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Normative Stakeholder Theory and Aristotle: The Link Between Ethics and Politics Nachoem M. Wijnberg

ABSTILACT. Stakeholder theory is an important part of modern business ethics. Many scholars argue for a normative instead of an instrumental approach to stakeholder theory. Recent examples of such an approach show that problems appear with respect to the ethical foundation as well as the specification of the norms and the relation between corporate and individual responsibilities. This paper argues for the relevance of Aristotle's ideas on ethics and politics, and especially the link between them, for stakeholder theory. An Aristotelian approach suggests that the corporation should be considered as existing to allow the decision maker, who normally is a manager, to live a complete and good life and to make decisions that involve the interests of different stakeholders. This approach leads to a number of implications regarding the role of organizational politics and the managerial function.

1.

Introduction

In its most basic sense, stakeholder theory arises from the rejection of the idea that the corpora- tion should single-mindedly strive to maximize the benefits of a single stakeholder, the share- holders. Many scholars have written about the relation between the corporation and its stakeholders (e.g. Freeman, 1984; Freeman, 1994;

Nachoem M. Wijnberg presently is an associate professor

at the Rotterdam

lished on a wide range of subjects but especially on the relation between strategic decision-making and the com-

School of Management.

He has pub-

petitive

and institutional

environment

in journals

such

(15 Journal of Economic Issues, Technology Analysis and Strategic Manage-ment, Journal of Cultural Economics, Cultural Dynamics, De Economist, Journal of Evolutionary Economics.

Evan and Freeman, 1988; Goodpaster, 1991; Langtry, 1994; Donaldson and Preston, 1995; Clarkson, 1995; Quinn and Jones, 1995, Mitchell, Agle and Wood, 1997). Donaldson and Preston (1995) distinguished between descriptive, instrumental and normative approaches to stakeholder theory. Descriptive approachesonly attempt to ascertain whether stakeholders' interests are taken into considera- tion by corporations or not. Instrumental approaches look to the effects of stakeholders management on corporate performance. Norma- tive approaches are concerned with the reasons why stakeholders' interests should be taken into account. Although Aristotle has written little on economics and almost nothing on the management of business organizations (Meikle, 1994), he wrote copiously on ethics and politics. There have been earlier attempt to base theories of business ethics on Aristotles thoughts on ethics (e.g. Solomon, 1993). It is the main contention of this paper that precisely the way in which Aristotle saw ethics and politics linked can provide a new foundation for normative stake- holder theory. This paper does not propose that a modern business organization is a Greek Polis. It does propose that by viewing the ethical and political situation of a manager in a corporation along the same lines as Aristotle viewed the situation of a citizen in a polis, a number of important problems in normative stakeholder theory can be dealt with more successfully than before. The question has been raised whether the field of organizational science is still sufficiently concerned with the interactions between orga- nizations and society. Recently, Blau (1996) argued that organizational scientists might well

Journal of Business Ethia

25 : 329-342, 2000.

© 2000 Kluwer Academic Publishers. Printed in the Netherlands.

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Nachoem M.

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follow Weber in paying attention to the links

between rationality and the ethics of responsi-

.

rationality in collectivities and rationality in

we might consider

that the basis of validity for rationality in collec- tivities draws from what is reasonable, and the basis for rationality in markets draws from the best approximation of connecting means and ends" (Blau, 1996, p. 175).

Twentieth century organizational science eagerly used one part of the Weberian inheri- tance, rationality in the sense of optimal means- ends relations and the distinction between procedure and substance. This seemed to support the division of labour between decision-making and decision-implementing tasks within an orga-

nization in which (political) confiict can only be

a sign of irrationality and inefficiency. However,

while some scholars (e.g. Pichault, 1995) focused

again on the possible benefits of political confiict within an organization others viewed organiza- tional politics in the (broader) context ofthe par- ticular systems of domination characterising organizations, society at large and the interrela- tions between the two (Lefiaive, 1996; Hardy and Clegg, 1996). This paper attempts to show how an Aristotelian approach to the organization and its members may help to deepen our under- standing of organizational politics and thereby of the interactions between organizations and society. Aristotle defined man as a political animal. Political refers to the "polis", the city, which according to Aristotle is the highest form

. while

of association or organization because "

it comes into existence for the sake of mere life,

it exists for the sake of the good life" {Politics, 1252b).' The end or final cause ofthe city is to allow man to live human life as good and com- pletely as possible. Incidentally, as will be dis- cussed below, Aristotle also argues that the city

is best governed by those who are able to lead a

good life. Aristotle distinguishes practical wisdom from other types of knowledge. Practical wisdom

is concerned with things human and things about

which it is possible to deliberate {Nicomachean Ethics, 1141b), including both political and ethical matters. Decision makers in organizations have to make use of practical wisdom in matters

markets are quite difFerent

bility. She writes that according to Weber, "

of organizational politics as well as organizational ethics. This paper will discuss the present state of stakeholder theory. Following this, Aristotle's ideas on ethics and on politics will be presented, making extensive use of Nussbaums (1990, 1993) interpretation of these ideas. Returning to the modern organization theory, ethics and politics will again be addressed to demonstrate how linking the two and returning to the Aristotelian direction of the means-ends relationship can lead to a difFerent approach to normative stakeholder theory in which the business organization can be considered to exist for the sake of the good life of those members of the organization who are or, at least, are able to be, politically active.

