THE POLITICS OF STAKEHOLDER THEORY:

SOME FUTURE DIRECTIONS^

R. Edward Freeman

Abstract: The purpose of this paper is to enter the conversation about

stakeholder theory with the goal of clarifying certain foundational issues.
I want to show, along with Boatdght, that there is no stakeholder paradox,
and that the principle on which such a paradox is built, the Separation
Thesis, is nicely self-serving to business and ethics academics. If we give
up such a thesis we find there is no stakeholder theory but that stake-
holder theory becomes a genre that is quite rich. It becomes one of many
ways to blend together the central concepts of business with those of
ethics. Rather than take each concept of business singly or the whole of
"business" together and hold it to the light of ethical standards, we can
use the stakeholder concept to create more fine-grained analyses that
combine business and ethics; or more simply, we can tell many more, and
more interesting, stories about business.

S everal recent papers have raised important conceptual questions about the
idea of "stakeholder management" or "stakeholder theory." Kenneth Goodpaster
has sounded a significant challenge by diagnosing a "stakeholder paradox" at the
heart of stakeholder theory.^ James Kuhn and Donald Shriver have attacked the
very idea that stakeholder relationships are to be managed at all, proposing
instead a "constituency view" that sees the corporation and its stakeholders as a
voluntary community.^ Martin Meznar, James Chrisman and Archie Carroll have
straddled this controversy by explicitly connecting stakeholder management to
business strategy and adopting a utilitarian ethic for its defense.'* And, John
Boatright has argued that while the special nature of stockholder claims can't be
justified—there is no argument for the special nature of stakeholder claims.'
The purpose of this paper is to enter this conversation with the goal of clarify-
ing certain foundational issues. I want to show in Part II, along with Boatright,
that there is no stakeholder paradox, and that the principle on which such a
paradox is built, the Separation Thesis, is nicely self-serving to business and
ethics academics. In Part III I suggest that if we give up such a thesis we find
there is no stakeholder theory but that stakeholder theory becomes a genre that
is quite rich. It becomes one of many ways to blend together the central concepts
of business with those of ethics. Rather than take each concept of business singly
or the whole of "business" together and hold it to the light of ethical standards,
we can use the stakeholder concept to create more fine-grained analyses that

©1994. Business Ethics Quarterly, Volume 4, Issue 4. ISSN 1052-150X. 0409-0421.

410 BUSINESS ETHICS QUARTERLY

combine business and ethics; or more simply, we can tell many more, and more
interesting, stories about business. In Part IV I shall sketch one such story based on
some recent papers on stakeholder theory. And, finally in Part V I want to suggest
that the way that the debate on the stakeholder concept has proceeded is illustrative
of how we can recast the role of business ethics along more pragmatist lines.

In "Business Ethics and Stakeholder Analysis" Kenneth Goodpaster suggests

that "stakeholder analysis" (as he calls it) has two competing interpretations.
The Strategic Interpretation says that managing stakeholders is a means, perhaps
a mere means, towards the achievement of both stockholder or managerial ends.
So, managing stakeholder relationships makes good business sense, in that it
allows the firm and its managers to achieve its objectives understood, according
to Goodpaster, in narrow economic (profit-maximizing) terms. On the other
hand, the Multi-Fiduciary Interpretation says that managers and directors have
fiduciary obligations to stakeholders, one of which is stockholders, and that
managing stakeholder relationships is non-optional, it is morally required.
From these two competing interpretations Goodpaster deduces the Stake-
holder Paradox:^
It seems essential, yet in some ways illegitimate, to orient corporate decisions by
ethical values that go beyond strategic stakeholder considerations to multi-fidu-
ciary ones."
While it may be difficult to see this sentence as paradoxical, Goodpaster does
so presumably because:^
It can be argued that multi-fiduciary stakeholder analysis is simply incompatible
with widely-held moral convictions about the special fiduciary obligations owed
by management to stockholders. At the center of the objection is the belief that
the obligations of agents to principals are stronger or different in kind from those
of agents to third parties.
Plainly, unless this "argument" has some merit, there is no paradox, for the
Multi Fiduciary Interpretation need only hold that managers bear fiduciary, or
"special fiduciary" obligations to stakeholders. What John Boatright has rightly
shown is that such "widely held" moral convictions cannot be sustained. So this
interpretation just denies what the Strategic Interpretation claims. There is no
paradox, just difference, to be resolved by way of justification. That Goodpaster
thinks that the above argument has some merit, at least as far as discrediting the
multi-fiduciary view, is clear from his analysis. He cleverly delivers the punch
line as "strategic stakeholder synthesis (business without ethics) or the effective loss
of the private sector with a multi-fiduciary stakeholder synthesis (ethics without
business)."*
Put in these terms there is clearly a paradox, one that Goodpaster resolves by
creating "nonfiduciary obligations to third parties surrounding any fiduciary
relationship."' These obligations are moral ones, but not fiduciary. These are
made real by a kind of projection principle, called the "Nemo Dat Principle" that
says that stockholders can't expect managers to disobey reasonable community
standards of ethics. Goodpaster concludes that:'"
 THE POLITICS OF STAKEHOLDER THEORY 411

