Business Ethics

Topics: Ethics, Business ethics, Fiduciary Pages: 24 (7647 words) Published: January 9, 2013
Abstract: Much has been written about stakeholder analysis as a process by which to introduce ethical values into management decision-making. This paper takes a critical look at the assumptions behind this idea, in an effort to understand better the meaning of ethica] management decisions. A distinction is made between stakeholder analysis and stakeholder synthesis. The two most natural kinds of stakeholder synthesis are then defined and discussed: strategic and multi-fiduciary. Paradoxically, the former appears to yield business without ethics and the latter appears to yield ethics without business. The paper concludes by suggesting that a third approach to stakeholder thinking needs to be developed, one that avoids the paradox just men* tioned and that clarifies for managers (and directors) the legitimate role of ethical considerations in decision-making. So we must think through what management should be accountable for; and how and through whom its accountability can be discharged. The stockholders' interest, both short- and long-term, is one of the areas. But it is only one.

Peter Dnicker, 1988 Harvard Business Review


HAT is ethically responsible management? How can a corporation, given its economic mission, be managed with appropriate attention to ethical concerns? These are central questions in the field of business ethics. One approach to answering such questions that has become popular during the last two decades is loosely referred to as "stakeholder anaiysis." Ethically responsible management, it is often suggested, is management that includes careful attention not only to stockholders but to stakeholders generally in the decision-making process. This suggestion about the ethical importance of stakeholder analysis contains an important kernel of truth, but it can also be misleading. Comparing the ethical relationship between managers and stockholders



with their relationship to other stakeholders is, I will argue, almost as problematic as ignoring stakeholders (ethically) altogether—presenting us with something of a "stakeholder paradox." Definition The term "stakeholder" appears to have been invented in the early '60s as a deliberate play on the word "stockholder" to signify that there are other parties having a "stake" in the decision-making of the modern, publicly-held corporation in addition to those holding equity positions. Professor R. Edward Freeman, in his book Strategic Management: A Stakeholder Approach (Pitman, 1984), defines the term as follows: A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization's objectives. (46)

Examples of stakeholder groups (beyond stockholders) are employees, suppliers, customers, creditors, competitors, governments, and communities. Exhibit 1 illustrates one way of picturing the conventional stakeholder groups along with the two principal channels through which they often affect the corporation, law and markets. Another metaphor with which the term "stakeholder" is associated is that of a "player" in a game like poker. One with a "stake" in the game is one who plays and puts some economic value at risk.^ Much of what makes responsible decision-making difficult is understanding how there can be an ethical relationship between management and stakeholders that avoids being too weak (making stakeholders mere means to stockholders' ends) or too strong (making stakeholders quasistockholders in their own right). To give these issues life, a case example will help. So let us consider the case of General Motors and Poletown. The Poletown Case"^ In 1980, GM was facing a net loss in income, the first since 1921, due to intense foreign competition. Management realized that major capital expenditures would be required for the company to regain its competitive position and profitability. A $40 billion five...
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