2.

Stakeholder theory

Stakeholder theory is probably the most popular way to treat issues that have to do with "broader" responsibilities of businesses. Another important framework is that of corporate social perfor- mance (Carroll, 1979; Wartick and Cochran, 1985; Wood, 1991) but stakeholder theory and corporate social performance theory are not incompatible. Clarkson (1995) has argued for evaluating corporate social performance in terms of stakeholders' satisfaction instead of in terms of demonstrating corporate social responsiveness or fulfilling corporate social responsibility. Clarkson (1995) provided a systematic listing of "stake- holder issues" to facilitate descriptive research which could provide data to test instrumental hypotheses such as proposed at the end of the paper (Clarkson, 1995, p. Ill ) about relations between corporate performance and the levels of satisfaction of stakeholders. One has to note, though, that speaking in terms of corporate responsibility serves to focus away from personal responsibilities of those acting with the powers that they derive from their position within an organization. Freeman (1984) distinguished between primary stakeholders, those groups whose con- tinuing participation is necessary for the survival of the corporation, and secondary stakeholders, who are not essential to the survival of the cor-

Normative

Stakeholder

poration although their actions can significantly damage (or benefit) the corporation. Clarkson (1995) focused on the primary stakeholders and the relationships between the satisfaction of these primary stakeholders and corporate performance. Two problems are evident. First, it seems that the boundary between primary and secondary stake- holders can shift easily. Also, if one defines primary stakeholders in terms of their impor-

tance to the corporation, one should not be too surprised if the satisfaction levels of exactly those primary stakeholders can be correlated with cor- porate performance. The distinction between primary and secondary stakeholders is intimately connected with the instrumental approach and seems out of place in a normative approach. In fact, Mitchell, Agle and Woods (1997) proposal to identify stakeholders systematically by paying attention to the dimensions of power, legitimacy and urgency, explicitly aimed to serve an instru- mental approach, to increase managers ability to handle stakeholders claims in the interest of the organization. The distinction between primary and secondary stakeholders had indeed disap- peared in Evan and Freeman (1988) and Freeman (1994) In both texts, the normative approach dominated. Evan and Freeman (1988) made the Kantian recommendation that every stakeholder has a right to be treated as an end, not a means. They took this argument one significant step further when they proposed that pursuing the interests of the stakeholders is the true purpose of the business organization. The corporation should balance the interests of difFerent stake- holders by astute use oF the Rawlsian veil oF ignorance, which makes the decision makers ignorant with respect to the question which stake

is theirs. Freeman (1994) described the norma-

tive basis oF his thinking as pragmatic liberalism,

instead oF the Kantianism oF Evan and Freeman (1988), but arrived at the same conclusion. He proposed three principles to be incorporated in corporate constitutions or even corporation law, the first oF which, the Stakeholder Enabling

Principle, reads: "Corporations shall be managed in the interests oF its stakeholders, defined as employees, financiers, customers, employees, and communities" (Freeman, 1994, p. 417). This is

a general prescription in need oF specification.

Theory and Aristotle

331

Freeman suggested that the rights oF stakeholders

should be considered to be equal and "

inequalities among stakeholders are only justified iF they raise the level oF the least well-ofF stake- holder" (Freeman, 1994, p. 415). However, to balance interest in this Fashion implies that it is possible to quantiFy accurately the benefits accruing to difFerent stakeholders and that these benefits can be expressed in terms oF a common unity oF measurement.

As mentioned above, Donaldson and Preston (1995) distinguished between descriptive, instru- mental and normative aspects oF stakeholder analysis. Donaldson and Preston argued that stakeholder theory has to be Founded in the nor- mative aspect. Significantly, Donaldson and Preston phrase their normative approach as

Follows: "

validity oF diverse stakeholder interests and should attempt to respond to them within a mutually supportive Framework, because that is a moral requirement For the managerial Function" (Donaldson and Preston, 1995, p. 87). They also argued For the useFulness, or at least the non - harmFulness, oF "constituency statutes" as a step towards a more "legal" approach, linked to their recommendation to ground the normative basis oF stakeholder theory in property rights theory (and twentieth-century legal practice in most developed countries) in which the extent oF property rights is limited by restrictions against using the property in a manner that causes harm to others. This is a highly interesting but also problematical suggestion. Legal limitations to the rights oF property owners mostly concern the negative duty oF not harming others while nor- mative stakeholder theory, as Formulated by Donaldson and Preston, implies a positive duty which seldom, iF ever, appears in the context oF property ownership. One should not bore or irritate one's neighbours by playing the violin all night long. However, iF one is a first-class player and owns a Stradivarius, one is allowed not to play or to build a sound-prooF wall so that no others can derive enjoyment From one's playing. One may even burn the Stradivarius. Stakeholder theorists, and certainly Donaldson and Preston, expect more From corporations than the law expect oF individual property owners. And pre-

. that

. managers should acknowledge the

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cisely From the point oFview oFlegal theory, this

seems eminently reasonable because by making incorporation possible, the law extends the rights individual persons can have and allows them collectively to acquire more power than they would have otherwise. The law usually asks

