far. Viewing the firm as

simply one of many regulated institutions fails to

address the special divisions and relationships that

characterize life within the firm. As a number of

contemporary stakeholder theorists have argued,

the unique nature of commercial relationships,

and their associated risks and rewards, generates

special moral considerations beyond mere obedi-

ence to politically endorsed regulations (Phillips &

Margolis 1999). Moral matters in business are

characteristically matters about how agents within

the organization are to exercise moral discretion

and balance the interests of individuals who make

contributions to the success of firm. Such issues

are not exclusively a function of how the insti-

tution’s goals fit within the larger aims of civil

society or how the outcomes of business need to

be adjusted to suit norms that take into account

other socially endorsed principles. Letting moral

obligations trickle down to business merely from

the prior demands of the law similarly neglects the

observation made by others that business is itself

a union of individuals with shared, yet simulta-

neously distinct interests. Opting for a definition

of corporate responsibility that stipulates that

businesses have responsibilities only as members

of civil society ignores this complexity and leaves

businesses qua businesses immune from direct

moral scrutiny.

It is fruitful to understand how corporate

responsibilities fit within the politico-legal recog-

nition of universal moral norms; however, busi-

nesses, as organizations, are significant in their

own right in helping to shape the possibilities of

communicative action. Corporations are success-

ful to a large extent when their stakeholders can

identify and share interests that enable efficient

coordination of their efforts. The prevalence of

work, expansion of private enterprise into areas

formerly managed by public entities, and the

dependence of local communities on corporations

for development, underscore how the interests of

all corporate stakeholders are intimately con-

nected with one another. Thus, in approaching

the application of communicative ethics to busi-

ness, I contend that we must be attentive to both

the need for corporations to internalize moral

responsibilities as well as identify and apply such

responsibilities via moral discourse at the organi-

zational level. I will take up some challenges to

this contention in the following section and then

move to a more systematic review of the commu-

nicative dimensions of stakeholder relationships.

Communicative action within organization

The normative authority of Habermas’ procedure

of moral discourse originates from the practical

commitment of individuals to engage in commu-

nicative action. There is no a priori or otherwise

metaphysically controversial foundation for com-

municative ethics; its foundation rests simply in

the analysis of the normative presuppositions

behind actions oriented toward reaching mutual

understanding.

This point is crucial; for if businesses, as social

institutions, are thought to further communicative

ends, we should expect business relationships to

exhibit this pragmatic characteristic. Upon first

blush, however, this seems dubious; there is a

rehearsed history of argument in business ethics

that speaks to the inherent strategies that lurk



behind the motives of business agents. The fact

that stakeholders often enter into business rela-

tionships with doubts about trust, solidarity, and

the extent to which other stakeholders may

employ strategies that compromise their interests

suggests that business relationships are inherently

strategic rather than communicative. More to the

point: business actors take their relationships with

other stakeholders as strategic in the sense that

they expect stakeholders to employ tactics that

further some specified goal (often a self-interested

goal) at the expense of mutual understanding and

consensus-building (French & Allbright 1998).

Would not this speak strongly against the insti-

tutional application of communicative ethics in

the way that his being suggested?

This question can be cast more precisely by

examining three distinct types of rational–purpo-

sive action in business that may, sometimes, be

rhetorically confused with communicative action.

First, competing stakeholder interests may con-

verge through happenstance. In this situation there

is little, if any, noticeable conflict between the

interests of stakeholders but it is nonetheless

accurate to assert that stakeholders are primarily

motivated by egocentric goals. Take, for instance,

the convergence of strategic interests that results

from technological innovation in product devel-

opment. Innovation often results in market

position, brand name recognition, and growth in

revenue for managers and shareholders. At the

same time, consumers often receive strategic

benefits from the development of products that

better suit their needs and preferences. Here the

motives behind manufacturer and consumer

decisions are not oriented toward the mutual

recognition of each others’ interests, i.e., through

respect and recognition of their interest claims,

but, rather, on the calculated satisfaction of self-

oriented aims. In this regard, the action exhibited

in this category of rational–purposive action is

instrumental in Habermas’s sense of the term

because while managers, shareholders and con-

sumers can be said to share the end of techno-

logical innovation, their reasons in favor of

innovation are completely self-interested.

