On the Use of Social Contract in BE

On the use of the social contractmodel in business ethics

BenWempen

Introduction

This article focuses on the use of the contract

model as a basis for a theory of business ethics. We

will refer to the various contributions made to this

type of argument as contractarian business ethics

(CBE). One of the more authoritative recent

contributions to this field was the book Ties that

Bind: A Social Contracts Approach to Business

Ethics, which was published in 1999 by business

ethicists Tom Donaldson & Tom Dunfee. Both

these authors had published about the social

contract model separately but started to work

together in the early 1990s. This led to a number of

co-authored articles and eventually resulted in

what may be seen as a definitive statement of their

doctrine of Integrative Social Contract Theory

(ISCT) in Ties that Bind. A considerable number of

commentaries on ISCT seem to encourage the

authors to be more specific about hypernorms

resulting from the contract, thus providing more

practical guidance (Mayer & Cava 1995, Rowan

2001, Soule 2002, Hartman et al. 2003).

In contrast to this line of criticism, we have

argued elsewhere that the major problem of ISCT

stems from a misunderstanding of the nature of

the contract argument (Wempe 2005). Our criti-

cism of the ISCT project comprises two main

points. First, if one wants to use the contract

model as a basis for a theory of business ethics,

one should take into account not only the nature,

and the application possibilities, but also the

limits of the model. In order to point this out we

have coined the idea of a self-disciplined contract

theory of business ethics. Our claim is that

Donaldson & Dunfee insufficiently stick to this

criterion and that a theory that is used for a more

appropriate goal will produce better results. A

second point of criticism is that using the contract

model as a basis for a theory of business ethics

requires that the model should be adequately

adapted to the domain to which it is applied.

Hence our second label: we argue for a domain-

specific contract theory of business ethics. And

once again our claim is that Donaldson & Dunfee

pay insufficient attention to this point and that a

better attunement of the model to the domain to

which it is applied, i.e., business ethics, will

produce better and more convincing results.

In the original article we have especially set out

the critical part of the project. In the present

article we will first summarize the ISCT project

for the benefit of readers of Business Ethics: A

European Review. We will then summarize our

conceptual criticism by situating ISCT against the

background of contractarian theories applied to

two other domains. Third, we will work out some

proposals on how to set up a domain-specific, self-

disciplined CBE that lives up to these boundary

conditions. In order to underline the limited

ambitions we have in this respect, we liken these

exercises to the preliminary sketches a painter

makes by way of preparation for a larger painting.

ISCT

The authors of ISCT proceed from an alleged

shortcoming in current theories of business ethics.nLectures on business ethics at the Rotterdam School of Manage-

ment, Erasmus University, Rotterdam, The Netherlands.

r Blackwell Publishing Ltd. 2004. 9600 Garsington Road, Oxford OX4 2DQ, UKand 350 Main St, Malden, MA 02148, USA.332

Volume 13 Number 4 October 2004

These are all general ethical theories such as

utilitarianism, Kantianism or (Aristotelian) virtue

ethics. Donaldson and Dunfee suggest that it is

precisely owing to their general perspective that

these current theories suffer from a lack of

concrete guidance to business practitioners

(Donaldson and Dunfee 1999: 13). In the social

contract model Donaldson and Dunfee seek a

conceptual framework that would be better

attuned to solve political problems by these

practitioners. In their version of the theory, the

social contract model operates at two levels. First

there is the level of microsocial contracts at which

moral norms emerge from converging consensus

among the members of a certain economic

community. Such community-specific norms

may well conflict with local norms developed in

other economic communities. A case in point

would be Foreign Direct Investment. Companies

based in Western democracies usually will have

stricter norms on human rights and environmen-

tal pollution than the corresponding norms in

developing host countries. Wherever these sort of

norms conflict we need some comprehensive norm

or perspective in terms of which these conflicts can

be accommodated. For that purpose the authors

of ISCT introduce a second type of social contract

that operates at the macro-level. The problem

with this idea of a macrosocial contract is that the

authors of ISCT pay insufficient attention to the

manner in which such a macrosocial contract

would need to be set up. They in fact posit a

number of characteristics of an initial contractual

situation and then go on to assert that these

conditions will convince rational contractors to

accept four contractual terms. These conditions

are characterized as moral free space, authenti-

city, legitimacy and priority rules, respectively.