For more responsibility

wher e there is more

power, and seen From the legal point oF view Donaldson and Preston advocate, stakeholder theory could be considered the logical comple- ment oF corporation law. Corporations by their very essence as entities who are more than the sum oF the people involved in them, raise problems with respect to the distinction between the legal and moral responsibilities oF the corporation and those oF natural persons acting on behalF oF the corpora- tion. Quinn and Jones criticized both Freeman's stakeholder approach and Donaldson and DunFee's (1994) implicit social contract approach on the grounds that these approaches regard the firm and not the manager as the "relevant unit oF moral analysis" (Quinn and Jones, 1995, p. 32). Against the widely held opinion that corporations have legal responsibilities but only persons can have moral responsibilities, French (1984) argued that corporations can be treated as moral persons when the "corporations internal decision structure" allows one to redescribe the

actions oF individuals as intentional actions oF the corporation. French explicitly argued that even when the Formal organization chart does not accurately represent the internal decision struc- ture, no problem ensues because all that is needed

is to construct a map oF the non-Formalized real

structure. The way organizational politics is viewed in this paper (below) makes it hard to agree that the real internal decision structure oF

a corporation is sufficiently stable and visible to

be mapped For this purpose. And even iF it were that moral responsibilities could be ascribed to corporations, these would scarcely detract, as legal responsibilities often do. From the personal responsibilities oF the persons concerned with making the relevant decisions.

Quinn and Jones (1995) also distinguished between instrumental and non-instrumental ethics, much in the same way as Donaldson and Preston distinguished between the instrumental

and the normative approach. But where Donaldson and Preston (1995, p. 66) consider the three approaches they distinguish to be mutually supportive, Quin n and Jones explicitly opt For non-instrumental ethics. They went Further in arguing that instrumental ethics is not a tenable approach because oF a number oF problems such as the Fact that corporate perFormance will be more directly linked with the confidence the corporation inspires than with its actual ethical behavior and that it is possible to inspire trust without taking the roundabout route oF behaving ethically. Because Quinn and Jones (1995) stated at the start that the problem with non-instru- mental ethics is that it oFten produces only vague recommendations, they attempted to present (relatively) concrete proposals based on the premise that both market competition and the principal-agent relation are Fundamental to US society: "Market competition depends on the existence oF liberty, which Follows From two principles - avoiding harm and respecting the autonomy oF others. Principal-agent relations are premised on the recognition oF two principles - honoring agreements and avoiding lying" (Quinn and Jones, 1995, p. 38). This seems a strange conclusion to the preceding argument because these Four principles are presented and explained in terms oF their instrumental value. Without them Free markets would not operate efficiently (or at all), and neither would principal-agent relationships. Only the last sentence oFthe penul-

timate section stated that these principles are also

consistent with "

ological view oFmany US citizens" (p. 38). It appears From this discussion oF the current state oF normative stakeholder theory that there is need For improvement or elaboration wit h regard to three issues. First, even those scholars who choose to pursue a normative approach seem hesitant to make explicit the ethical prin- ciples From which norms are to derived. Secondly, even where ethical principles are proposed in connection with stakeholder theory, it remains hard to specify the content oF the norms in such a way that they provide a useFul Foundation For managerial decision making. Thirdly, speaking about corporate responsibilities towards stakeholders tends to underplay the

. the Judeao-Christian the-

Normative

Stakeholder Theory and Aristotle

333

role oF individual decision makers, and their

personal responsibilities. In the next two sections Aristotle's thought will be discussed to see whether it contains elements that could be oFuse

good which can be recognized, in greater or smaller quantities, in everything that is good or

has value, allowing rational optimising choices to be made concerning ethical matters. Aristotle

to

improve modern stakeholder theory.

"

. makes it clear that it is in the very nature

 

of truly rational practical choice that it cannot become more 'scientific' without becoming

3.

Aristotle and ethics

worse dimensions, closely interwoven. These are: an

Aristotle's attack has three distinct

A

normative approach is concerned with the

attack on the claim that all values are commen-

good, with that which has moral value. Having

surable; an argument For the priority oF particu-

a

certain virtue means having the ability to

lars judgments to universals; and a deFense oF the

express a certain value, a certain form of the

emotions and the imagination as essential to

rational choice" (Nussbaum,

1990, p. 59).

good. After the sophists had raised doubt with regard to traditional views on the good and even

with regard to the existence of a non-relativistic and knowable good (de Romilly, 1992), Plato argued that there is an idea of "the good", which can be known by philosophic contemplation. Commentators on Plato do not find it easy to give a precise definition oF the good according

Plato, partly because the concept is not treated

to

Aristotle maintained that reducing difFerent goods or values or virtues to quantities oF the same standard, means ignoring precisely what makes the difFerent goods good. Courage is courage because it is not justice. Values are

heterogeneous. They can confiict and man, indi- vidually and collective, has to make decisions without optimising rules. Rules have their use;

in

exactly the same way in different dialogues

iF time is short or one lacks confidence

in one's

and, as always, opinions can differ with respect

to the tricky question which opinions oF which

characters in the dialogues can be considered to

represent what Plato himselF thought. However, the Socrates in Protagoras argues that everything that has value shares in the single nature oF the good (see also the illuminating analysis oF this dialogue in Stokes, 1986). In Nussbaums (1990, 1993) view, this means that all values are com - mensurable. It is important to appreciate the attractiveness oF Nussbaums interpretation oF Plato's position. IF only one type oF goodness exists and only differences in the amount or the intensity oF goodness are possible, a science oF measurement (oF goodness) seems Feasible. Such measurements could consequently be used to optimize decision making. Interestingly, com- mensurability oF values would also provide a theoretical basis For obtaining Pareto-optimality