Second, consider the category of cases where

there is a convergence of stakeholder interests not

through happenstance but through negotiated

collective action. The most obvious examples of

such forms of strategic action are negotiated labor

disputes. If we assume that a negotiated dispute is

strategic in character, then, again, the conver-

gence of assent between employees and managers

does not have its roots in mutual recognition of

some asserted interest, or a shared rationale as to

why the settlement is preferable, but simply an

agreement that relies on the contingent, over-

lapping aims of each party. A similar strategic

analysis might be offered for manufacturers and

suppliers who compromise in good faith about the

terms and conditions of a long-term contract only

in the name of their private accomplishments.

Finally, there are undoubtedly situations where

a stakeholding group asserts their interests by

attempting to subordinate or suppress the satis-

faction of another group’s interests. Call this kind

of strategic action intentional control of interest

satisfaction. Acts of manipulation, deceit, and

coercion are likely to be placed in this category.

A neglect of long-term shareholder wealth by

intentionally misleading investors through inac-

curate financial statements or overt attempts to

deceive through crafty advertising schemes may

serve as instances of the intention to control

interest satisfaction.

We should expect interesting cases of strategic

action under all of these headings. But notice that

while we can uncover examples, this, by itself,

leaves the question of whether agents implicitly or

explicitly engage in communicative action largely

unanswered. Habermas speaks of strategic action

as following the rules of rational choice so as to

efficiently influence the decisions of an opponent.

It is, in his terms, an attempt to purposefully

change the behavior of others to accomplish an

end to which you have committed yourself.

Individual success, defined by the attainment of

egocentric ends, is definitive of strategic action

(Habermas 1984: 286). It would certainly seem as

if the latter two categories of rational–purposive

action, i.e., convergence through negotiation and

intentional control of interest, exhibit features of

this sort of action. Yet the fact that business is

characterized by strategy need not imply that its

individual relationships are exclusively structured



by strategic motives; nor need it imply that

communicative purposes are absent from the

motives of stakeholders. It is a mistake, in short,

to point to instances of strategy and infer from

those instances that strategy is constitutive of any

business relationship whatsoever. It is one thing

to notice the presence of strategic action. It is

quite another to infer that its presence norma-

tively structures what we expect of actors.

Moreover, strategic and communicative mo-

tives hardly seem mutually exclusive in the way

suggested by these general categories. The reasons

that a labor union may have to support a

negotiated settlement can be simultaneously self-

directed and take account of the interests of other

stakeholders.1 A process of negotiation often

involves what is casually referred to as a give-

and-take process. A prior demand or condition is

sometimes given up by one party in order that

other, more pressing concerns are addressed

in a would-be settlement. Stakeholders take what

they find most important, in part, because of a

recognition of what other parties may legitimately

find objectionable. The motive in such a process

may be self-interested in the sense that each party

is motivated to negotiate on the basis of what

serves their interests; however, this would not

exclude the possibility that the interests of others

provide acceptable limits on what sort of settle-

ment is eventually endorsed. Communicative

action can, in short, drive a process of searching

for norms of social coordination that are none-

theless shaped by each party’s own interest in

discussing the norms in the first place.

It is also mistaken to assume from the fact that

stakeholders often compete for entitlements or the

satisfaction of interests that such competition is

preferably resolved through mere strategic means.

This comment is issued from the perspective of

stakeholders themselves. Political philosophers

often refer to situations characterized by a

competition for resources and entitlements as

exhibiting ‘circumstances of justice’ (Sandel 1982:

28). It is fair to say that, in many situations,

stakeholders are involved in circumstances of

justice where they, in effect, offer competing

claims for consideration and interest satisfaction.

The fact, however, that such circumstances are

characteristic of modern business life should not

deter us from noting that resolutions to such

conflict need not take the form of rational–

purposive attempts to assert one’s interests over

the interests of an opponent. Strategy, as a species

of rational–purposive action, is characteristically

a way that individuals respond to situations of

conflict and competition; however, it is unlikely

that stakeholders conceive of conflict resolution

purely in terms of asserting their interests at the

expense of others’ preferences.