"the foundation of ethics in management—and the way out of the stakeholder

paradox—lies in understanding that the conscience of the corporation is a logical
and moral extension of the consciences of its principals. It is not an expansion of
the list of principals, but a gloss on the principal-agent relationship itself. What-
ever the structure of the principal-agent relationship, neither principal nor agent
can ever claim that an agent has 'moral immunity' from the basic obligations that
would apply to any human being toward other members of the community".
While this last sentence is surely correct, what Goodpaster fails to see is that
moral immunity is in fact what gets claimed and justified in an invisible utilitar-
ian sleight of hand. 11
None of this will do—and I want to recommend that the stakeholder concept
can provide a more than adequate dissolution of the so-called paradox. At least
part of the difficulty is in the way that Goodpaster has set up the dichotomy
between the Strategic Interpretation and the Multi-Fiduciary Interpretation. It is
surely true that some, myself included, have written as if managing stakeholder
relationships is just good business. It is common sense to spend time and atten-
tion worrying about those groups and individuals who can affect you or whom
you can affect. The problem lies in the question "What is a stakeholder?"
In much earlier work, there was very little philosophical sophistication. Stake-
holders were just generic groups, unindividuated without clear membership con-
ditions. A number of people began to suggest that stakeholders had to be seen in
a nominalist fashion. They were individuals who stood in a certain relationship,
via membership in some group, or via some role-related activity, to the corpora-
tion. Once they are seen as individuals, human beings, they must be seen as moral
beings, without moral immunity, initially on the same rather level playing field. The
question now becomes what principles should govern their interaction.i^
One such principle, which I will call "The Principle of Who and What Really
Count," 1^ says that the primary function of the corporation is to enhance the
economic well-being, or serve as a vehicle for the free choices of, the owners of
the corporation. And, owners are defined as those who hold legal title to shares
of stock in the corporation. This principle is embodied in the law of corporations
which has historically directed managers and directors to "manage the affairs of
the corporation in the interests of stockholders, using sound business judge-
ment." So, the only possible interpretation of "stakeholders" given the Principle
of Who and What Really Count, is Goodpaster's Strategic Interpretation. Given
this principle we have to find some way to build ethics into the discussion or we
have Goodpaster's "business without ethics."
But, the law of corporations is not the only law, and as I have argued else-
where''*, managers and directors have ignored the rights of stakeholders on peril
of legislation in a free political system. So, we have protections in the form of
the Wagner Act, the Consumer Product Safety Commission, the Uniform Com-
mercial Code, the Foreign Corrupt Practices Act, the Securities Exchange Com-
mission, the Environmental Protection Agency, and many more. These laws and
agencies have arisen chiefly because the Principle of Who and What Really
Count has not been called into question. The mythology of laissez-faire capital-
ism is unfortunately easily propped up by arguments that claim, of course man-
agers have the same moral obligations that you and I have, even if they often
disregard them in favor of invisible hand explanations. Economists, business
412 BUSINESS ETHICS QUARTERLY