in balancing stakeholders' interests, as Freeman

(1994) suggested. The decision maker could compare the amount oF "good" his decision produced with regard to stakeholder A with the amount oF "good" with regard to B. Aristotle rejected the core oFPlato's approach, the assumption that there exists a single universal

judgement, one can Fall back on a rule - the rule as a distillation oF precedents - or one can profit From a rule to approach the particulars in an more systematic Fashion - the rule as an aid to perception. But rules by themselves do not suFfice in matters oF deliberation, oF practical wisdom. Deliberating with the aim oF making decisions means conFronting dilemma's and is (potentially) tragic. On e can no t give rules For solving dilemma's just as one cannot give rules For telling jokes . Aristotle's reasoning did not, however, lead to complete subjectivism and relativism. Although he opposed a simple concept oF the good, he suggested that it is possible to distinguish the good From the bad in an objective manner, .b y reFerence to reasons that do not derive merely From local traditions and practices, but rather From Features oF humanness that lie beneath all local traditions and are there to be seen whether or not they are in Fact recognized in local traditions" (Nussbaum, 1993, p. 243). However, it should be noted here already that local background can infiuence the relative weights attached to particular virtues and, thereby, the nature oF the "local" good man. A

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good man in Sparta would be difFerent From a good man in Athens. Aristotle attempted to

divide human

liFe in spheres oF experience in

which choices have to be made that are more or less virtuous. DifFerent types oF human relation- ships also signify difFerent spheres oF experience. One can display courage towards enemies in battle, magnanimity towards enemies one has conquered. As will be seen, this idea can also be applied to stakeholder theory. Only aFter identi- Fying the spheres oF experience did Aristotle proceed to fill in the "meaning" oF the virtues that are relevant to the particular spheres oF expe- rience. Then the doctrine oF the mean comes into play. Excess and deFect should be avoided in every sphere oF experience. It is important to take note oF three issues in connection with the doctrine oF the mean. The first is that the mean is not necessarily the mathematical mean between the most extreme possibilities, even iF these can be quantified. The second is that the mean is no t the same For all persons in all circumstances; only with close regard to the characteristics oF the actor and the situation he finds himselF in can be determined what the mean is (Hardie, 1977). Finally, although most can agree that to be too coura- geous means to become rash, which is not a virtue, some commentators have wondered how it is possible to be too just or too loyal. With respect to justice, Aristotle had to employ a bit oF sophistic (in the modern sense) reasoning when he argued that the mean is not interme- diate between too just and too little just but between acting unjustly and being justly treated {Nicomachean ethics, 1133b). There is another way oF constructing justice as a mean, resulting From the essential heterogeneity oF values Aristotle deFends. Being too just then means acting as iF justice was the only value or as iFall other values could be reduced to justice or to something in terms oF which justice could be fully described - homogenous Platonic goodness. Justice is the value which first comes to mind when thinking about making decisions that involve confiicting interests, such as the interests of stakeholders. However, justice is not the only value which might be relevant. A managerial decision also can be courageous, magnanimous.

friendly, etcetera. An Aristotelian good man is

not a man who expresses one great value, who has one great virtue, but a man who is able to express many values without effacing their differences and their potentially confiicting demands. Also, according to Aristotle, humans are not born with virtues. We acquire and

maintain virtues by virtuous action. "

by doing just acts that the just man is produced, and by doing temperate acts the temperate man ." {Nicomachean Ethics, 1105b). Also, "Virtue, then, is a state of character concerned with

choice

becomes a good man by acting virtuously, which means making choices, in an human environ- ment, which means, a political environment. Later Aristotle writes that of a god it cannot be said that he is excellent because his state is higher than excellence {Nicomachean Ethics, 1145a). Surpassing the excellence of being just, or of any other virtue, is a matter for a god, who like an animal, is not a political creature. But if one wants to know about the human good one has to pay attention to politics.

.

it is

." {Nicomachean Ethics, 1106b). A man

4.

Aristotle and politics

Aristotle was concerned with the politics of cities, not of organizations. However, what

Aristotle has to say about the politics of cities is highly relevant to the politics of organizations. As PfefFer argues with respect to the relevance oF the study of modern government to organi-

zation theory: "

large ones are like governments in that they are fundamentally political entities" (PfefFer, 1992, p. 29). Aristotle classified political systems along two dimensions: first, the number and charac- teristics oF those who have power and make the decisions on matters that are important to the community and secondly, the extent to which the wider interests oF the community at large are taken into account by the decision-makers. With respect to the first dimension, Aristotle distin- guished between constitutions in which power is in the hands of one person, of few persons or of all citizens. With respect to the second dimen- sion, the extreme possibilities are that the persons