Work in the area of multi-stakeholder dialogues

and the interaction between corporate constitu-

encies, especially between non-governmental or-

ganizations and high-level management, has

shown how dialogic processes facilitate the shared

goals of interest group consideration, trust,

flexibility, access to information, and agenda-

setting power (Bendell 2003: 67–68). Stakeholders

typically have shared goals about the long-term

success of the firm and the fact that they seek very

broad-based outcomes in common serves as an

impetus to address coordination problems in ways

that improve the chances of reaching these goals.

Stakeholders are thus likely to engage in co-

operative behavior at the level of conflict resolu-

tion and policy creation; for a lack of such

procedural cooperation tends to undermine the

satisfaction of shared interests (Cohen 2003). This

underscores the extent to which the distinction

between strategic and communicative action with-

in economic organizations is not to be taken as an

unquestioned dualism, but two interlocking pieces

of coordinated social action.2

The communicative dimensions of

business

To make these points more plausible it will

be argued in this section that there are four

important reasons to suppose that business actors

proceed with communicative, rather than exclu-

sively rational–purposive, intentions. These rea-

sons include the shared purposes of stakeholders,

the collaborative nature of decision making

in organizations, the tendency to seek mutual

recognition, and the need of communicative



action to sustain the coordination necessary for

the firm to achieve its economic goals.

Shared purposes and collaboration

Business stakeholders have a number of interests

that not only coincide but, in a stronger sense, are

shared. These shared interests express an under-

lying sense of purpose that circumscribes the

expectations and shared intentions of each corpo-

rate stakeholder. First and foremost, each stake-

holder implicitly recognizes the importance of

economic ends like market share, growth, innova-

tion, cost minimization, return on investment, and

meritocratic rewards. This is an obvious truism

for the most immediate stakeholders such as

employees, financiers, and suppliers. Customers

too tend to have an interest in such goals because

the increased price competitiveness of goods and

product innovation tend toward preference satis-

faction. Even communities that often have little

input in the eventual location of businesses

typically come to recognize the importance of a

relationship with a competitive, stable corporate

partner. Second, it is arguable that many stake-

holders share interests to the extent that their

identities are tied to the firm’s operations as a

persistent and purposeful community (cf. Bowie

1999: 82–119). Employees that have long-standing

relationships with management teams, for in-

stance, understand themselves and their cohort

as part of a larger network of individuals with

similar histories, problems, and experiences.

Indeed, a corporation’s mission statement, code

of conduct, and organizational structures will

often implicitly define itself as a social union

based on a shared identity because of the

commitment and concern stakeholders have for

the success of the firm.

This observation highlights Habermas’s point

that different groups often share a core set of

interests that naturally leads them to coordinate

their activities to further what they perceive to

have in common. Many times this coordination

operates in the background without examination;

at other times, common purposes need to be

brought to the fore in the context of discourse in

order to articulate generalizable solutions to

identifiable conflicts between stakeholder inter-

ests. In either case, however, the fact that

stakeholder relationships are measured by this

ideal of mutuality indicates that the pragmatic

foundation behind communicative ethics has

relevance to economic organizations. Moreover,

the fact that stakeholders have core interests in

common will often provide the basis for ongoing

interest exploration that yields ‘co-created mean-

ings’ that tends to enhance problem identification,

conflict resolution, and managerial responsiveness

within organizations (Crane & Livesey 2003:

48–49). Consider, for instance, the experimenta-

tion with the so-called ‘farm out committees’ in

industries dependent upon highly technical main-

tenance and production. A fine example of such a

committee was established by Northwest Airlines

(NWA) as part of negotiated labor settlement

where technicians gave up wage increases in

exchange for stock ownership and control over

sourcing decisions (Smith 1998). These commit-

tees disseminate information to labor unions who

wish to competitively bid on work that would

otherwise be outsourced. The ability of labor

unions to compete for work that would normally

be sent to other firms creates a sense of

accomplishment, tangible recognition of their

achievement, savings on maintenance costs and,

of course, job stability. In a real sense, manage-

ment and labor both discover, through a process

of exchanging information and creative problem

solving with the other party, that their shared

interests in cost minimization and information

sharing are mutually recognizable from the

others’ perspective.