theorists and evidently some business ethicists think that it is enough to see
morality as a side-constraint on the maximization of stockholder wealth, justifi-
able only if a greater good or other moral end is served.
Goodpaster's version of this error is to claim that morality governs any principal-
agent relationship, and while that is surely true, he does not go on to ask the
obvious question: What really is the nature of the principal-agent relationship in
business? Now John Boatright has argued that Goodpaster is wrong in using
principal-agent language to unpack the moral nature of business. But, the use of
agency theory is not the main issue. One can be careful in articulating the
obligations and duties to both principals and agents to obtain a model of the firm
that is a multiple principal/multiple stakeholder model. Or, one can subject the
agency model to a careful reinterpretation that makes ethical issues quite explicit.''
In fact, the very idea of the Multi-Fiduciary Interpretation is to call the normal
way of thinking about business into question. It suggests that we reject a princi-
ple which is implicit in both Goodpaster's and Boatright's analysis, and is indeed
prevalent in most of the business literature, including the business ethics literature.
Let me call this principle, "The Separation Thesis" and describe it as follows:
The Separation Thesis
The discourse of business and the discourse of ethics can be separated so that
sentences like, "x is a business decision" have no moral content, and "x is a moral
decision" have no business content.
Obviously, I am using "moral" and "business" as descriptive terms picking out
decisions for analysis. But, it is ingrained in all that we do in business schools
to separate the discourse of business from the discourse of ethics. The Separation
Thesis pervades business ethics. As long as we can separate the discourse of
business and the discourse of ethics there will be room for people to connect
them—to hold particular business concepts up to the light of ethical discourse
and to do criticism on a large scale either condemning or glorifying business as
a practice. We in essence subscribe to a cousin of the Principle of Who and What
Really Count, which we may call "The Principle of Make It Up As You Go
Along." As long as the discourse distinguishes "business" and "ethics" we will
need business ethicists to make it up as we go along—holding business, piece by
piece, to the light of reason. And, as long as business ethics is separate, business
theorists are free to make up supposedly morally neutral theories such as agency
theory which can be used to justify a great deal of harm.
Now the whole point of the stakeholder approach is to deny the Separation
Thesis, reject the Principle of Who and What Really Counts, and to set aside the
Principle of Make It Up As You Go Along. This approach borrows from Quine
and other pragmatists, "Sentences (particularly sentences about business) do not
confront the tribunal of experience alone." There is always a context to business
theory, and that context is moral in nature. It is only by recognizing the moral
presuppositions of business theory, refining them, testing them by living differ-
ently, and revising them that we can invent and reinvent better ways to live. All
of this is just Dewey updated for business, but the Separation Thesis runs the
gamut from managerial decision making to Nobel decorated economists. And,
we should make it optional.
 THE POLITICS OF STAKEHOLDER THEORY 413

So, the argument among us goes like this: Goodpaster wants the Separation
Thesis to save business from ethics, and a version of moral theory to save ethics
from business.'^ Boatright suggests that there is no argument for treating stock-
holders (or stakeholders) in a special way. And I want to suggest that if you give
up the Separation Principle and its subsidiary principles, then the argument
between Goodpaster and Boatright is beside the point.

I want to suggest how things would look if we dropped the idea that we can
meaningfully talk about business and ethics by keeping the concepts, ideas and
theories of each autonomous. In other words I want to suggest, it is not meaning-
ful to talk about either stockholders or stakeholders without engaging in dis-
course that is at once normative, descriptive, instrumental and metaphorical.
In an important recent paper, Tom Donaldson and Lee Preston" have argued,
like Boatright, that the normative ground of any adequate theory of business is
inconsistent with a stockholder theory. They turn to an analysis of the various
uses of "stakeholders" and conclude that the stakeholder theory is consistent
with a modern view of property. They rightly suggest that the "stockholder
theory" is an idea whose time has come and gone, and that we should get on with
the task of connecting the stakeholder theory with traditional normative concep-
tual schemes. Given Boatright's analysis, and Donaldson and Preston's summary
of the arguments against the stockholder theory I believe we can safely say that
the stockholder theory is or at least should be intellectually dead. If so, I want to
suggest something that seems paradoxical: There is no such thing as the stake-
holder theory.
The temptation has been for a long time to depict the stakeholder concept as a
kind of rallying cry against the stockholder theory. Armed with stakeholder maps
on our shields and banners, we have marched forth to browbeat the infidels,
mostly economists and finance theorists, and others who want to be like them,
such as marketing theorists and accountants, and show them that the stakeholder
theory is "better" than the stockholder theory. Tiiis certainly is the tone if not the
intent of Brenner and Hosseini, as well as Meznar, Chrisman, and Carroll, as
well as the intent of some of my earlier writing.'* But, if the Separation Thesis
cannot be maintained, then the issue is what kind of moral content a theory has,
not whether it has any moral content or not.
"The stakeholder theory" can be unpacked into a number of stakeholder theo-
ries, each of which has a "normative core," inextricably linked to the way that
corporations should be governed and the way that managers should act. So,
attempts to more fully define, or more carefully define a stakeholder theory are
misguided. Following Donaldson and Preston, I want to insist that the norma-
tive, descriptive, instrumental, and metaphorical (my addition to their frame-
work) uses of 'stakeholder' are tied together in particular political constructions
to yield a number of possible "stakeholder theories." "Stakeholder theory" is
thus a genre of stories about how we could live. Let me be more specific.
414 BUSINESS ETHICS QUARTERLY