. organizations, particularly

Normative

Stakeholder

who exercise power can do this to further the interests of the community or to further only their own interests. If the last-mentioned possi- bility occurs, Aristotle calls the constitution "perverted". Thus, he envisaged six possible con- stitutions. If the rulers rule for the benefit of all, monarchy is the best option, followed by aris- tocracy, and finally "polity", which is a mixture of oligarchy and restricted democracy with strong "rule of law". If the constitutions are perverted - and, according to Aristotle, all normally are but monarchy is more easily perverted than oligarchy and oligarchy than polity — the sequence is reversed and the rule of the many, democracy, is preferable to the rule of one, tyranny, or of the few, oligarchy.^ Thus it can be seen that Aristotle's reputation as an opponent of democracy is largely incorrect. It would be more exact to say that with respect to the spectrum of possible democratic constitu- tions Aristotle preferred the moderate type, with aristocratic or oligarchic elements mixed in, and is an opponent of an extreme form of direct democracy, a caricature of the Athenian system in its most democratic phase. Aristotle argued that in a city in which political equality would be total, decisions would be taken by majority and all public offices would be distributed by chance, the poor would rule since they are the largest group and the poor could not be expected to rule with science and understanding, because they are insufficiently educated, or for the benefit ofthe whole, because the acuteness of their needs blinds them to the needs of others. The distrib- ution of public office by election, which we tend to consider an essential element of the modern democracy, was to Aristotle already a recom- mendable step away from complete democracy. Aristotle has praise for a moderate democracy, comprised mainly of moderately well-ofF farmers,

all the citizens wiU enjoy the three

in w^hich

rights of electing the magistrates, calling them to account and sitting in the law courts; on the other hand the most important offices will be filled by election and confined to those who can satisfy a property qualification' {Politics, 1318b) His third-best (but most likely to be sustained) type of unperverted government, the polity, can in fact be recognized in this description. In this

Theory and Aristotle

335

type of constitution decisions concerning the community are made by those who, according to Aristotle, are most likely to be qualified and to take interests other than their own into account. Aristotle was very aware of the dangers of con- stitutional instability and uncontrolled factional confiict. He saw a number of ways to minimize these dangers {Politics, 1309a-1310a). First, officeholders should be loyal to the constitution, capable, and good. Secondly, the majority should want the constitution to continue. Thirdly, in accordance with the doctrine of the mean, no constitution should be applied in an extreme way, democracies should not be too democratic (it should be like a polity), oligarchies not too oligarchic (it should, again, be like a polity). Finally, and most importantly, the citizens should be educated in the spirit of their constitution. Aristotle returned to the subject of education in the final books ofthe Politics. One should dis- tinguish between the rulers and the ruled. The ruled only have to be educated to fulfil practical tasks. The rulers - the oligarchs in an oligarchy, the citizens in a democracy - have to learn how to be good men and to express their virtues in the exercise of their practical judgement. As mentioned already above, although the virtues are, according to Aristotle, everywhere the same, the character of a good man can differ from place to place according to the local moral preferences which are, of course, also strongly linked to the prevailing political constitution. The potential good man in Athens needs a difFerent education than the potential good man in Sparta. But both need a liberal education. Leo Strauss (1968)

pointed

out that to the Greeks oF classical times

the word "liberal" had a

almost the opposite oF the present political meaning in the United States. Originally, a liberal man was a man who behaved in a manner becoming to a Free man, as distinguished From a slave. 'Liberality' reFerred then to slavery and presupposed it" (p. 10). Because oF his wealth, which allows him to be generous, the liberal

political meaning

gentleman will, iF he is well educated (and only the gentleman will have the means to become suFFiciently educated), be more likely to rule society For the interest oF the whol e society instead oFhis narrov^^ personal interest. This does

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not mean that the good man will let the inter- ests oF others always prevail over his own inter- ests. The good man is not a saint. But the good man will take notice oF the interests oF others and oFthe communities to which he belongs and will make an efFort to exercise his virtues in balancing these interests It would be a mistake to conclude From all the attention Aristotle gave to the problem oFhow to educate citizens that the aim of educating good men is to provide the city with capable rulers and thus perpetuate the well- ordered cities. The aim oFthe city is to allow its citizens to live good lives.

5. Politics and business organizations

An increasing number oF scholars has become attentive to the political nature oF organizations and the need to understand organizational politics and the nature oF power relationships within organizations to make sense oF organiza- tional behavior (e.g. PFefFer and Salancik, 1978; PFefFer, 1981, 1992; Bacharach and Lawler, 1980). At the same time, the political process within organizations has been given a much more positive valuation than beFore. Where earlier scholars who did take note oF political confiict tended to consider it a source oF inefficiency and demotivation (Pettigrew, 1973), later scholars point out the positive efFects politics may have on the adaptability and learning capacity oF orga- nizations (Pichault, 1995). However, difFerent authors oFten use difFerent definitions oF organi- zational politics. Drory and Romm (1988, 1990) reviewed and

classified

gested (Drory and Romm, 1990) that three essential elements of organizational politics could be distinguished: political behavior aims to influence someone elses behavior or attitude by informal means in a situation of (potential) conflict. It can be argued that Drory and Romms defin- ition is unnecessarily narrow because it assumes the background of the ideal-typical rational and hierarchically structured organization in which legitimate decision making exclusively occurs top-down and in which organizational politics therefore has to make use of informal means.

a large number oF definitions and sug-

Their definition excludes formal means that are explicitly political in organizations that have a quasi-political structure, e.g. a workers council, to infiuence the behavior of others. More impor- tantly, making a distinction between formal and informal means of infiuencing others in situation of conflict also at least suggests, along with much of the mainstream literature on the subject, that the use or creation of power in the course ofthe process of organizational politics is somehow ille- gitimate and to be contrasted with the legitimate system of authority (Hardy and Clegg, 1996, p. 626) which can be and, in the modern business organization, usually is, heavily formalized. The other two elements do, however, seem essential to an adequate definition. Political behavior should infiuence someone elses behavior in situations of (potential) confiict. The next step is to consider more carefully the two cardinal questions Aristotle used to classify political con- stitutions: who makes decisions and whose inter- ests are taken into consideration, starting with the first.