A similar sort of linkage between shared

organizational ends and communicatively or-

iented action is illustrated by other well-known

cases of collaboration between employers, man-

agers, and suppliers. The Saturn Corporation,

for instance, responded to customer complaints

during the late 1980s by developing a ‘relational

employment contract’ that stipulated how labor

and management ‘team members’ should strive to

have joint decision-making responsibility at all

levels of the organization (Calton & Lad 1995:

15). Inspired in part by Japanese management

models, Saturn encouraged critical exchanges



among labor and management as a means to

generate more widely recognized solutions to

problems faced in the automobile industry. A

special committee was formed that made the

union, the United Auto Workers, an institutional

partner in participating in ‘consensus-based deci-

sion-making from the shop floor to the levels of

senior management’ (Kochan 1999: 1). The union

and its membership were integral members of the

‘decision rings’ established throughout depart-

ments and production facilities that helped to

make strategic decisions regarding supplier con-

tracts, product development, implementation of

technology, and marketing (Calton & Lad 1995:

15; Kochan & Rubinstein 2000). Grounding this

effort was the commitment that all stakeholders

had something to gain by becoming more aware

of the interests of customers and creating efficient

production and supply chain policies.

Collaboration of the sort being described by

NWA’s outsourcing committee and Saturn’s

management committee are noteworthy because

there is a presumption in both cases that mutual

consent is a large part of how strategic problems

are resolved. Solutions are not sought that merely

look for a convergence of stakeholder interests in

proposing policies and decision-making proce-

dures – although this is certainly part of the

motivation. The entire explanation behind these

avenues of organizational policy making rests on

the fact that collaborative decision making is a

way to fully understand organizational problems

and solutions. This commitment is prior to the

advantages provided by mere negotiation; it

recognizes that negotiation is more fruitful and

sustainable when decisions are sought which

integrate interests, objections and proposals of

different stakeholders. So, like Habermas’s pro-

cedural rule of moral discourse (U), participants

in such collaborative techniques view solutions as

justified only after seeking the assent of others

who are critically engaged and take seriously the

multiple stakes of a proposed course of action.

Mutual recognition

A second observation relevant to the commu-

nicative dimensions of business activity concerns

what business actors expect of others: stake-

holders naturally seek to meaningfully address

moral conflicts through an implied exchange of

reasons. It is clearly true that stakeholders

disagree about how interests should be balanced

in difficult circumstances. This disagreement,

however, is meaningful and important to resolve

only because stakeholders tend to acknowledge

that their needs and interests are most effectively

satisfied through a sort of joint resolution that

enables a continuation of the productive activities

of the firm. This point is subtle but important: any

self-interest a stakeholder may have in resolving a

conflict in a particular way is preempted by the

realization that sustainable conflict resolution is a

matter of uncovering consensus through shared

value orientations and reasonable expectations of

other stakeholders. The particular interests of any

one stakeholder are best serviced when that

stakeholder engages in activities where there is

consensus about what corporate decisions have a

rationale endorsed by all affected stakeholders.

This communicative feature of business also

explains why the demands of stakeholders are

typically voiced as claims concerning the unwar-

ranted exclusion of interests from corporate

decision making. To see this, reflect upon the

second category of strategic action from above. In

that situation, it was suggested that some labor

union disputes proceed only because both parties

are strategically motivated to achieve some self-

interested aims and they can effectively influence

and change the behavior of their negotiating

partners. This picture of negotiated settlement,

however, fails to acknowledge the kinds of claims

made by stakeholders in labor disputes. For

instance, the recent claims made by members of

the United Food and Commercial Workers Union

(UFCW) in Los Angeles were, quite explicitly,

demands for recognition and fair treatment. They

asserted that management’s plan to require

grocery store employees to shoulder a greater

share of health insurance costs was unjust in light

of the continued growth in net income of Safeway

and its subsidiaries (Greenhouse 2003: A10).

UFCW members were not merely making a

strategic claim cloaked in the language of

distributive justice; rather, they were intending



to make a claim that other stakeholders could

recognize and find reasons to support. If this is

correct, then the claims made by stakeholders are

intended to ‘secure uptake’ or generate assent

among those involved in negotiation. There were

reasons that could, in principle, be recognized by

other individuals and groups despite their parti-

cular stakeholder affiliation. The intention of the

UFCW certainly does not guarantee that other

stakeholders would accept the reasons voiced.

