Corporations at Stake; D. J. Den Uyl

According to an article by Anthony F. Buono and Lawrence T. Nichols in a popular business ethics text, a corporate stakeholder is "any identi fiable group or individual who can affect or is affected by organizational performance in terms of its products, policies, and work processes."l By this rather vague definition, everyone is a stake holder of virtually every corporation. Thus, once the proponents of the "stakeholder" terminology have made it difficult to think of corporations as private institutions, they try to draw a distinction between primarystakeholders and others. Professor Den Uyl teaches philosophy at Bellarmine College, Louisville, Kentucky. "Primary stakeholders" are those groups need ed for the corporation's "survival" (e.g., con sumers, labor, and management). But this distinc tion only indicates which groups are being given favored status. There is no nonarbitrary way to dis criminate between primary and other sorts of stakeholders, since under the right circumstances any stakeholder group could threaten a corpora tion's survival.

The "Stakeholder" and the Marketplace The central difference between the stockholder theory and the stakeholder theory does not, how ever, rest on realizing that there will be fewer stockholders than "stakeholders." It is rather that the stockholder theory is oriented toward markets, while the stakeholder theory is not. As Buono and Nichols put it, the stockholder approach "assumes that the interactions between business organizations and the different groups affected by their operations (employees, con sumers, suppliers) are most effectively structured as marketplace activities."2 In one sentence we have the crux of what is at issue here-the private enterprise system versus its socialisticalternatives. For if what is central to the "old" stockholder con cept is that business relations should proceed along market lines, then the "new" concept plans to replace the market with something else.

And why should we abandon the market in favor of the stakeholder theory? Buono and Nichols offer four reasons: 1. The stockholder model has failed to deal ade quately with contemporary societal problems and the true complexities of economic transactions and interactions. 2. It is in the long-term interest of business to take a broader view of its responsibilities. If busi ness does not become accountable for its actions on its own, growing stakeholder pressures will ensure government-imposed accountability. 3. Understanding and satisfying the needs of stakeholders is important to the wellbeing of the firm.... In today's highly competitive economic and social environment, no important stakeholder can be ignored. 4. The stakeholder model is in keeping with our notions of fairness. Employees, consumers, com munities, etc., are not just instruments for enrich ing stockholders.3 How good are these reasons? The first is either false or begs the question.

It is false if it claims that businesses don't pay attention to their social environment, because businesses won't survive if they ignore what is going on around them. It is also false if it claims that the stockholder view presented itself as a complete the,ory of the economic or social rela tions of the firm. The stockholder model was about establishing primary management responsibility and using market processes to allocate resources. It wasn't designed to list all the interest groups a firm might confront or impact. The first reason begs the question if it implies that the stockholder view does not easily accom modate nonmarket alternatives or broad public obligations. Of course it doesn't, but whether it should is precisely what is at issue. The second reason is equivalent to a threat. If businesses don't behave, "growing stakeholder pressures" will lead the government to impose "accountability." A business's property rights and privacy are to be sacrificed to bullying interest groups.

The second reason also can be read as a predic tion of what will happen "if business does not 253 become accountable." But if that is so, nothing is being justified, and there is no reason to abandon advocacy of the market-any more than there would be to abandon the rights of the accused in the face of a lynch mob just because someone pre dicted what the mob might do. The third reason assumes that the stockholder model focuses less on business competitiveness and survivalthan does the stakeholder model. This is obviously false. If businesses are having trouble being competitive, it probably isn't because they have failed to consider the groups with whom they interact. It may, however, be that they are not par ticularly adept at nonmarket strategies, at courting groups who have the ear of regulators, or in appeasing others who oppose the market. (And if a business were good at such things, it is by no means clear why we should want it to be!) Indeed, competitive disadvantages may result from having to cater to groups or forces that contribute nothing to successful market activity.

The fourth reason is the only one appealing to ethics. But it depends on the acceptance of "our notions of fairness." Even if we accept what is implied about fairness in this fourth reason, it could just as well be used to claim that businesses cannot be used as instruments for some stakehold er's conception of the social good. Businesses, in other words, could be said to have rights to prop erty and privacy independent of any demands made by stakeholders. In any case, businesses don't turn employees, consumers, and communities into "instruments" any more than shoppers turn a businessman into an "instrument" when they buy his product. Mutu ally beneficial trade hardly qualifies as "instru mentalizing" conduct, unless one has concluded that market transactions are inherently such. But if that were so, we would be back to the problem of begging the question. Moreover, the stockholder theory doesn't say that the managers' only conceivable obligations are to stockholders, but rather that their primary obligation is to them because the stockholders, in effect, have hired the managers to serve their interests. Such a relationship is tangible and direct.