Few scholars thin k tha t fuU an d direct , o r eve n representative, democracy is advisable or even feasible in modern corporations (see, for instance, Pagano and Rowthorn, 1996). Most organiza- tions, as well as corporation law in most devel- oped nations, opt for a "constitution" in which representatives of employees have the right to be consulted or at least informed on matters that directly touch upon their interests but in which the power to make decisions on matters of strategic management is reserved to senior man- agement. However, few CEOs can act as tyrants and senior management usually is not a mono- lithic and confiict-free entity. Senior managers attempt to infiuence other senior managers, for instance by building coalitions or by influencing or allying themselves with groups that have no decision-making power but whose behavior or attitude can have a significant efFect on the para- meters oF the situation in which the decision is taken. Against those writers, such as Michels (1962), who argued that even in democracies real power is always in the hands oF political elites who act as dominant minorities pursuing their own limited interests, Dahl (1989, p. 270)

pointed out that:

the dominant minority

Normative

Stakeholder Theory and Aristotle

337

is a heterogeneous collection of groups, and if the interests of these groups sometimes diverge, then political competition may in some circum- stances induce leaders to seek support among the majority by advancing their interest." This phenomenon of coalition building has also been remarked upon in organization theory (e.g. Strauss, 1978). Child (1997, p. 60) wrote:

"Strategic choice is recognised and realized through a process whereby those with the power to make decisions for the organization interact among themselves (so constituting a shifting 'dominant coalition'), with other organizational members and with external parties". On the one hand, emphasizing not only the political nature of decision-making but also the fluidity of the process also makes it harder to envisage con- structing realistic maps of "corporate internal decision structures" that enable moral responsi- bilities to be assigned to corporations, as French (1984) proposed. O n the other hand, the concept of changing coalitions in which even outsiders (who are not direct participants in the political processes within the organization) are involved points the way back towards the role of stake- holders and Aristotles second question: whose interests are taken into consideration. Coalitions are built among decisions-makers but also with other organizational members and with external parties. Other organizational members are those employees who are not directly involved in the decision-making process. Aristotle would call a corporate constitution unperverted if the decision makers would take the interests of those internal stakeholders into account. However, Aristotle pictured his polis as fundamentally autarkic and neutral or even antag- onistic to outsiders. Already in Aristotles time this picture was at best anachronistic. In this paper, decision-makers in organizations are compared to citizens in a polis. Modern business organizations certainly cannot picture themselves as autarkic and independent of the rest of society. Decision-makers in organizations can also build coalitions with external parties, external stake- holders. Leflaive (1996) argued that the political processes within organizations rarely are explic- itly linked to the relationships of power and domination between organizations and environ-

ments. The ideas referred to above suggest that the more the organization allows instable dominant coalitions to exercize power, the more it can be expected that internal and external stakeholders' interests are taken into account. By allying oneself with a powerful group of stake- holders, persons or groups within the organiza- tion can attempt to build new dominant coalitions. Under such circumstances, one could argue that organizational politics can be consid- ered to increase the chance that the corporation pays attention to its stakeholders' interests. Of course, some stakeholders will carry more polit- ical weight than others and information is imper- fect and costly. Even a well-functioning political process does not ensure optimal outcomes but organizational politics seems at least to offer a way towards implementing the norm that the corporation should be managed for the benefit of its stakeholders, which is the basic norm of stakeholder theory as stated, for instance, by Freeman (1994) or Donaldson and Preston (1995). However, this argument runs counter to the way in which in Aristotle's thought politics and ethics are linked.

6. Stakeholder management for good managers?

Evan and Freeman (1988) made the Kantian recommendation that every stakeholder has a right to be treated as an end, not a means. They took this argument one significant step further when they proposed that pursuing the interests of the stakeholders is the true purpose of the business organization and that the decision makers should act as if they did not know which stake is theirs. As Donaldson and Preston (1995) pointed out this certainly is a normative approach, although probably not one that is easily operationalized. Evan and Freeman bring the issue of ends emphatically back into the discussion. The end of the corporation is to increase stakeholders' satisfaction. As mentioned. Freeman's (1994) first principle stated that the corporation should be managed in the interests of the stakeholders. In Freeman's principle, managers are not even named separately but

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are included in the stakeholder "employees". However, it makes sense to treat (senior) man- agement differently from the other employees because of their decision-making powers. Hill and Jones (1992) emphasize exactly the powers managers have to decide on issues that affect the interests of all the other stakeholders. But even when management is considered to be a stake- holder, and a very important and powerful one,

stakeholder theory such as discussed in section 2,

as well as the rhetoric of the managers them-

selves, suggests that managers prefer to consider themselves as a means - as servants to the enter- prise (and its other stakeholders) - and that to see it otherwise would be unethical. Considering business ethics from the point of view of Aristotle could lead one to very different conclusions. As discussed above, in Aristotle'

view, the polis exists to allow the citizen to live

a complete and good life, not vice versa.

