STAKEHOLDER THEORY and AMERICA-EUROPE-ASIA The stakeholder theoretical framework and West-East...

STAKEHOLDER THEORYand

AMERICA-EUROPE-ASIA

The stakeholder theoretical framework and West-East contrasts

STAKEHOLDER THEORY

A macro theme which has been predominant in the recent literature and discussions of ethics and morality of business and which has potentially far-reaching implications for the conduct of many businesses is stakeholder theory

STAKEHOLDER THEORY

When discussing Friedman’s approach to the ethics of business I suggested that businesses do indeed have some moral responsibilities which go beyond that of maximising profit for shareholders.

From the examples we considered there it will be clear that this more extended moral responsibility of companies involves various parties other than shareholders, e.g. employees, consumers, third parties affected by pollution etc.

STAKEHOLDER THEORY

This insight is the starting point of stakeholder theory; the recognition that there is potentially a whole variety of people besides managers and shareholders who may be affected positively or negatively by the activities of a business and who therefore may be said to have an interest or stake therein

STAKEHOLDER THEORY

This idea echoes a somewhat older and closely analogous concept which has been extensively used by economists; the notion of externalities. These refer to impacts from the activity of any one set of actors in an economy on other economic actors but in connection with which no market transaction occurs

Environmental pollution is the classic example of what economists call externalities

STAKEHOLDER THEORY

We may now give a definition of the typical meaning of the term stakeholder as used within ethics of business

A stakeholder is any person or group who is affected for better or worse by the activities of a business or

whose rights are affected by the activities of a business

STAKEHOLDER THEORY

These effects may be positive (people getting benefits from business activities) or negative (people being harmed in various ways)

The key insight coming from the obviously analogous economic concept of externality is that while people often but by no means always are made to pay for benefits received from business activity, where harmful effects occur they quite often go uncompensated in a market system

STAKEHOLDER THEORY

Once we have recognised that there may be a wide range of stakeholders beyond merely the shareholders in a business and that companies have a moral responsibility in principle to consider the effects of their activities it follows that companies ought to take into account the interests of all stakeholder groups

STAKEHOLDER THEORY

This is the central thrust of stakeholder theory and it will be clear that it is in essence simply an extension of the key point we made when criticising Friedman, namely that companies have moral responsibilities and that these extend far beyond simply maximising profits for shareholders; a company rather has a moral responsibility to consider impacts on and to seek to meet the interests of all stakeholder groups.

STAKEHOLDER THEORY

It is to be noted that this may often be easier said than done since the interests of stakeholders may often point in very different directions regarding firm strategy and operation.Class exercise: say who are the stakeholders of the cigarette manufacturing industry and how their interests might be simultaneously met.

STAKEHOLDER THEORY

Stakeholder theory has been prominent in the literature and discussions of business ethics of recent years; this is not surprising as it offers a very clearly defined critical tool which can be used in giving a detailed account of the true overall impact of business activities.

It is moreover directly in line with the idea that a business has social responsibilities arising from an implicit “social contract” and seeks to list these in a practical way.

STAKEHOLDER THEORY

It allows us to ask: Who or what groups have been affected

positively or negatively by businesses? What if anything should a business be doing

to take into account the interests of these stakeholder groups?

Have businesses already taken any steps to deal with morally significant stakeholder interests?

STAKEHOLDER THEORY

A secondary topic which has arisen in the stakeholder literature is how best to deal with morally relevant stakeholder interests

One approach to this is for stakeholder interests to be directly represented within the company and to have an input into any major decisions affecting that group

STAKEHOLDER THEORY

This can be seen for example in the formal worker participation in key strategic decision making which has long been the practice in German business and which is becoming an EU-wide norm (Mitbestimmung)

It can also be seen in instances when environmental groups or NGOs are directly consulted about or involved in key decisions which will have an environmental effect (e.g. some decisions on new airport runways)

STAKEHOLDER THEORY

Another example might be the input of passenger user groups to decisions on service features and timetabling by train operating companies

It is notable that this sort of direct involvement of stakeholder groups in business decisions is much more prevalent and accepted as normal in the EU than elsewhere in the world

STAKEHOLDER THEORY

Another different and less direct approach to recognition of the morally relevant interests of stakeholders has been through state intervention and regulation of various industries with a view to ensuring that the interests of all stakeholders are taken into account. This has been particularly important for stakeholders who may not be articulate or particularly well organised as a lobbying force

STAKEHOLDER THEORY

This second approach can be seen (as well as the direct approach) in relation to a variety of environmental issues; the state sets down acceptable standards for environmental pollution such as exhaust emissions which must then be respected by all firms.