Moral free space stands for the idea that within

economic communities and insofar as these do not

conflict with other norms, economic actors must

be held to be free to adopt their own local norms.

Such norms can be considered as authentic if a set

of procedural hypernorms are met, i.e., if the

community allows any possible dissenters to have

their objections taken into account (voice) or if

that does not produce a satisfactory result, to

leave the community altogether (exit). Authentic

norms become legitimate to the extent that they

do not conflict with relevant substantive and

structural hypernorms. To the extent that such

norms do not contradict hypernorms they are fit

to serve as comprehensive norms governing the

economic activities of more communities. The

idea of priority rules, finally, is intended as a sort

of rest-category in case the three earlier terms do

not provide sufficient indication to resolve con-

flicts between community-specific norms.

Three families of contract theories

Such are in brief the outlines of the ISCT project.

In order to substantiate our criticism of this

conceptual framework, the original research pro-

ject embarked on a comparative analysis of the

manner in which the contract model works in two

other, earlier domains, i.e. classical social contract

theories and modern social contract theories. The

result of this comparison is summarized in Table 2

that forms the basis of the three sketches, which

will be discussed later in the present article.

Classical social contract theories characteristically

argue the conditions under which a political power

can legitimately issue laws. Modern social contract

theories aim to provide principles of social justice.

The principal landmark in this connection was of

course John Rawls’ book A Theory of Justice

which was published in 1971. Rawls did not use the

model to set out the conditions under which

political authority could legitimately issue laws,

but to identify criteria, which the basic structure of

society should meet in order to ensure social

justice. That is to say: he inquired how society

should be organized (in terms of its principal

institutions) so that the cooperative surplus was to

be fairly distributed among the various stake-

holders who competitively claim the added value

resulting from human productive cooperation. For

that purpose he had to adapt the contract model

fundamentally.

The working method adopted in the original

research project consisted in a comparison of

these two earlier families of social contract

theories along a number of points of comparison.

This comparison allowed us to draw conclusions

Business Ethics: A European Review

r Blackwell Publishing Ltd. 2004 333

with respect to the corresponding parameters of

CBE. To understand how the contract model can

be appropriately employed in business ethics, we

first sought to understand how the model

operated in these two earlier fields of application.

To that aim, we began with a survey of classical

social contract theories originating from the

history of political theory. These are presented

in Table 1.

The argumentative strategy of classical

social contract theories: external and

internal logic

Table 1 lists five important contributions from

political theory. Two things emerged from this

survey. First, all these momentous contract

theories strive for some goal or other. For the

purposes of this survey, we distinguished between

historical and theoretical goals a theory can have.

By historical goals we refer to the kind of goals a

theoretician may have before him in formulating

his theory. But, as will be obvious, some historical

goals are easier to point out than others. To

complement any historical goals we therefore

came up with the idea of a theoretical goal: this

refers to the function that may be attributed to

concrete theories by academic commentators (or

scholars of political theory). Proceeding from the

idea of a theoretical goal, it becomes clear that

Hobbes and Rousseau, for example, offer a good

basis for an argument for a strong political

authority. Locke’s version of the social contract,

on the other hand, is more feasible as a basis for

an argument on constitutional limits set to the

state, or in support of the rights of the individual.

The first important idea that we derived from

the comparative analysis presented in this table is

that some goal (historical or theoretical) can be

attributed to all important classical contract

theories. We have coined the phrase external logic

to refer to this function of any particular theory.