Analogously, one could argue that the organiza- tion exists to allow the decision maker within the

organization, the manager, to live a complete and

good life, not as a craftsman and not as a philoso- pher, but as a man of practical wisdom who deliberates on and makes decisions about matters that concern other human beings. What a good man of practical wisdom needs, in fact, are moral dilemmas. Solving problems of a "technical" nature, problems to which solutions can be found

by skilfully applying rules, is work for craftsmen.

Contemplating the unchanging things is the work of the philosopher. Aristotle does state that living a purely contemplative life, without rela-

tions to others, certainly is a good life. If not,

" . there would be something wrong with God

Himself'' and the whole of the universe, who have no activities other than those of their own

internal life" {Politics, 1325a). However, it is hard

to envisage a human being living a purely con-

templative life. Men who are not godlike have relations with others, have to act politically and have to deal with conflicting interests. Faced with conflicting interests, contemplation is not

virtuous; one has to act and make choices. As section 3 already quoted in part:

" . it is by doing just acts that the just man is produced, and by doing temperate acts the

temperate

But most people do not do

these, but take refuge in theory and think they are being philosophers and will become good in

this way

{Nicomachean Ethics,

1105b).

One needs practical wisdom to act well and by acting well one becomes a virtuous man. Moral virtues have to be exercised. A human being who lives in circumstances which do not allow him to make decisions which affect the interests of others cannot live a complete and good life. From an Aristotelian point of view, the corporation is a political association in which decisions have to be made that affect the inter- ests of different stakeholders and express the values of the decision makers. Today, in "capi- talistic" society, due to the characteristics of both technology and culture, decisions are mainly made by (senior) managers. The existence of the corporation allows the decision makers, the managers, to be confronted by ethical dilemmas involving different stakeholders, to exercise their deliberative faculties and virtues, and thus to live good lives. The Aristotelian approach to normative stake- holder theory could also suggest a way to handle the problem of specifying further the content of the virtues. As, discussed in section 3, Aristotle investigated the nature of the virtues by distin- guishing various spheres of activity of a person, ascribing virtue-names to each of these spheres and using the doctrine ofthe mean to determine the meaning of being virtuous in that particular sphere. Identifying various stakeholders could assist in identifying spheres of experience and thereby virtues. Because a person has relations with friends, the virtue "friendliness" exist and one can attempt to define the exact meaning of this virtue. Because a manager has to make deci- sions with respect to the natural environment and has, therefore, relations with people whose welfare is affected by what happens to the natural environment, the managerial virtue "environ- mental consciousness" exists and can be defined. The question then becomes what kind of

a constitution a corporation should have to conduce to the goal of allowing the manager to act virtuously. This paper is not the place to really discuss the many forms of political structures and institutions that have been or can be proposed.

It is interesting to note that in the "mixed

Normative

Stakeholder Theory and Aristotle

339

regime" of the polity, the "laws", in the sense of fundamental constitutional laws, are relatively important, in contrast to e.g. monarchy ruled by

a perfect monarch where law is unnecessary or

full democracy where any law can be set aside by

a simple majority vote. It should be kept in mind,

however, that Aristotle was quite clear about the scope of laws, just as about the scope of rules in general. "Matters which belong to the sphere of deliberation are obviously ones on which it is not possible to lay down a law" {Politics, 1287b). The best law cannot be a substitute for practical wisdom. Of course, this does not mean that Aristotle urged citizens to ignore the laws of the state whenever their deliberations lead them to prefer a course of action which is prohibited by law. But, in his view, a rule cannot tell the citizen what he has to decide to be a just or courageous man. As stated above, rules have their use if true deliberation is impossible because of circum- stances or as tools to aid true deliberation, by offering a fixed and clear framew^ork to the process of observation and judgement.

Although many writers are sceptical about the importance of corporate codes of behavior, and mission statements in shaping and changing actual practice in the organization, some writers argue that they at least have the potential to support future changes in the nature of the cor-

poration. Parker (1997) suggested that expressions of corporate culture such as mission-statements could be considered as first steps in the direc- tion of the development of true organizational citizenship, involving rights as well as duties for employees. Although he admitted that to treat mission statements as if they were constitutions

would be naive, he points out that "

of organizational democracy might begin from a text that metaphorically mimics an organizational bill of rights" (p. 86). The Aristotelian approach could lead to different suggestions. In the first place, a mission statement could function to make explicit which virtues the managers desire to practice via the organization and how they want their organization to excel among other organizations. Secondly, and perhaps more importantly, the mission statement (or the code of behavior, etc.) could express the rules which should frame the process of deliberation.

. a practice

including, for instance, rules on how far the decision maker(s) should go in investigating the

interests of inside and outside stakeholders before making a decision and rules on how much ofthe process of deliberation has to be made explicit and public, so that individual decision makers can

be held responsible by other stakeholders, if not

legally, than at least morally. As referred to above. Freeman (1994) recom- mended including basic principles in corporate

constitutions or in corporation law. His first prin- ciple stated that the corporation should be managed in the interest of stakeholders. The

second and third principle state: "

of the company should have the duty of care to

use reasonable judgement to define and direct the affairs of the corporation [in accordance with the first principle]; Stakeholders may bring an action against the directors for failure to perform the required duty of care" (Freeman, 1994, p. 417). Freeman's suggestion seems similar to the one proposed here but there is an important dif- ference. Freeman's principles exact a duty of careful deliberation of decision makers, or at least of directors, with the aim of safeguarding stakeholders' satisfaction. The approach advo- cated here makes stakeholders' satisfaction, and procedural rules which open decision makers' deliberations to the scrutiny of unsatisfied stake- holders, instrumental to the goal of having the decision makers behave virtuously.

