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Chapter 6: Stakeholder Legitimacy

Phillips, Robert Berrett-Koehler Publishers ePub

Stakeholder theory should not be used to weave a basket big enough to hold the world’s misery.

—MAX CLARKSON197

It was argued at the beginning of this project that one of the theoretical shortcomings of previous stakeholder scholarship is the problem of stakeholder identity.198 For reasons to be adduced in this chapter, this problem may be attributed to a poor understanding of the concept of legitimacy in stakeholder theory. In this and the following chapter I will elaborate on how the problem of stakeholder legitimacy may be remedied using the principle of stakeholder fairness. Rather than merely stakeholders and nonstakeholders, the category of stakeholder should be further subdivided into normative stakeholders and derivative stakeholders (following the Donaldson and Preston taxonomy) with only the former being entitled to fairness-based stakeholder consideration.120

Stakeholder legitimacy has been a central concern at least since Freeman’s groundbreaking discussion. Though concerned with questions of legitimacy, Freeman chose to “put aside” such matters.

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Chapter 5: A Principle of Stakeholder Fairness

Phillips, Robert Berrett-Koehler Publishers ePub

To this point I have argued that the ethical issues that arise at the organizational level of abstraction are sufficiently different from the problems addressed by standard moral and political philosophy to justify an explicitly organizational-level moral theory.156 I have further suggested—but have yet to argue—that stakeholder theory provides a strong candidate for just such an organizational-level moral theory. In the preceding chapter I pointed out some conceptual shortcomings in need of remedy if stakeholder theory is to adequately serve as a framework for organizational ethics.

In the present chapter I turn to an explication and defense of a principle that fills the conceptual gaps noted in the previous chapter. I argue for a principle of stakeholder fairness based on Rawls’s principle of fair play as a moral foundation of stakeholder theory.

While H.L.A. Hart is most often credited with the first explicit, contemporary discussion of the idea in 1955,157 obligations and duties similar to those based on fair play were discussed by John Stuart Mill in 1859.86

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Chapter 7: Stakeholder Identity

Phillips, Robert Berrett-Koehler Publishers ePub

The meaning of this term is so porous that there is little interpretation it seems able to resist.…

—ISAIAH BERLIN212

Lack of clarity on the issue of stakeholder legitimacy has created ambiguity on the question of stakeholder identity.213 That is, who are the organization’s stakeholders? In Chapter 5 I argued that obligations of stakeholder fairness create direct moral (normative) obligations. Stakeholders are those groups from whom the organization has voluntarily accepted benefits and to whom there arises a moral obligation. In Chapter 6 I argued that stakeholder status may also be derived from the power to affect the organization and its normative stakeholders. This provides one answer to the problem of stakeholder identity. This chapter will examine how the preceding arguments resolve the stakeholder status of specific, long-contested candidates for stakeholder identity: the natural environment and activists.136

An example of theoretical uncertainty caused by the problem of stakeholder legitimacy is the status of the natural environment within a stakeholder framework. Is the natural environment a stakeholder? Mark Starik has argued for the affirmative.214 On a fairness-based approach, it is less clear that such a case can be made. In this and the next two sections I will describe Starik’s work on the stakeholder status of the natural environment, argue for why the natural environment is not and cannot be a normative stakeholder, and demonstrate how the natural environment may, nonetheless, be accounted for from within a fairness-based stakeholder approach.

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Chapter 4: Stakeholder Theory and Its Critics

Phillips, Robert Berrett-Koehler Publishers ePub

Ethics has long been a part of the study of economics and commercial interaction. Adam Smith and John Stuart Mill (to name but two of the better known) are as well known for their thinking on matters of moral philosophy as they are of their work on political economy. As the study of economics proceeded, however, it became an ever more technical discipline with the concomitant deemphasis of that which could not be measured, including concern over morals. In On Ethics and Economics, Nobel laureate Amartya Sen comments unfavorably on the schism that has evolved between the two intimately connected disciplines. Sen writes:

[T]he subject of ethics was for a long time seen as something like a branch of economics. … In fact, in the 1930’s when Lionel Robbins in his influential book An Essay on the Nature and Significance of Economic Science, argued that “it does not seem logically possible to associate the two studies [economics and ethics] in any form but mere juxtaposition,”95 he was taking a position that was quite unfashionable then, though extremely fashionable now.96 63

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Chapter 1: Stakeholder Theory and Organizational Dogma

Phillips, Robert Berrett-Koehler Publishers ePub

Business organizations are among the most powerful social entities on earth. They are the grand social institutions of our time, perhaps the sole remaining effective social institutions, expected not only to fuel free-market economies, but also to carry burdens once thought the province of government and religion (e.g., health care, child care, protection of privacy, education). Business organizations control vast resources, cross national borders, and affect every human life. Their pervasive impact on human lives rivals that of history’s most powerful czars, kings, and emperors.

Looking at the old cities of Europe gives one an idea of the movement of social power across time. The oldest of the large, elaborate buildings are religious in nature (e.g., churches and cathedrals). The second oldest of the large, elaborate buildings are governmental. The newest of the large, elaborate buildings are corporate headquarters and facilities.a To note this is to note the transfer of power through history. The church and its leaders were arguably the most powerful institution for thousands of years. Then, as the liberal notions of the Enlightenment began to replace church orthodoxy, government began to emerge as, again arguably, the most powerful institution on earth. Today, a case can be made that business firms are beginning to emerge as the most powerful institutions in the world.2

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