The second idea that we derived from Table 1 has

to do with the manner of argumentation in which

such a goal can actually be supported. With

respect to this question, one also sees that all five

theories attempt a diagnosis of life in the state of

nature. In fact, each contract theorist invites his

audience to engage in a thought-experiment and

to imagine what life would be like if there were no

political authority. And the manner in which this

diagnosis is made points again in the direction of

the solution envisaged by the political theorist. So,

in the case of Hobbes, for example, we see that he

entertains a gloomy vision of life in the state of

nature, because the dynamism of human interac-

tion turns individual people into wolves. It is not

that people by nature want to kill others, but

individuals are constituted in such a manner that

everyone feels he is obliged to use violence as a

precaution not to fall victim to the aggression of

his fellow men in the state of nature. Essentially, it

is owing to the insecurity in the state of nature

that everyone feels obliged to use violence.

Rational individuals see the inescapability of this

mechanism and realize that this would be an

unwelcome outcome (a war of all against all). And

it is on that rational insight that Hobbes bases his

case for a strong and unlimited government.

Other political theorists included in Table 1 also

argue in their own way for a conclusion concern-

ing the most desirable constitution of the state or

the conditions under which legitimate political

authority can be established. We refer to this link

between the diagnosis made and the solution

envisaged as the internal logic of the theory. The

contract theory of Locke, for example, has an

essentially different internal logic than Hobbes’ or

Rousseau’s. What is true for all theories listed

here, however, is that the ‘narrative’ behind the

contract model is eventually determined by the

aim they sought to establish by their theory.

Rawls’ innovation of the contract model

So the suggestion from this survey of classical

contractarian theories was that the internal logic

of the social contract is nested in an external logic.

The second important point concerns the manner

in which modern theories are distinguished from

classical social contract theories. This can be

illustrated from the example of Rawls. In an

important sense, Rawls’ theory is more ambitious

than the various classical social contract theories


334 r Blackwell Publishing Ltd. 2004

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that were discussed in the previous section.

Central to the argument of all classical social

contract theories is that everyone would be better

off in the state of politics, i.e. the situation in

which some political authority is set up. For that

reason it is rational for every contractor to

consent to the institution of political authority.

For the purposes of Rawls’ project, this argu-

ment would not work. To fit the aim of designing a

just basic structure of society, Rawls had to model

the thought-experiment in the original position

much more precisely than any of his predecessors

in the social contract tradition. If Rawls were to

make use of the rough thought-experiment of a

comparison of some state of nature to a state of

politics, all contractors in the negotiation of the

terms of the social contract no doubt would insist

on the qualities they themselves happen to possess.

Since we have no standard how to weigh intelli-

gence against muscular strength, smart people

would argue that intelligence is of utmost impor-

tance and must be higher rewarded than physical

strength. Similarly, strong people would argue

that bundles of muscles are our most vital asset.

This type of dispute could never be resolved by a

classical contract model and it was with a view to

correcting these sorts of biases that Rawls added a

number of elements to his model so that a biased

choice would be rendered impossible. The central

device in this connection of course was the famous

‘veil of ignorance’. By ensuring that interested

parties are unaware of the position they will

eventually occupy themselves, he hopes to ensure

a fair deliberative process. On Rawls’ model of the

original position, the average contractor does not

know his or her social position, race or gender. In

this fashion Rawls invoked a number of correc-

tions so as to make his contractors opt for the

right choice.

The manner in which his particular version of

the contract argument was set up corresponds

closely to the sort of theoretical exercise Rawls

envisaged and the sort of outcomes he wanted to

establish with his theory. That idea will help to

structure the discussion of the implications of the

comparative analysis for the design of a contrac-

tarian theory of business ethics. For the purpose

of this discussion consider Table 2.