. directors

7. Conclusions

Stakeholder theory has a prominent place in current ideas about business ethics. If normative stakeholder theory is to mature further, at least three issues seem in want of further attention. First, making the non-instrumental ethical prin- ciples more explicit, taking a position with

respect to what one considers to be good in itself,

a final end and not a means to something.

Aristotelian ethics makes this foundation quite clear: the final end is the human life in which

human capabilities can be optimally realized in

all relevant spheres of experience. Th e complete

human life explicitly includes making decisions

on issues that have to do with the interests of

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other humans and necessitate the application of practical wisdom. In modern corporations making decisions is usually the province of (senior) managers. An Aristotelian approach to business ethics would therefore focus on allowing these potential good men or women to become actual good men or women. Looking at organi- zational politics as an essential feature of organi- zations and not as an aberration also serves to emphasize the fact that managers do not use their power neutrally and unproblematically (Hardy and Clegg, 1996) but in accordance with their virtues of lack of them. This leads to an unusual perspective on normative stakeholder theory. In this perspective, the existence ofthe corporation and its interaction with its stakeholders become instrumental to the manager's desire to act virtuously, according to ethical norms. It also gives a significant role to organizational politics because the corporate "constitution" - organi- zational institutions and procedures and particu- larly the actual distribution of power in the corporation - has to allow the manager sufficient scope to practice his practical wisdom; the manager has to be suflBciently empowered to confront ethical dilemmas. Incidentally, the more the constitution of the corporation allows outside stakeholders to play a part in organizational politics, the more can it be expected that society at large will benefit from the actions of a cor- poration led by virtuous managers. But this is an incidental, but happy, outcome because in the Aristotelian framework, the end is the good life ofthe individual decision-maker, not the welfare of the corporation or of society. Although, to round off this point, it could be argued that both corporation and society have to enjoy at least a minimum of well-being to allow managerial decision-makers to function at all. A second problematic issue in modern stake- holder theory is that even where ethical princi- ples are proposed in connection with stakeholder theory, it remained hard to specify the content of the norms in such a way that they could provide a firm foundation for corporate behavior. The Aristotelian approach certainly does not solve this problem completely. However, Aristotle's systematic method to demarcate spheres of ethical experience, spheres in which

values can be expressed as virtues, can also be applied to business ethics. Identifying stake- holders and their interests in a more systematic fashion could be a means to identify significant spheres of experience, and specify further the meaning of the virtues the decision maker should strive to acquire and to exercise. As has been discussed above, the relative weights attached to the virtues can vary from one society to the next and the nature of the good man or the good manager will vary accordingly. However, the nature of the Aristotelian virtues themselves is

non-relativistic. For instance, greed is not a virtue, even if a particular society seems to treat

it as such.

The third issue is the relation between indi- vidual and corporate responsibility. Although

most scholars in the field of ethics hesitate to ascribe moral responsibilities to collectives, much of current stakeholder theory tends to focus on corporate responsibilities and gives httle attention to the role of individual decision makers, and their personal responsibilities. The Aristotelian approach focuses on individual responsibilities. The good man of practical wisdom should not hide his deliberation behind

a corporate facade. The preceding section con-

tained some suggestions about the use of mission statements or codes of behavior to enforce or at least encourage courageous and responsible behavior. Of course, the best mission statements and the best corporate constitution are by themselves insufficient to make managers act virtuously. Education is of crucial importance. The fact that in classical Greece only the rich few had the leisure and wealth to receive the necessary edu- cation to become good men is Aristotle's main reason to prefer government of the few, in a restricted democracy, over that of the (unedu- cated) many. In his view, only a well-educated man can become a liberal gentleman who acts politically out of generosity. Therefore, Aristotle devotes a sizeable part of the Politics to the question how the citizen should be educated. Aristotle's precise recommendations are not of much use to reform the curriculum of modern Schools of Management. However, the approach presented in this paper clearly implies that

Normative

Stakeholder Theory and Aristotle

341

prospective managers should be educated to understand that management means not applying rules but serious deliberation and that delibera- tion means being liberal with one's self in the sense that one is willing to show, in the practice of making decisions involving the interests of different stakeholders, what kind of a person one is.

Acknowledgements

The author wishes to thank Wynand Bodewes, Bart Nooteboom, Ben Wempe, and two anony- mous referees for their helpful comments on earlier versions of this paper.

Notes

' Page numbers in references to and quotations from

Aristotle's works are, as is comm^on, the page numbers

in the 1831 Bekker edition. Quotations from the

Nicomachean ethics are as translated by W.D. Ross, revised by J. L. Ackrill and J. O Urmson, Oxford & New York, Oxford University Press, 1980; from the

R . F.

Politics as translated by E. Barker, revised by

Stalley, Oxford & New York, Oxford University Press,

1995.

^ As often, significantly disagreeing with Plato who,

at least in The Republic, seems to prefer oligarchy over dem^ocracy if forced to choose between perverted constitutions.

' God, to Aristotle, is rather different from the

Judeo-Christian Deity. Contemplation is His only

activity.

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