Contrast that with the amorphous set of obliga tions to anyone and everyone the stakeholder the ory is likely to generate. The stakeholder theory, as a consequence, will issue in actions according to 254 THE FREEMAN • JULY 1992 the views of those who are the most vocal or polit ically savvy. In short, there are no compelling reasons to adopt the stakeholder view and plenty of good rea sons not to. No Commitment,No Stake In the end it must be noted that most groups considered to be "stakeholders" have no stake in corporations at all. With the possible exception of employees, stakeholder groups have no interest in the wellbeing of any particularcorporation. True, they may have an interest in how corporations affect them, but to have a stake in something is to care about its prospects, as one might when invest ing in a firm. Whether the "good" the stakeholder group wants is provided by this or that corporation (or the state) doesn't matter to them; whether the "bad" it complains of is alleviated by this or that corporation (or the state) also doesn't matter.

Whether a given corporation is succeeding in the market is of no concern to these groups because they have made no commitment to it. Their per spective is strictly societal. To actually have a stake by investing in a corpo ration would be an act of private enterprise and privateinterest-something stakeholding, by defi nition, opposes. For it would contradict the spirit of stakeholding to invest in a corporation even as a vehicle for protest, since there would be no grounds in stakeholder theory for the corporation to pay more attention to the stakeholders as stock holders than any other group the stakeholders may claim to represent. The issue, then, is not semantic, nor is it that the term "stakeholder" carries with it tacit implica tions. We have seen that the implications, once appreciated, are all out front. The issue is that this new use of language is being pushed by those with an anti-market message.

Business people are especially vulnerable to such verbal manipulations and may therefore fail to see all the implications of the substitution. In an age of competition from a widening variety of sources, expanding markets, and increased diver sity in employment populations, businesses may feel they are being hit from all sides. It is easy, therefore, to insert a term like "stakeholder" into the business vocabulary because it seems to cap ture the feeling of having to concern oneself with multiple points of impact. Yet we shouldn't let the feeling cloud our judgment. Those speaking loud est about obligations to stakeholders are not inno cent purveyors of linguistic aid. For when the term "corporate stakeholder" is correctly used, the only true stakeholders are stockholders. D 1. Anthony F. Buono and Lawrence T. Nichols, "Stockholder and Stakeholder Interpretations of Business' Social Role," in Business Ethics, edited by W. Michael Hoffman and Jennifer Mills Moore (New York: McGraw-Hill, 1990),p. 171.

2. Ibid. 3. Ibid., pp.174-75. Capital Accumulation Benefits Everyone A man who criticizes the conduct of business affairs and pretends to know bet ter methods for the provision of the consumers is just an idle babbler. If he thinks that his own designs are better, why does he not try them himself? There are in this country always capitalists in search of a profitable investment of their funds who are ready to provide the capital required for any reasonable innovation. The public is always eager to buy what is better or cheaper or better and cheaper. What counts in the market is not fantastic reveries, but doing. It was not talking that made the "tycoons" rich, but service to the customers .... Under capitalism the acquisitiveness of the individual businessman benefits not only himself but also all other people. There is a reciprocal relation between his acquiring wealth by serving the consumers and accumulating capital and the improvement of the standard of living of the wage-earners who form the majority of the consumers. The masses are in their capacity both as wage-earners and as consumers interested in the flowering of business. This is what the old liberals had in mind when they declared that in the market economy there prevails a harmony of the true interests of all groups of the population.

- LUDWIG VON MISES "The Economic Foundations of Freedom" IDEAS ON LIBERTY 255 TheWoman Who Discovered Private Property by WilliamHoltz T he final European Communist regime to collapse of its own weight was in Albania, a country, someone has said, that served to demonstrate how much government could be packed into a tiny space. Sadly enough, the inter nal repression necessary to maintain this regime had enslaved once more a people who had been struggling for centuries for freedom from external domination-by the Ottoman Turks, the Serbs, the Montenegrins, the Greeks, and finally the Ital ians. The most backward of European nations even before its seizure by Hoxha's partisans at the end of World War II, since then Albania had fallen ever farther behind the modern world as its histor ically grounded xenophobia was reinforced by a reactionary Stalinism that cut it off even from its nominal compatriots in the Communist bloc. Now Albania is again open to Americans, although these must still travel in supervised tour groups.