STAKEHOLDER THEORY

It will probably be evident that both the direct and the indirect approaches to recognition of the morally relevant interests of stakeholder groups are significantly more developed in Europe than in America

This brings us to comment briefly on a topic discussed in some detail by Crane and Matten in their work: the contrast between American and European approaches to the whole area of ethics and morality of business

AMERICA - EUROPE

Although business ethics first emerged as a distinct subject of study in America in the 1980s it has since the early 1990s also been enthusiastically studied in Europe and a distinctively different European approach to the subject has emerged

This can be seen both in the detail and in the philosophical underpinning of the approaches

and ASIA

Today (2012) we should of course have to add that in very recent times and in parallel with the rapid economic development of many East Asian economies an Asian voice has also begun to be heard on many of these issues and this gives us a perspective which is clearly distinct from either the American or the European.

and ASIA

In fact I will suggest that we can conceive of these approaches in many ways as if they were on a continuous spectrum going from America through Europe and the Middle East to India and the Far East.

We will first of all focus on the America-Europe contrast as it is in these areas that to date discussion of business ethics has been most developed

AMERICA - EUROPE

While we shall first focus on the contrast of the American and European approaches it should be emphasised that there are of course huge areas of common ground between them; for example the idea of company moral responsibility, the theme of sustainability, accounting integrity etc

AMERICA - EUROPE

Taking first the differences in the detail of approaches we may identify the following contrasts

1. American business ethics tends to focus to a much greater extent on the moral responsibility of individuals within companies rather than on the collective moral responsibility of the company as a whole (Echoes of Friedman)

AMERICA - EUROPE

2. Partly as a result of this difference of focus European business ethics tends to give greater prominence to a much wider net of possible stakeholder interests than do American approaches which remain very focussed on shareholder wealth. This as we saw is also reflected in the practices of many European companies.

AMERICA - EUROPE

3. Where continental Europeans have seen a key role for the state in regulating business in order to achieve the ideals set out in business ethics, Americans and we may note the British have looked to the businesses themselves to provide their own ethical code; they have preferred self-regulation by businesses to state regulation. On this point Friedman at least in his 1970 article remarks on the role of the state is quite untypical of the usual American approach.

AMERICA - EUROPE

This Anglo-American preference for self-regulation has however come under severe attack in the aftermath of the Enron scandal and more broadly the financial crisis of 2008. These two events have completly shattered any faith in the self-regulatory capacities of the financial sector and have led to the introduction of a raft of new regulations for the sector (e.g. Sarbanes-Oxley Act in the US)

AMERICA - EUROPE

4. A final contrast of detail is that where European thinkers have been prepared to question and criticise the whole setup of free market capitalism American thinkers have tended to take free market capitalism as beyond ethical questioning as a socio-economic system.

AMERICA - EUROPE

These differences are not just arbitrary; they reflect an underlying sharp contrast in philosophical and religious presuppositions between America and Europe, especially continental Europe

You may recall from the first lectures that we showed how normative business ethics invariably presupposes some set of broader moral principles from which the particular normative conclusions regarding business activity are deduced; and that these are derived from moral philosophy or religion or both

AMERICA - EUROPE

On the philosophical front it is hardly exaggerating to say that America essentially has only a very limited philosophical tradition and that it has been besides largely anti-philosophical.

It has been dominated by first Pragmatism (19th C) and later by Positivism and Relativism. There have been some exceptions to this anti-philosophical tendency such as the moral philosophy of John Rawls or the political philosophy of Robert Nozick.

AMERICA - EUROPE

In general though Positivist and Relativist approaches have predominated and these have in common a general disdain for abstract philosophical discussion seeing it as at best a pointless waste of time and at worst (in the case of Positivism) as simply meaningless.

AMERICA - EUROPE

Instead American business ethics tends to take for granted an implicit set of moral principles which are embodied in (American) conventional morality and ethical codes. It just does not occur to them very often that there might be other sets of moral principles or ethical codes outside their own home grown code(s) which might be relevant to business ethics discussions.

AMERICA - EUROPE

This conventional American morality actually has its roots very clearly in a variant of Protestant Christianity known as Calvinism or Puritanism which was imported to the US at the time of the Pilgrim fathers who were fleeing religious persecution in Europe.

In puritanism each person’s destiny is seen as preordained (predestination) and material success in this life is seen as the sign of being ultimately destined for Paradise.