Nonetheless, it does indicate an orientation to-

ward recognition rather than mere strategic play.

Coordination and strategic advantage

Third, business problems are inherently intra-

organizational. By this I mean that problems, and

their corresponding solutions, are nuanced, com-

plicated and involve multiple stakeholders. This

observation has led stakeholder theorists, such as

Freeman & Evan (1990), to speak of stakeholder

contracting as a kind of ‘multilateral interdepen-

dence,’ and Aram (1989) to claim that organiza-

tional management is premised on viewing

decisions as systemic, i.e., as managing ‘inter-

dependent relations.’ In the midst of such com-

plexity it is rarely the case, if at all, that

organizational challenges can be addressed by

‘simple, one-time, dyadic solutions’ arrived at

through a one-on-one negotiation between stake-

holders (Calton & Lad 1995: 7). The more

interdependent problems and solutions become,

the more likely multiple parties are needed to

identify solutions that can address the separate

stakeholder interests that are jeopardized by any

one problem. Hence, an individualized assessment

of the interests of each stakeholder fails to

recognize that each stakeholder’s interests are

implicated in a web of mutually supportive and

sometimes mutually detrimental organizational

arrangements. Shared problems, in short, demand

collectively rendered solutions – not simply

because it is valuable to have the input of all

affected stakeholders, but because collective solu-

tions to problems tend toward outcomes that

would otherwise not be identified on a stake-

holder-by-stakeholder basis. The NWA and

Saturn cases illustrate how product development,

human resource management, and customer

satisfaction are not challenges to be addressed

through straightforward agreements but, instead,

issues that render effective, long-term solutions

only when multiple stakeholders arrive at solu-

tions together (Calton & Lad 1995: 7).

To understand the collective dimension of

organizational decisions, recall that Habermas’s

interest in communicative action can be recast in

terms of an interest in social action; that is, how is

collective social action possible? How is it that

differently situated individuals, with distinct

interests, can come together and sustainably work

to achieve common ends? The possibility of such

social action relies, in part, upon the ability of

individuals within civil society’s institutions to

coordinate their activities and move together with

a sense of mutuality. Identifying business as a

purely private entity where decisions are reduced

to individuated calculations of self-interest has the

effect of obscuring the interdependent complexity

of organizational decision making from view. As

Sen (1993) aptly points out, a firm’s shared

productive activities are themselves a public good;

they play an essential role in satisfying interests

for distinct groups while simultaneously repre-

senting a unified rather than merely convergent

interest in organizational life.

This point has implications, as well, for a firm’s

economic performance. Successful attainment of

strategic ends is unlikely when actions are

motivated purely by strategic end-seeking. This

seemingly counter-intuitive conclusion is analo-

gous to a position made famous by Robert Frank

and applied more directly by Norman Bowie

(Frank 1988, Bowie 1991, Frank 2002). Frank

and Bowie assert that the satisfaction of ego-

centric interests, whether individual or corporate,

is only possible in business settings when the

conscious pursuit of self-interest is limited by an

individual commitment to morality. Self-interest

is achieved, in short, only when it is appropriately

subordinated (from time to time) to the demands

of morality; furthermore, acting morally pays self-

interested dividends only insofar as individuals

adhere to the requirements of morality for its

own sake – not because morality turns out to

maximally satisfy other non-moral private aims.



Similarly, it seems implausible to think that the

ends set forth by mere strategic action could be

achieved without a cohesive and stable organiza-

tional climate in which individual purposes

become public and consensus is the norm. Iterated

strategic actions are far less effective in achieving

one’s private ends than action that expresses a

commitment to share the experiences, values, and

reasons held by other stakeholders. Without a

serious commitment to the interests of others, and

the interests you share with them, the ends that

motivate strategic action could not be realized.