Three working sketches for a

self-disciplined, domain-specific CBE

In view of this comparative analysis of two earlier

families of social contract theories we can spell

out some implications for a better social contract

theory for business ethics. This will enable

theoreticians to get to informed decisions con-

cerning the manner in which such an advanced

CBE could be set up. The idea is, in other words,

to look at each point of comparison with the

manner in which this is instantiated in the earlier

two families, so as to work out a corresponding

CBE equivalent. Generalizing from the earlier

reconstruction of both classical and modern social

contract theories, we suggest three points of

comparison, i.e. the external and internal logic,

domain characteristics and assumptions made by

the various theories.

Modelling CBE: external and internal logic

The first point of comparison raises the question

as to what would be an appropriate result to esta-

blish with a social contract for business. And what

would be the sort of factors we want to correct so

as to get to a result that best corresponds to our

established intuitions on corporate social respon-

sibility? Where classical theories focus on arguing

the conditions under which political authority can

legitimately issue laws, and modern theories aim

to provide principles for a just basic structure of

society, a natural subject for CBE would seem to

be the legitimacy of the Western system of entre-

preneurial production. Evident parties to this

contract are two collective actors: business &

society. A problem focus in line with this profile is

the question we have labelled the problem of

normativity: that is, the question why economic

actors should take into account moral norms in

the first place.

The question as to the internal logic of CBE is

the most detailed level at which the comparative

analysis can be used. When considering the

various narratives concerning some imaginative

state of nature in classical contract theories, it is

obvious that a specific function can be ascribed to

the contract narrative in each separate theory.



Generally speaking, state of nature theories serve

to argue the moral equality of all individual

citizens (cf. Kymlicka 1990: 60).

In the case of modern social contract theories

the sketch of an original position serves to ensure

a correct process of negotiation on the principles

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table 2. A Comparative Analysis of Three Families of Social Contract Theories

Classical social contract

theories

Modern social contract

theories

Contractarian business

ethics

External family logic

Subject of inquiry The state Basic institutions of

society

System of corporate

production

Parties to the contract Individual citizens Continuous persons Business and society

Theoretical aim Political authority political

obligation

Social justice The status (and contents?)

of moral norms for business

Problem focus Lack of political order Lack of fair starting

positions in distribution

of cooperative surplus

Lack of moral norms mutually

binding all stakeholders affected

by corporate action

! the problem of normativity

Internal family logic

Problem–solution

frame

Reconciling political

order with individual

freedom

Designing an endowment-

insensitive, ambition-sensitive

distributive scheme

Accommodation

Incommensurability

Collective action

Function initial

contractual situation

State of nature: models

moral equality of individual

citizens

Original position: models fair

social cooperation

State of individual production:

models corporate morality

at system level

Domain characteristics

Background conditions Circumstances of authority Circumstances of justice:

moderate scarcity and

mutual disinterestedness

Circumstances of business

ethics:

� a system of production

cooperation;

� a sanctioning authority

Target group Natural target group:

national political community

Target group fixed by

stipulation: ‘the domestic

case’

The affected group includes

interests:

� beyond national borders

� beyond domestic law

� beyond economy

! target group not yet fixed:

! the problem of stakeholder

legitimacy

Theoretical assumptions

Access Membership of target

group is unproblematic

Membership of target group

limited to domestic society;

regarded as a closed system:

membership given

No such presuppositions can

realistically be made:

! the problem of stakeholder

legitimacy

Authority No political authority

(authority results from

the contract)

Rule of law, to cope with

problem of ‘partial

compliance’

Rule of law, sanctions some

social-economic order

(e.g. property, market

economy, etc)

Exit Formal exit No exit (by stipulation) Burdened exit

Table adapted from Wempe (2005).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



of justice, i.e. to eliminate biases such as irrelevant

qualities or characteristics that should not impact

the establishment of principles of justice and filter

them as it were out of the process of negotiation.