AMERICA - EUROPE

In Calvinism great stress is laid on the responsibility of each individual for their own salvation and this is to be gained through hard work, frugality, the amassing of wealth and refraining from excessive pleasure and gratification in this life. The emphasis is very much on the individual’s relationship with God with only a minor role for the manner in which the individual relates to others or for social institutions such as church or state

AMERICA - EUROPE

Although this Calvinist background is rarely made explicit (it is simply taken for granted much of the time) it will be clear how it has influenced the American approach: the unrestrained pursuit of material wealth, the emphasis on the individual, the lower weight given to stakeholder interests etc as well of course as the ridiculous obsession with the sexual peccadillos of powerful people

AMERICA - EUROPE

Europe has by contrast a highly developed tradition of philosophical reflection and of discussion of moral philosophical issues. As we shall soon be seeing it has produced some highly influential moral philosophies which in turn have informed the discussion of business ethics: Natural Law, Natural Rights Utilitarianism, Kantian Categorical Imperative, etc

AMERICA - EUROPE

As a result there has been a much greater awareness in European discussions of the underlying moral philosophies and the controversies surrounding them; hence an awareness that there may be more than just one (conventional) approach or answer to the issues raised in the ethics and morality of business.

AMERICA - EUROPE

This contrast in philosophical depth can be clearly seen in the fact that European business ethics has been much more willing to question certain aspects of the underlying socio-economic system of free market capitalism rather than take it for granted.

AMERICA - EUROPE

There is also some contrast in the religious background. Continental European thinking on ethical issues has long been influenced both by Catholicism throughout and in Germany and Skandinavia by variants of Lutheran Protestantism

AMERICA - EUROPE

In these approaches and especially Catholicism there is much less focus on the individual’s relationship with God; instead the emphasis is on Love both of God and of one’s fellow human beings and hence of a peaceful and harmonious life in community for all mankind

There is no question of people just cutting themselves off from others and concentrating on their own salvation; salvation will depend on one’s attitude and behaviour to all other human beings.

AMERICA - EUROPE

Within this more community-oriented outlook a greater role for a variety of social institutions is acknowledged, e.g. the state, international organisations and the church itself as a world entity (catholic=universal)

With the emphasis on love and harmony there also usually goes a much more relaxed attitude to earthly pleasures; in contrast to the asceticism of the puritanical approach there is “joie de vivre” and the good life is seen as “la dolce vita”.

Other Leading Approaches

As noted earlier while American and European discussions have predominated in the subject, increasingly today we hear voices from the East which are bringing interesting new but in fact ancient perspectives to bear on business ethics discussions.

We now look at some of the most important of these in brief summary

MIDDLE EASTERN: ISLAM

As already suggested the perspectives on business ethics can be seen as a kind of continuous spectrum going from West to East and so I turn first to the Middle Eastern contribution.

Of course much of the European approach and even the American to the extent that they are heavily influenced by Christianity can trace their roots to the Middle East insofar as that is where Judaeo-Christianity had its roots. But when we speak today of a distinctive Middle Eastern approach to Ethics what we have in mind is of course Islam, the Middle East being its heartland.


Islam is a religion rather than a moral philosophy but it nonetheless puts forward a wide array of detailed normative injunctions to guide practical action in the world including for the business world; i.e. an ethical code.


The most famous ethical injunction of Islamic business ethics is of course the prohibition of the charging of interest on loans (riba).

But there are a variety of other injunctions such as the prohibition of speculation (gharar); and more broadly of any activity which the mainstream economists would classify as the earning of « economic rents ».


Also a good living Muslim is expected to give at least one tenth of his income to those less fortunate than himself.

It is intreresting to note that in Catholic social thought right up to the 16th century at least, the taking of interest was also seen as immoral (sin of usury) and to this day charging of excessive interest is still seen as usury).


Furthermore the sense of social solidarity and of fairness in the distribution of wealth that is implicit in the giving of 10% of one’s income to those less well off is reproduced in an institutionalised manner in the European welfare states.


Hence in concrete terms Islamic business ethics are not too far removed from those that characterise Europe and this is not surprising given their shared roots.

Moreover in the Islamic approach for all the high profile contrasts with more Western approaches, the individual with his rights and duties to God and to his fellowman remains the fulcrum as in Europe.

ASIAN APPROACHES

It is this individualistic fulcrum which begins to evaporate when we immerse ourselves in the philosophies that come from further East: from India, China, Japan…

INDIA – The GITA

In Indian thought which is in effect heavily influenced by Hinduism we do not find what we could call a moral philosophy derived through reasoning, still less any kind of detailed business ethics. Indian thinking on moral matters derives from the semi-mystical Bhagavad Gita, the leading religious text of Hinduism.