A "normative core" of a theory is a set of sentences that includes among others,

sentences like:
(1) Corporations ought to be governed...
(2) Managers ought to act to...
where we need arguments or further narratives which include business and moral
terms to fill in the blanks. This normative core is not always reducible to a
fundamental ground like the theory of property, but certain normative cores are
consistent with modern understandings of property. Certain elaborations of the
theory of private property plus the other institutions of political liberalism give
rise to particular normative cores. But there are other institutions, other political
conceptions of how society ought to be structured, so that there are different
possible normative cores. Such a "reasonable pluralism" is what I had in mind
with the idea of "enterprise strategy," but even that concept was filled with the lan-
guage of the Separation Thesis, and too much in the instrumental/descriptive mode."
So, one normative core of a stakeholder theory might be a feminist standpoint
one, rethinking how we would restructure "value-creating activity" along prin-
ciples of caring and connection.^° Another would be an ecological (or several
ecological) normative cores. Mark Starik has argued that the very idea of a
stakeholder theory of the firm ignores certain ecological necessities.^' Exhibit 1
is suggestive of how these theories could be developed.

Exhibit 1: A Reasonable Pluralism

A. B. C.
Corporations Managers ought The background
ought to be to act... disciplines of
governed... "value creation"
are...
Doctrine of ...in accordance with ...in the interests —business theories
Fair Contracts the six principles. of stakeholders. —theories that
explain stakeholder
behavior
Feminist ...in accordance ...to maintain and —business theories
Standpoint with the principles care for —feminist theory
Theory of caring/connection relationships and —social science
and relationships. networks of understanding of
stakeholders. networks
Ecological ...in accordance ... to care for the —business theories
Principles with the principle of earth. —ecology
caring for the earth. —other
 THE POLITICS OF STAKEHOLDER THEORY 415

In the next section I shall sketch the normative core based on pragmatic
liberalism. But, any normative core must address the questions in columns A or
B, or explain why these questions may be irrelevant, as in the ecological view.
In addition each "theory," and I use the word hesitantly, must place the norma-
tive core within a more full-fledged account of how we could understand value-
creating activity differently (column C). The only way to get on with this task is
to see the stakeholder idea as a metaphor, in addition to the normative, descrip-
tive, and instrumental uses as per Donaldson and Preston. The attempt to pre-
scribe one and only one "normative core" and construct "a stakeholder theory"
is at best a disguised attempt to smuggle a normative core past the unsophisti-
cated noses of other unsuspecting academics who are just happy to see the end
of the stockholder orthodoxy.
IV
In several recent papers William Evan and I have struggled with articulating a
more explicitly moral basis for the stakeholder idea.^^ In one paper we suggested
a kind of neo-Kantian principle for treating stakeholders as ends rather than
mere means. And, in the second we attempted to show how such a Kantian
conception is consistent with a reinterpretation of Oliver Williamson's transac-
tion-cost economics. Each attempt was problematic precisely because it juxta-
posed a single stakeholder theory with the orthodox stockholder theory. The
intuitions behind these attempts were sound, namely, that a new narrative for
how we understand the human process of joint value creation was necessary. The
Kantian framework, however, ought to impose an order on this process which
did not admit the pluralism in which we are so obviously enmeshed.
The central insight of these ideas is that the usual story of value-creation is
suspect. Stories which depict the firm as either (1) the private property of own-
ers; (2) the necessary arrangements if we are to maximize the greatest good for
the greatest number; or, (3) the result of a voluntary contracting process, all
appeal to the Separation Thesis to rule out certain effects of the firm on other
stakeholders.^^ We need new narratives which recognize these effects from the
beginning and which do not appeal to the Separation Thesis.
If we begin with the view that we can understand value-creation activity as a
contractual process among those parties affected, and if for simplicity's sake we
initially designate those parties as financiers,^^ customers, suppliers, employees,
and communities, then we can construct a normative core that reflects the liberal
notions of autonomy, solidarity, and fairness as articulated by John Rawls, Rich-
ard Rorty and others.^^ Notice that building these moral notions into the founda-
tions of how we understand value creation and contracting requires that we
eschew separating the "business" part of the process from the "ethical" part, and
that we start with the presumption of equality among the contractors, rather than
the presumption in favor of financier rights.
The normative core for this redesigned contractual theory will capture the
liberal idea of fairness if it ensures a basic equality among stakeholders in terms
of their moral rights as these are realized in the firm, and if it recognizes that
inequalities among stakeholders are justified if they raise the level of the least
416 BUSINESS ETHICS QUARTERLY