Modern contract theories seek to develop an

‘ambition-sensitive’ but ‘endowment-insensitive’

distributive scheme (Dworkin 1981 quoted in

Kymlicka 1990: 75). In view of Rawls’ adaptation

of this design, the question then suggests itself

how the initial contractual situation for a social

contract theory for business should be shaped in

order to produce an adequate theoretical under-

pinning of a framework for corporate morality. In

order to answer that question, we need a better

insight into the main questions of the field of

business ethics and the main goals we want a

theory of business ethics to achieve. What, in

other words, are the kinds of problems we want to

resolve for which the internal logic of CBE needs

to be modelled?

Now, this is of course quite a big question,

confronting the state of the art of business ethics

‘head-on’. The world of business is subject to

rapid and continuous change and it would be

presumptuous to suggest that any proposed

theory could seek to resolve these in one stroke.

But we would just like to suggest that there are at

least three common issues that may be discerned

in many discussions and concerns constituting the

subject-matter of business ethics. These are not

intended as an exhaustive list, but we believe that

whatever else may be taken to form part of the

realm of business ethics, at least the following

three should also be addressed. First, there is the

question as to how mutually exclusive claims

made by different stakeholders (such as employee

wages vs. return-on-investment) can be recon-

ciled. We have called this the problem of

accommodation. This problem involves mutually

dependent parties, each of which is needed to

operate a ‘venture for mutual advantage’. Note

that, in their pure form, problems of collective

action are zero-sum games. Each dollar spent on

wages cannot be used to reward the shareholders.

The stakeholder model can do no more than

identify various interested parties, but is not

equipped to adjudicate the rival claims of workers

and shareholders, or of shareholders and custo-

mers, etc. The contract model, on the other hand,

was traditionally always employed precisely to

solve problems of accommodation.

A second question that seems to us to form part

of the core of business ethics is the question as to

how incommensurable qualities may be weighed

against one another. Typical examples of this issue

would be the clash between economic results and

the environment (profit vs. planet) or the clash

between workplace security and profit (people vs.

profit). The difference with the problem of

accommodation is that these sorts of clashes are

not only mutually exclusive, but moreover lack a

common standard to weigh conflicting claims. We

have called this the problem of incommensurabil-

ity. This problem clearly also goes to the core of

many business ethics concerns. Once a corporation

has decided it should make an effort to produce in

a more environmental-friendly manner, how much

extra cost is deemed sufficient? Shell prides itself on

its efforts in the field of solar energy, but its critics

would typically argue that, being such a big player,

Shell could invest much more, thereby making

solar energy a more economically viable energy

alternative. Once again, if we compare the potential

of the contract model and the stakeholder model to

resolve problems of incommensurability, the con-

tract model seems to be in a much better position.

For, as can be seen from other modern contract

theories, the contract works as a device constituting

agreement on the distribution of all sorts of

essentially incommensurable goods and values.

A third characteristic issue for business ethics

would be the question what background institu-

tions are needed in order to hold a corporate

agent to some moral duty or other. Arguably, it

would be unreasonable to require corporate

agents to make certain sacrifices in the absence

of an institutional background to prevent other,

less scrupulous competitors from taking advan-

tage of such dutiful conduct. This is commonly

known as the problem of collective action. And

this problem not only plays in decision-making

between corporations, it also constitutes the

basic rationale of individual organizations (Hart-

man 1996: chapter 3). Here, too, the contract

model seems to have the better testimonials. Both

in classical and modern theories the contract



model was called in to resolve problems of

collective action.

Our suggestion is that the internal logic of CBE

could well be set up so as to resolve these three

types of problems. After all, classical and modern

contract theories have been seen to resolve

analogous problems. One of the primary aims of

establishing government was to deal with the

problem of collective action concerning important

matters of public order and welfare arrangements.

In distributing the burdens of these collective

goods the state typically issued decisions on how

to accommodate rival claims from various

(groups of) citizens. Also, it was granted the

discretion to decide on the use of public funds for

incommensurables such as economy, environment

and safety. For these reasons, we expect that,

once the idea of a commons is established and

the problem of stakeholder identity is thereby

resolved, the social contract for business would be

capable of resolving the problem of accommoda-

tion, the problem of incommensurability and the

problem of collective action.