Conflict resolution based upon the face-to-face

interaction of stakeholders exposes motives that

might otherwise remain hidden behind the man-

euvering of mediators, attorneys, and other

representatives. Stakeholders are more likely to

engage in agreement and explore mutually bene-

ficial alternatives when genuine dialogue is

sought, i.e., dialogue that demonstrates an open-

ness to revise or place on hold one’s preferred

action in light of objections leveled by others

(Payne & Calton 2003: 123–126).

The collective approach to the assessment of

organizational objectives and participatory deci-

sion making discussed thus far is essential to

generating high levels of trust. Trust, in turn, is a

prerequisite to long-term interest satisfaction.

There have been a number of studies that

emphasize the relationship between the costs of

production and corporate efforts that weave trust-

building initiatives into the fabric of their business

culture. Social environments where, for instance,

genuine trust between management and suppliers

is measured at high levels seem to have lower

moments of doubt when engaging in new ventures

with tangible risk (Bromiley and Cummings

1995). Trust generates consistency, stability, and

ongoing confidence in business relationships; if

suppliers thought that the trustworthiness of

management was only as strong as management’s

perceived regulatory obligations, they may ques-

tion the viability of their continued agreements.

Accordingly, some have argued that unlike

weaker forms of trust that are motivated simply

by the avoidance of costly non-compliance,

cultivating genuine trust within and between

businesses tends to cost less than a system where

organizations must pay for the protections that

accompany feelings of distrust.

When two or more strong form trustworthy

individuals or firms engage in an exchange, they

can all be assured that any vulnerabilities that

might exist in this exchange will not be exploited

by their partners. This assurance comes with no

additional investment in social or economic forms

of governance . . . . Exchanges . . . between strong

form trustworthy firms are burdened neither by the

high cost of governance nor any residual threat of

opportunism. Strong form trustworthy firms will

be able to pursue these valuable. . .exchanges while

[other] firms will not . . . . This may represent a

source of competitive advantage for strong form

trustworthy exchange partners (Barney & Hansen

1994: 186).

Organizational climates where honesty and trust

are heartfelt tend to produce higher levels of job

satisfaction and productivity that result in lower

labor costs (Chami & Fullenkamp 2002).

Similarly, others, like Lynn S. Paine (2000),

have highlighted the ways in which moral

commitments produce monitoring and coordina-

tion advantages. The costs of intra-organizational

cooperation are lowered when subordinates view

directors’ decisions as legitimate. When fairness

motivates managers, the tendency to engender

conflict is minimized. Moral commitment facil-

itates a more complete understanding of situa-

tional contexts, an ability to mobilize human

resources, and communicate with others regard-

ing solutions. In environments where mangers

take seriously the spirit of loyalty and fidelity,

agreements are more flexible and creative.

Even in situations where certain stakeholders

shoulder a greater proportion of costs associated

with a particular decision, it is likely to meet with

acceptance when those affected can trust that

decision makers have acted with their interests in

mind. Consider various accounts of how Cad-

bury–Schweppes has approached downsizing

decisions (Phillips 2003: 113–115). Since the

company was founded upon a belief in decision

making by consensus, a now famous move to

consolidate its packaging facilities was done

only after consulting with a team of managers,

engineers, and shop stewards. The consolidation



resulted in the displacement of workers; however,

the stakeholders who participated in the ‘working

party’ not only recognized that there were good

reasons to consolidate on the basis of Cadbury’s

commitment to its workforce as a whole, but the

workers who were displaced recognized that the

decision was not made in ignorance of their

particular interests. Managers sought out their

voice as part of the decision-making process; as a

result, Cadbury engaged in a process of coopera-

tive learning that cultivated a sense of trust – even

among those whose positions were eliminated. All

of this, it seems, would be extremely difficult to

imagine if it were not for an allegiance on the part

of all organizational members to corporate objec-

tives that everyone found reasonable to endorse.

Once stakeholders, in particular shareholders,

engage in business activity, they enter into an

arrangement that requires them to consider how

their efforts impact those who are also instru-

mental in achieving the end of accumulating

wealth. Without this orientation, the nexus of

social relationships that characterize the modern

firm are only as strong as the contingent, and

merely strategic, interests adopted by stakeholders

at a particular moment in time. Communicative

relationships, thus, are what can sustain the

existence of business organization without con-

tinual breakdowns in collective action. Individual

stakeholders acquire and sustain their identities

and interests by belonging to corporations, appro-

priating the culture of the organization, and

taking part in interactions that expressed shared

values (Habermas 1990: 102). The choice to

pursue mere strategic action is, perhaps, possible

in any one case; but it is untenable in the long-

term if stakeholders intend to further their own

interests in an environment where their satisfac-

tion is dependent upon the joint activity of others.