well-off stakeholder. The liberal ideal of autonomy is captured by the realization

that each stakeholder must be free to enter agreements that create value for
themselves, and solidarity is realized by the recognition of the mutuality of
stakeholder interests.
One way to understand fairness in this context is to claim a la Rawls that a
contract is fair if parties to the contract would agree to it in ignorance of their
actual stakes. Thus, a contract is like a fair bet, if each party is willing to turn
the tables and accept the other side. What would a fair contract among corporate
stakeholders look like? If we can articulate this ideal, a sort of corporate consti-
tution, we could then ask whether actual corporations measure up to this stand-
ard, and we also begin to design corporate structures which are consistent with
this Doctrine of Fair Contracts.^*
Imagine if you will, representative stakeholders trying to decide on "the rules
of the game." Each is rational in a straightforward sense, looking out for its own
self-interest. At least ex ante, stakeholders are the relevant parties since they will
be materially affected. Stakeholders know how economic activity is organized
and could be organized. They know general facts about the way the corporate
world works. They know that in the real world there are or could be transaction
costs, externalities and positive costs of contracting. Suppose they are uncertain
about what other social institutions exist, but they know the range of those
institutions. They do not know if government exists to pick up the tab for any
externalities, or if they will exist in the nightwatchman state of libertarian the-
ory. They know success and failure stories of businesses around the world. In
short they are behind a Rawls-like veil of ignorance, and they do not know what
stake each will have when the veil is lifted. What groundrules would they choose
to guide them?^^
The first groundrule is "The Principle of Entry and Exit." Any contract that is
the corporation must have clearly defined entry, exit, and renegotiation condi-
tions, or at least it must have methods or processes for so defining these condi-
tions. The logic is straightforward: each stakeholder must be able to determine
when an agreement exists and has a chance of fulfillment. This is not to imply
that contracts cannot contain contingent claims or other methods for resolving
uncertainty, but rather that it must contain methods for determining whether or
not it is valid.
The second groundrule I shall call "The Principle of Governance" and it says
that the procedure for changing the rules of the game must be agreed upon by
unanimous consent. Think about the consequences of a majority of stakeholders
systematically "selling out" a minority. Each stakeholder, in ignorance of its
actual role, would seek to avoid such a situation. In reality this principle translates
into each stakeholder never giving up its right to participate in the governance of the
corporation, or perhaps into the existence of stakeholder governing boards.^*
The third groundrule I shall call "The Principle of Externalities," and it says
that if a contract between A and B imposes a cost on C, then C has the option to
become a party to tbe contract, and the terms are renegotiated. Once again the
rationality of this condition is clear. Each stakeholder will want insurance that it
does not become C.^^
 THE POLITICS OF STAKEHOLDER THEORY 417

