R. Edward Freeman and Robert A. Phillips
Abstract: The purpose of this paper is to suggest that at least one strain of what has come to be called "stakeholder theory" has roots that are deeply libertarian We begin by explicating both "stakeholder theory" and "libertarian arguments " We show how there are libertarian arguments for both instrumental and normative stakeholder theory, and we construct a version of capitalism, called "stakeholder capitalism," that builds on these libertarian ideas We argue throughout that strong notions of "freedom" and "voluntary action" are the best possible underpinnings for stakeholder theory, and in doing so, seek to return "stakeholder theory" to its managerial and libertarian roots found in Freeman (1984).
/. Introduction ^"^uine (1960) once wrote that "sentences do not confront the tribunal of V^expe 'experience alone." And, he might have added, "nor do arguments and theories?' Sentences, as well as arguments and theories, always import their background conditions and related theories with them. Context plays a crucial role in social phenomena, and sometimes we need to resist the efforts of greedy reductionists (Dennett. 1995)' to set context aside and focus on the precision of hypotheses, the collection of data, and the rituals of method. Sometimes it is important to point out a feature of the everyday landscape which is often taken for granted, because in doing so, we can come to see new relationships and new features that previously were hidden (Wisdom, 1970),^ Such is the role of what has come to be called "stakeholder theory," and its relationship to our understanding of business activity. The interpretation of business activity can be approached in several ways. One way is to take for granted the usefulness (others might say "truth" or "moral legitimacy" here) of a way of understanding value creation and trade (or business activity), whereby individuals are presumed to be nakedly greedy, responsible to others for the effects of their action only in so far as they are caught doing harm, and the legitimacy of a state that pervasively regulates all aspects of value-creation and trade, from rules governing the height of ladders to thousands of pages of the tax code. Let us call this way of understanding value © 2002 Business Ethics Quarterly Vblume 12. Issue 3. ISSN I052-150X pp 331-349
BUSINESS ETHICS QUARTERLY
creation and trade, or business activity, "the Standard Story" or "Shareholder Capitalism," or "Cowhoy Capitalism," and let us make the requisite academic changes and disclaimers to include sophisticated agency relationships, transaction costs, and other assorted modifications of the standard story so as not to be accused of the Straw Man Fallacy. Within business ethics it is fairly well accepted that the standard story is the main way that we understand business and capitalism. A great deal of interesting work has emerged that tries to point out various places where the standard story fails a variety of ethical tests.^ These ethical tests are, for the most part, developed outside of the standard story, and indeed, outside of much consideration for value creation and trade, or business activity, at all. Yet another group of scholars has developed a critique of the standard story that goes like this. The standard story is fine as far as it goes, but it doesn't go far enough. We need to add the idea that the collections of individuals that we call "corporations" need to understand the social effects of their actions. And, we need to link the social effects of corporate action to the economic effects. The background conditions and theories of the standard story simply need to be broadened to include a set of ideas about "social" and its link to "economic.""* Yet another way to understand business activity would be to change the background conditions of the standard story itself. Such a method might ask how value...