Conclusion

Modern society is a vast array of institutions in

which multiple forums for discourse overlap

(Baynes 1992: 167–181); Habermas himself em-

phasizes that moral discourse can occur in more

or less informal movements and associations in

civil society where solidarities are formed. This is

the core reason to take seriously the need for

discourse within firms. In A Theory of Commu-

nicative Action, Habermas stresses that modern

society can be analyzed from two different

perspectives (Habermas 1987). The first, following

Max Weber and others, emphasizes society as a

system of practices and institutions with distinct

forms of rationalization and social hierarchies.

Administrative elements of the state and corpo-

rations, for example, are part of society as a

complicated network of subsystems with see-

mingly disparate goals, rules, and bureaucratic

forms of social control. Society, however, is also a

lifeworld in the sense that individuals are members

of institutions that foster shared need interpreta-

tions, mutual understanding, and consensus.

From this second perspective, society is composed

of practices that are communicative and thereby

focus our attention on regulating society for the

attainment of shared interests.

Habermas is deeply concerned with the extent

to which the maintenance of social subsystems

interferes with or otherwise distorts the commu-

nicative activities of society as lifeworld. The

private ends of business ‘colonize’ spheres of life

that are premised on consensus and discourse

(Habermas 1987: 355). A natural way to end this

disruption is to expect economic organizations to

internalize the ends of communicative action

broadly construed. This means that corporations

acknowledge their role and influence in the

maintenance of communicative action and take

appropriate steps to engage in the process of

uncovering modes of social life and principles that

express the general interest. This is what leads

Daryl Reed to conclude that, all things consid-

ered, businesses should include decision-making

processes that are ‘participatory’ unless stake-

holders voluntarily accept less participatory

schemes for the sake of improvements that they

can reflectively endorse (Reed 1999b: 30). The

remarks offered in the preceding sections are an

attempt to provide a conceptual framework for a

communicative theory of business. Businesses are

not merely bound by moral constraints in virtue

of being institutions subject to the demands of

public morality through legitimate law; firms are



also moral communities in which communicative

action explains their ability to enhance the inter-

ests of all members.

The intersection of communicative ethics and

the modern business firm is an area ripe for

additional exploration. In this discussion I have

not addressed a number of obvious concerns with

a complete extension of this approach. One

noteworthy problem centers on the extent to

which the demand for consensus (as expressed in

Habermas’ principle (U)) within business is a

realistic and/or conceptually appropriate goal.

Indeed there is a case to be made, it seems, that

being oriented toward consensus need not imply

that consensus serve as a normative standard for

right action (McMahon 2000). Another issue

concerns how, exactly, discourse is to be institu-

tionalized within organizations. I have given

cursory examples of such practices but others

naturally surface, e.g., formal stakeholder board

representation, management teams, problem-sol-

ving committees and strategic collaboration be-

tween different units within an organization. Still

others will be skeptical that discourse can be

maintained in the face of numerous examples of

short-term, strategically minded attempts to assert

private over-shared interests. While I am sympa-

thetic to this worry (in light of the great conflicts

that have surfaced between shareholders, man-

agers, and employees), it is important to remem-

ber that breakdowns in communicative action do

not justify the inference that communicative aims

are wholly misplaced in business. The same

concern could easily be raised within spheres of

modern society where consensus is accepted

as a norm; democratic politics, for example, is

ripe for strategic maneuvering and, despite

this, communicative assessments of democratic

procedures is nonetheless appropriate. All of

these issues warrant further investigation and

shape the research questions for the future

development of communicative ethics in organi-

zational contexts.

Notes

1. I owe this point to an anonymous reviewer for the

Society for Business Ethics.

2. I owe this point to an anonymous reviewer from

this journal and a reviewer for the Society for

Business Ethics.

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A Precis of a Communicative Theory of the Firm

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