The fourth groundrule is "The Principle of Contracting Costs," and it says that
all parties to the contract must share in the cost of contracting. Once again the
logic is straightforward. Any one stakeholder ean get stuck.
A fifth groundrule is "The Agency Principle" that says that any agent must
serve the interests of all stakeholders. It must adjudicate conflicts within the
bounds of the other principals. Once again the logic is clear. Agents for any one
group would have a privileged place.
A sixth and final groundrule we might call, "The Principle of Limited Immor-
tality." The corporation shall be managed as if it can continue to serve the
interests of stakeholders through time. Stakeholders are uncertain about the
future but, subject to exit conditions, they realize that the continued existence of
the corporation is in their interest. Therefore, it would be rational to hire man-
agers who are fiduciaries to their interest and the interest of the collective. If it
turns out the "collective interest" is the empty set, then this principle simply
collapses into the Agency Principle.'*'
Thus, the Doctrine of Fair Contracts consists of these six groundrules or
principles:
(1) The Principle of Entry and Exit
(2) The Principle of Governance
(3) The Principle of Externalities
(4) The Principle of Contracting Costs
(5) The Agency Principle
(6) The Principle of Limited Immortality
Think of these groundrules as a doctrine which would guide actual stakehold-
ers in devising a corporate constitution or charter. Think of management as
having the duty to act in accordance with some specific constitution or charter.
Obviously, if the Doctrine of Fair Contracts and its accompanying background
narratives are to effect real change, there must be requisite changes in the ena-
bling laws of the land. I propose the following three principles to serve as
constitutive elements of attempts to reform the law of corporations."

The Stakeholder Enabling Principle

Corporations shall be managed in the interests of its stakeholders, defined as

employees, financiers, customers, employees, and communities.

The Principle of Director Responsibility

Directors of the corporation shall have a duty of care to use reasonable judg-
ment to define and direct the affairs of the corporation in accordance with the
Stakeholder Enabling Principle.

The Principle of Stakeholder Recourse

Stakeholders may bring an action against the directors for failure to perform
the required duty of care.
418 BUSINESS ETHICS QUARTERLY

Obviously, there is more work to be done to spell out these principles in terms
of model legislation. As they stand, they try to capture the intuitions that drive
the liberal ideals. It is equally plain that corporate constitutions which meet a
test like the doctrine of fair contracts are meant to enable directors and execu-
tives to manage the corporation in conjunction with these same liberal ideals.
I have only been able to sketch how one normative core could be used to
construct a new narrative about how we create value. In the following section I
want to suggest that how this construction has proceeded, from the early work
on stakeholders in the 1960s to the rich ground we currently till, offers some
rather different ideas about how business ethics ought to proceed.
V

Much of business ethics has proceeded under the influence of the Separation
Thesis. Philosophers have been hesitant to get their hands dirty by understanding
the day to day life of value-creation activity. Business theorists have been loathe
to enter what they see as the intellectual morass of moral theory. Happily this
scenario is changing as there is more dialogue among philosophers, business
academics and managers.^^ Yet the shadow of the Separation Thesis looms large.
Unless we can reinvent business from the ground up, we remain open to the
charge of reserving a special place for business ethicists ready to "make it up as
we go along." Thus, our task is to take metaphors like the stakeholder concept
and embed it in a story about how human beings create and exchange value.
To see the role of the business ethicists as reinventing the corporation and
describing and redescribing the complex human beings who work in the corpo-
ration is to become a pragmatist. For the pragmatist, the question is less, "what
is true," than, "how should we live," or better still, "how does this narrative
allow us to live," or "what does this way of talking allow us to do." So, for
instance, on pragmatist's grounds the stakeholder idea is part of a narrative about
how we do and could live, how we could experiment with different institutional
arrangements, and how we do and could organize a sphere of our lives built
mostly around something we have come to call "work."
Seeing the stakeholder idea as replacing some shopworn metaphors of busi-
ness with new ones—such as stakeholders for stockholders, humans as moral
beings for humans as economic beings, and the Doctrine of Fair Contracts for
the current panoply of corporate chartering laws—is to give up the role of
finding some moral bedrock for business. Finding such bedrock, required by the
Separation Thesis, is especially fruitless on pragmatist grounds for there are no
foundations for either business or ethics. All we have is our own history, culture,
institutions, and our imaginations. For the pragmatist it is "just us" rather than
"justice" or "justification" in any sense of foundational bedrock. The cash value
of our metaphors and narratives just is how they enable us to live, and the proof
is in the living.
There is a great deal of important intellectual work to be done in business
ethics. For too long philosophers, ethicists, liberal theorists and others have
looked down their noses at business as not worthy of serious intellectual atten-
 THE POLITICS OF STAKEHOLDER THEORY 419