The domain characteristics of business ethics

So far we have dwelt on the consequences of the

requirements for a self-disciplined CBE. Now we

must consider what would be the main character-

istics of the field of business ethics that CBE

should take into account. As is well known, John

Rawls, in the course of formulating his theory of

social justice, launched the idea of circumstances

of justice. With this term he referred to certain

structural conditions forming the background

against which all questions and issues character-

istic for the realm of social justice need to be

considered. The main conditions Rawls singles

out are relative scarcity and mutual disinterested-

ness. Analogous to this terminology we ask what

must be taken to be the circumstances of business

ethics. What are the structural factors shaping the

background against which all issues in business

ethics are staged? All defining questions of

business ethics presuppose a system of entrepre-

neurial production in which added value is created

through cooperation, i.e. division of labour and

coordination of people. A further necessary

condition for any question of business ethics

properly so-called is that there should be some-

thing like an ordered society, which in turn

requires an effective political authority to ensure

that promises and commitments taken on in the

free market (ordinary common-or-garden con-

tracts) are actually carried out. This means that

the contract for business presupposes a classical

political contract.

A second important characteristic of the do-

main of business ethics is the question as to whom

theories of business ethics actually address. In

other words: who should be taken to be the

audience of the business ethicist? In the case of

two earlier families of social contract theories this

question can be answered relatively easily. Classi-

cal social contract theories all presuppose a more

or less natural group of people constituting the

political community. The 17th and 18th century

saw the formation of many of the national states

as we know them today. The majority of citizens

spent their days within the territory of one and the

same national state. The question as to who forms

part of the target audience therefore never was an

issue in classical theories in the social contract

tradition. With Rawls this point did not play a

role either, for the simple reason that this author

stipulates his theory for the domestic case.

It will be clear that the question as to the target

audience of CBE leads to a radically different

answer. For, the defining issues of business ethics

address the question how to deal with conflicts of

interest extending well beyond the national state

in at least three aspects. First, these are questions

as to the extent to which entrepreneurs in the

Western world can ‘buy’ a cleaner environment by

transferring the production to developing coun-

tries with less stringent legislation. Often this

simply means that environmental problems are

being exported to developing countries. Such

forms of FDI are defended on the basis of the

argument that developing countries cannot yet

afford the strict legislation that is enacted in

Western economies. But it is also clear that these

practices can never amount to a sustainable

solution. Second, in any case, typical questions

of business ethics extend to matters beyond the

legislation enforced in national states. To consult



affected stakeholders in decisions often is not

positively prescribed, but nevertheless forms part

of the basic manners of parties in business life that

constitute the core of business ethics. Shell is not

legally obliged to consult with Amnesty on their

human rights policies, or with Greenpeace on the

environmental impact of their industry. Such a

‘stakeholder-dialogue’ is based on voluntary con-

sensus. Third, typical questions of business ethics

extend beyond purely economic incentives. A com-

pany that claims to conform to moral norms but

which at the same time expects economic profits

(‘business ethics is good strategy) is likely to be

suspected.

Because of these three important differences,

CBE faces a problem that does not arise for the

two earlier families of contract theories. We have

identified this as the problem of stakeholder

legitimacy. This problem stems directly from the

fact that the subject and the target audience of

business ethics cannot be indisputably defined

beforehand. And it is worth noting that this is a

problem that the contract model is ill-equipped to

solve. Classical social contract theories would not

be able to conceptualize, let alone resolve,

questions concerning immigration, for example.

The social contract argument cannot answer these

questions convincingly since there is no self-

evident and unquestioned notion of community.

Similarly, CBE can only produce satisfactory

results once the idea of a commons is established.

This remains the ultimate condition that is

presupposed by any contract argument and

consequently it must be provided by some means

other than the contract model.