INDIA – The GITA

The Gita is a text over 5000 years old and much of it is taken up with the advice given to a Prince (Arjuna) before entry to battle by his charioteer where the charioteer is in fact a god in human form (Krishna). Hence qua divine advice it takes on moral force.

INDIA – The GITA

But because of the age of the text and the military setting throughout, its moral advice in relation to the contemporary business setting remains at a very general level.

There are general injunctions about the qualities of good leadership etc which may be relevant to the position of a manager in a business setting.

INDIA – The GITA

For example the dangers of excessive personal greed in a leader are clearly stated and a leader is rather expected to put the interests of his « people » before any personal interest. There is a clear suggestion that to put the common good before any private gain or interest is morally noble…a clear contrast for example with Friedman’s approach.

INDIA – The GITA

It should be noted however that apart from such general advice against excessive presonal greed etc there is not much else that is directly relevant to business ethics in the Gita: and in general Indian thought and culture has been very positive towards the activities of commerce, trade and business.

FAR EASTERN PERSPECTIVES

It is in Far Eastern thought that we find perhaps the biggest departure from and challenge to the Western approaches.

It is interesting also that when we draw on Confucianism, Taoism, Buddhism etc these are not really religions but rather philosophies of life wherein religious elements are in effect blended seemlessly into an essentially philosophical standpoint.


What concerns us here is the implications which these approaches generate for business ethics and here there is a rich harvest.

Where so much of the Western and even Middle Eastern approach to ethical and political questions is centred on the individual and his rights, in Far Eastern thinking the individual is submerged in a community and the focus is on duties to the community rather than on individual rights.


Here we are worlds away from the self-seeking self-aggrandising individuals of Friedman’s ruggedly American perspective or from social contract theory with its compendium of individual rights and strict delimitation of the state.

To a far Eastern eye these approaches seem absurd as human beings live irretrievably in relationships with others from the day they are born to the day they die.


Hence for a fulfilled human existence it is essential that these relationships are not only paramount over individual rights and should condition them but also that relationships should be carefully nurtured, developed, protected.

Trust and the creation of trust as a basis for a lasting relationship thus become predominant moral values.


These fundamental presuppositions of Eastern philosophy are rich in implications for the business world. Far from acting as atomic units which get on with pursuing their self-interest in a narrow manner every business (and individual) is expected through their activity to contribute first and foremost to the common good.


There is nothing in Far Eastern thought to suggest however that this service to the community is incompatible with making profits and of course Japan first and now China, India and most of the ASEAN states (Malaysia, Singapore, Thailand, Vietnam etc) have demonstrated great business prowess and profitability.

It is not that Eastern thought is anti-business at all: but the ultimate goal and purpose of business is seen differently.


A second key implication of the eastern approach is the emphasis on trust and the building of relationship as a foundation for good business. This is something which many western businesses have often had some difficulty in grasping and it may often seem to unreconstructed Westerners that Eastern business processes and negotiations are interminably lugubrious and slow.


To the Eastern eye however the building of a solid relationship of trust and even friendship is an essential prerequisite to doing any kind of serious business.

We may revisit this point when we come to deal with issues of Corruption in international business


There are of course big points for discussion in these contrasts. For example while the Eastern emphasis on submerging the individual within the greater whole may sound noble in principle, if carried too far it may involve an intolerable tyranny of the majority over certain minorities: for who defines in the end the common good??


These fascinating debates are not our direct concern here since we only wanted to develop an awareness of the breadth of perspectives which can be brought to bear on business ethics issues

They do mean however that in certain cases we may face some difficult issues requiring the comparison and evaluation of different moral approaches when seeking to resolve the questions of international busines ethics.

LEVELS of CRITIQUE

This leads towards a methodological discussion of the different levels of critique which we can encounter in business ethics:

Level 1: the critique of the actions of an individual within a company leading to normative recommendations for those individuals; (tends to be the main focus of American business ethics).

LEVELS of CRITIQUE

Level 2: the critique of the actions of a company in relation to their impact on the wider societies in which they are located and operate; (predominates in European and in Asian approaches). This level of critique fits directly into and is indeed a key manifestation of Critical Social Theory as developed in the latter part of the 20th century by Habermas and the Frankfurt school.

LEVELS of CRITIQUE

Level 3: in particular when problems of international business are examined the necessity to compare different moral codes with a view to deciding which it is best to apply, which we ought to apply;

This is of course the « critical morality of moralities » or metaethics which is the the ultimate concern of advanced moral philosophy.

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