tion. Liberals carp about business, conservatives carp about liberals, and radicals
bemoan the good old days when in appeared as if the work of redescribing the
good society and the good life had been done by Marx and others.^^
It is time to get on with it, and get on with it in the pragmatist vein. Redescrib-
ing corporations means redescribing ourselves and our communities. We cannot
divorce the idea of a moral community or of a moral discourse from the ideas of
the value-creation activity of business. To do so, entails the acceptance of a
principle, the Separation Thesis, which has for too long been used to close off
discussion and to silence conversation. Likewise, if business as an institution is
immune to such redescriptions as have been redescribed in this paper, we have
only the Separation Thesis to blame. Unless we get on with this work of rede-
scription that crosses the bright lines between discourses that have been estab-
lished by theory and practice, talk of human progress, as difficult as it is, is likely
to come to a rather immodest and abrupt halt.

Notes
'This paper has had a long gestation period. I want to acknowledge the comments and
conversations of a number of people. The main ideas in this paper have been refined over a
number of years via seminars at Georgetown University, the Society for Business Ethics,
Dartmouth College, Loyola University, the Wharton School and others. I am especially
indebted to Max Clarkson, Michael Deck and the Canada Council for Social Sciences for
sponsoring a workshop on Stakeholder Theory in May of 1993, and to Peter Pruzan, Ole
Thuyson, and Werner Peterson and the Danish Council for Social Science for sponsoring a
conference on ethics and stakeholders in Copenhagen in the Fall of 1993. Participants at both
of these conferences produced many more refinements and suggestions than I ean individu-
ally attribute. Also, I have benefited from conversations with Kendall D'Andrade, John
Boatright, Steve Brenner, Archie Carroll, Phil Cochran, Robbin Deny, Tom Donaldson, Ken
Goodpaster, Ron Green, and Terry Halbert, as well as my colleagues at The Darden School,
Rosalyn Berne, Andrea Larson, Jeanne Liedtka, Tara Radin, and Patricia Werhane. It is now
difficult to separate out how much of these ideas I owe to Daniel R. Gilbert, Jr.
^Kenneth Goodpaster, "Business Ethics and Stakeholder Analysis," Business Ethics Quar-
terly, Vol. 1, No. 1, 1991, pp. 53-73.
3james Kuhn and Donald Shriver, Beyond Success, New York: Oxford University Press,
1992.
^Martin B. Meznar, James J. Chrisman, and Archie B. Carroll, "Social Responsibility and
Strategic Management," Business & Professional Ethics Journal, Vol. 10, No. 1, Spring
1991, pp. 47-66.
^John Boatright, "What's So Special About Stakeholders?" Business Ethics Quarterly, Vol.
4, No. 4, October 1994 (this issue).
^Goodpaster, op. cit., at 63.