Theoretical assumptions to be made by a theoryof business ethics

A third point of comparison involves the assump-

tions made by the respective families of social

contract theories. There are at least three assump-

tions any theory of business ethics (thus including

CBE) must make. These are the question as to

access, authority and exit. Access refers to the

conditions under which new members are allowed

to form part of the community; political authority

focuses on the conditions needed for a well-

ordered society; and exit concerns the question in

how far the community can be quit again when an

individual disagrees with otherwise legitimate

collective decisions.

Regarding these assumptions classical social

contract theories do not make really hard condi-

tions in any of these three respects. We already

saw that membership of the political community

was unproblematic in the 17th and 18th century.

With Rawls, membership is stipulated because of

his assumption that society forms a closed system,

which one can join only by birth and leave only by

death. It will be obvious that, with respect to the

domain of business ethics, these assumptions

cannot meaningfully be made. In the context of

CBE, the access issue therefore leads to the

problem of stakeholder legitimacy. The idea of

an effective political authority to secure a well-

ordered society does play a part as a precondition

for the political contract as it essentially is the

result of such a contract. In Rawls the well-

ordered society is assumed. But applied to the

domain of business ethics, such a corresponding

assumption would render the argument utterly

irrelevant to business practice. If we were to

restrict the domain of business ethics to matters

that are regulated by effective political authority

only, a very substantial part of typical business

ethics questions would have to be left out.

A cross-family comparison on the exit option

leads to the following picture: a classical theorist

like Locke laconically states that people who

cannot agree with a certain political regime are

always still free to move to the untouched plains

of America. And we saw that Rawls avoids the

question of exit by stipulating society as a closed

system. However, with respect to the defining

questions of business ethics the exit problem is

more complicated. It is true that individuals are

formally free to leave an organization if they

disagree with its working climate. But such

exercise of the exit option involves costs that

effectively limit the formal possibility to exit. Not

every employee can change her employer from

one day to the next. Similarly, stakeholders which

can only withdraw from unwelcome effects of

economic activity are not always materially free to

leave. A case in point would be people living in



the vicinity of an expanding airport, who are

exposed to ever greater noise levels. The exit-

option, while certainly not impossible in the

circumstances of business ethics, may carry a

certain price. It follows therefore that the exit

option will play a far more central role in CBE

than it ever did in the two earlier families of

contract theories.

Conclusion

In this article we have sought to draw attention to

two crucial shortcomings that can be discerned in

the present state of CBE. The social contract

model forms a good framework by which some of

the present fragmentation in theory building can

be remedied. But in order to make any progress

with this model, it is necessary to acquire a better

insight into the working and presuppositions of

the contract-argument. A comparative analysis of

the manner in which the contract model was

applied in two more established domains, political

authority and social justice, has made clear that

the contract model always works within certain

application conditions. These boundary condi-

tions arise from the theoretical suppositions, the

characteristics of the domain and the task set for

the theory. This requires, above all, a better

insight into the proper function of the contract

model.

As to the implications for future contractarian

theories of business ethics, we have made the case

for the social contract model as a foundation for

norms of corporate morality. We have also

argued for a self-disciplined use of the contract

model, taking into account its external and

internal logic. While the model can be employed

in a wide variety of ways, it should not aspire

beyond the task the model can adequately

support. Therefore, the contract model should

restrict itself to a relatively formal argument, and

not be tempted to prescribe substantive norms for

corporate morality. On the other hand, the

contract model only makes sense if it is used in

a truly argumentative fashion, and not just as a

device for stipulating norms. A balanced use of

the contract model requires that the model should

be adequately adapted to the characteristics

and suppositions of the domain of business

ethics. This means, among other things, that we

should be clear what sort of aims a theory of

business ethics should fulfil and what theoretical

assumptions need to be made to get to an

adequate representation of the defining problems

of business ethics. Only if the contract argument is

set up in accordance with these conditions will it

help us to shape our intuitions about corporate

morality.

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