^Ibid. at 67.
^Ibid.
id. at 68.
420 BUSINESS ETHICS QUARTERLY

" We need look no further than any introductory finance book to find such claims of moral
immunity.
^^In Strategic Management: A Stakeholder Approach I made a rather limited attempt to
articulate these principles. Daniel R. Gilbert, Jr. showed me that once stakeholders were
treated as moral agents, nothing less than a thoroughgoing redescription of corporate life
would suffice. He and I have been engaged in various aspects of this project for the last 10
years.
' ^I owe the formulation of these principles to a long-standing conversation of many years
with Professor Jesse Taylor of Appalachian State University.
'^Cf., R. Edward Freeman and William M. Evan, "Corporate Governance: A Stakeholder
Interpretation," The Journal of Behavioral Economics, Vol. 19, No. 4,1990, pp. 337-59; and,
William M. Evan and R. Edward Freeman, "A Stakeholder Theory of the Modern Corpora-
tion: Kantian Capitalism," in T. Beauchamp and N. Bowie, (eds.) Ethical Theory and
Business, 4th Edition, Englewood Cliffs: Prentice Hall, 1993, pp. 75-93.
See for instance the essays in N. Bowie and E. Freeman (eds.) Ethics and Agency Theory,
New York: Oxford University Press, 1993.
'^My colleague Professor Patricia Werhane has rightly point out, that on his own positive
account of the moral nature of the corporation, Goodpaster does not need to accept the
Separation Thesis. That he does, is evidenced by his formulation of the so-called "paradox."
^^Thomas J. Donaldson and Lee Preston, "The Stakeholder Theory of the Corporation:
Concepts, Evidence, Implications," College Park: CIBER Occasional Paper #37, January
1994, forthcoming in Academy of Management Review.
'*See Steven N. Brenner and Jamshid C. Hosseini, "The Stakeholder Theory of the Firm:
A Methodology to Generate Value Matrix Weights," Business Ethics Quarterly, Vol. 2, No.
1, April 1992, pp. 99-120.
^^Creating a "reasonable pluralism" is a straightforward Rawlsian project whose whole
point is to ensure that there exist multiple worldviews. Rawls' argument is that only a liberal
society, such as "justice as fairness" describes, makes such a reasonable pluralism possible.
^''See for instance A. Wicks, D. Gilbert and E. Freeman, "A Feminist Reinterpretation of
the Stakeholder Concept," Business Ethics Quarterly, Vol. 4, No. 4, October 1994 (this
issue); and E. Freeman and J. Liedtka, "Corporate Social Responsibility: A Critical Ap-
proach," Business Horizons, Vol. 34, No. 4, July-August 1991, pp. 92-98.
^'At the Toronto workshop Mark Starik sketched how a theory would look if we took the
environment to be a stakeholder. This fruitful line of work is one example of my main point
about pluralism.
^^ note 14.
show this rather than just claim it, one would have to examine how each of these
three normative grounds of the stockholder theory themselves are used to justify the Sepa-
ration Thesis. Such an analytic task is important, but beyond the scope of my present
purposes. I claim here that each of these three reasons are used to justify treating stockholder
claims as different from stakeholder claims, and used to separate the affairs of business from
the affairs of ethics. I examine these issues in Managing for Stakeholders, forthcoming.
^'*In private correspondence, David Schrader has recently argued correctly that "owners"
is a misnomer, and that its use subtly cuts against the stakeholder idea. I have adopted
"financiers" to call to mind Theodore Dreiser's novel as well as recent events on Wall Street.
^^J. Rawls, Political Liberalism, New York: Columbia University Press, 1993; and R.
Rorty, "The Priority of Democracy to Philosophy" in Reading Rorty: Critical Responses to
 THE POLITICS OF STAKEHOLDER THEORY 421

Philosophy and the Mirror of Nature (and Beyond), ed. Alan R. Malachowski, Cambridge,
MA: Blackwell, 1990.
^^Notice that one could equally give a conservative notion of fairness, that a contract is
fair if it is in fact agreed upon. On such an argument, the real world would assume a large
element of fairness. While there would be a disagreement over which normative core is better,
the argument around the legitimacy of the corporation would be moot. The question would
be what constitutes fairness, not what constitutes the corporation. The stakeholder genre in
fact makes moot this large question of corporate legitimacy. It is a genre that is inherently
liberal, rather than radical.
^^I am especially grateful to Professor John Hasnas for critical comments on these
principles.
This principle has been much criticized in a number of seminars, but I remain convinced
that it is necessary. It ensures the liberal ideal of citizenship for all. Each stakeholder is
sovereign in the matter of their own interests and they are jointly sovereign in matters of
their mutual interests. Think of this principle as ensuring that no stakeholder can sell another
into virtual slavery. It is also possible to invent actual mechanisms that rely on unanimous
consent of representatives rather than individual stakeholders.
^'Again, this principle has been criticized as failing to understand that opportunity costs
are pervasive. My reply is that we should build our understanding of economics on a
reasonable moral order, rather than vice-versa; or, so much the worse for the idea of
"opportunity cost."
^ ^ h e presumption of a reasonable future is an important yet overlooked area of demo-
cratic theory. The idea of "race relations" depends on a shared understanding of "reasonable
future" or more poignantly a "philosophy of hope."
For a recent and thorough analysis of the current state of so-called "constituency
statutes" see Eric W. Orts, "Beyond Shareholders: Interpreting Corporate Constituency
Statutes," George Washington Law Review, Vol. 61, November 1992, p. 14.
So, Andrew Stark's recent lament "What's the Matter with Business Ethics," Harvard
Business Review, Vol. 71, No. 3, May-June 1993, pp. 38-48, misrepresents and misunder-
stands the current landscape of both business and ethics, though his main points were true
enough 10 years ago.
^^I explore the difficulties inherent in these dynamics in an unpublished paper, "The
Business Sucks Story."

©1994. Business Ethics Quarterly, Volume 4, Issue 4. ISSN 1052-150X. 0409-0421.