For the last 30 years or so, the field of business ethics has been dominated by the so-called “stakeholder” theory of the business firm. This domination is so obvious that it prompted two prominent scholars in the field to suggest “stakeholder theory has become a vampire in the field…It has begun to feed on any living body or idea that crosses its path” (Orts & Strudler, Reference Orts and Strudler2009). In this context, scholars are in an increasingly frustrating position in which any interesting idea in management or business ethics can ultimately be restated in the language of stakeholder theory. In such context, Samuel F. Mansell’s book, Capitalism, Corporations and the Social Contract: A Critique of Stakeholder Theory, in which he proposes a critique of stakeholder theory, is welcome. There is a need for theoretical works helping the business ethics community move away from this comfortable (and frustrating, for some) stance and move towards new, fresh directions.
Stakeholder theorists typically aim to rethink the purpose of corporations by arguing they ought to act as vehicles to promote the interests of a wide range of stakeholders groups. Mansell’s main goal in this book is to articulate a “critical analysis of the consistency of this position” (2013: 3) and to propose what he refers to as a contractual and commercial conception of corporations, one that recognizes the crucial role the market plays in thinking about the purpose of corporations. In order to do so, he attempts to expose the “ethical framework” implied by a market economy, a framework that, according to him, most stakeholder theorists would accept. The attempt to unveil the ethical framework that is underlying a market economy leads Mansell to two main principles: 1) a property principle, which states an individual right to the ownership of external objects; 2) a contract principle, which involves the rights and duties of entering a contract. These two principles, not a commitment to serve the interests of affected stakeholders, should serve as that basis for a sound, normative theory of corporate purpose.
One of the main questions asked in this book is whether corporations should be viewed, for the purposes of stakeholder theory, as a “public” entity, defined as an entity with sovereign power over its stakeholders, or simply as a private association. This is an important issue since many scholars, including not only stakeholder theorists but also proponents of “political CSR,” now attempt to re-describe corporations as being some sort of “public” or “political” entity. And the debates are not purely scholarly ones. In the recent Citizens United ruling by the U.S Supreme Court, the conservative majority insists on understanding corporations as “private associations” of citizens. It is therefore extremely important for scholars to engage seriously in these debates and to provide tools to think clearly about the very nature of corporations; the implications might be quite significant for our legal and ethical thinking.
Mansell is skeptical and wants to reinvigorate what he calls a “contractual and commercial” conception of corporations, and as such, they should be viewed as commercial entities that trade with their stakeholders in a competitive market (2013: 109). In order to make this point, Mansell contemplates various ways to think about corporations as public entities, having sovereign power over their constituencies. Drawing here on insights from Rousseau, Hobbes, Rawls and various authors from the contractarian tradition, he aims to expose the underlying philosophical foundations of stakeholder theory, which he associates with this tradition broadly defined. Many parts of the book consist of analysis of how social contract theorists might help us, or not, thinking normatively about corporations and their main purposes.
Mansell’s main goal is to frame the debates surrounding stakeholder theory in such way that stakeholder theory is understood by its proponents as simply the result of applying social contract theory directly to the management and governance of corporations. And since Mansell ultimately wants to reject the straightforward application of social contract theory to corporations, he seems to be well-equipped to criticize stakeholder theory and propose an alternative view.
It is hard, however, not to be skeptical here. Is it really what stakeholder theorists and other “political” theorists of corporations are trying to achieve? Does stakeholder theory ultimately rest on a simple (and rather simplistic) “application” of the social contract theories of Hobbes, Bodin and Rawls to corporations? Do we really need to tell such a normative story about the foundations of stakeholder theory? It seems possible to answer “no” to these questions. While stakeholder theorists do not necessarily need to be opposed to social contract theory and can use it in a fruitful way, as Donaldson and Dunfee (Reference Donaldson and Dunfee1999) famously did, they do not need to rely exclusively on it. They can, as Mansell himself recognizes, focus on the importance of protecting the public interest. They can also try to ground their approach on a concern for distributive justice and norms of democratic equality. And even when they recognize the usefulness of the contractarian approach, they seem to refer not to a broad hypothetical “macro” contract between the citizens of a state, but to a smaller set of “micro” (and actual) contracts among different members of the corporation (something that Mansell also recognizes). It seems problematic to claim that most stakeholder theorists argue that a corporation is a sovereign entity with power over its stakeholders.
In the case of theorists working in the area known as “political CSR,” things are even clearer. It seems obvious that Crane and Matten (Reference Crane, Matten and Moon2008), Scherer and Palazzo (Reference Scherer and Palazzo2007), Glen Whelan (Reference Whelan2012) and others have done an excellent job highlighting the complex “political” nature of corporations without doing the kind of theoretical work that Mansell is examining. They did so without applying the work of Hobbes or Rousseau and classical accounts of the “general will,” the state of nature, Rawls’ original position, and so on.
Again, these are obviously important and rich theoretical frameworks, but ones that the author ultimately rejects and, most importantly, that stakeholder theorists do not really need. It seems plausible to make sense of many basic stakeholder intuitions without using Hobbes or Rousseau. Thus, despite the author’s claim that stakeholder theory is situated within such tradition, the reader is left wondering what role those long discussions of social contract theories play.
In fact, by framing the debates in such a way, it is tempting to think that Mansell is taking stakeholder theory too seriously, which is understandable since it is so popular and dominant in the field of business ethics. This makes it inviting to ground it in in some grand theory. However, as R. Edward Freeman and others mention, stakeholder theory can also be described as a managerial “frame of mind” or a “mindset”. And this seems to be the way stakeholder theory is actually used in management circles. Perhaps this is the best way to take stakeholder theory seriously, but not too seriously.
Mansell’s approach also evidences some technical problems. For instance, John Boatright is presented as a vigorous proponent of stakeholder theory. This is surprising, to say the least, since Boatright (Reference Boatright2006) might be suitably described as the most sophisticated proponent of the shareholder primacy theory. Such framing problems (both general and technical) represent a limitation of this book.
These are reasons to read Mansell’s account of stakeholder theory with a critical eye. What about his own alternative proposal? As mentioned above, Mansell’s conception of corporations as “contractual and commercial” entities relies on the “implicit” ethical framework underlying the market system. It is worth emphasising that Mansell is mainly concerned with trade, which explains his sole focus on the contract and property principles. However, another crucial component of a market system beyond trade is competition. One could think therefore that the implicit “ethical framework” of a market system should contain ethical principles and norms derived not only from trade but also from the competitive or “adversarial” nature of the market.
This is precisely what recent works by Joseph Heath (Reference Heath2014) and Wayne Norman (Reference Norman2012) do while also remaining skeptical of stakeholder theory. Drawing on Christopher McMahon’s (Reference McMahon1981) work, Heath and others attempt to unveil the various components of an “implicit morality of the market,” but they do so by focusing on the competitive nature of markets. Putting the emphasis on the public policy goals of promoting Pareto-efficiency and eliminating (or correcting) market failures such as negative externalities, these works aim to expose the ethical constraints that follow from a commitment to the efficiency of competitive markets. The result is a complex account of a quite demanding ethics of competition that helps us to think more clearly about the complex challenges we face while attempting to design deliberately adversarial economic settings.
Once we have these considerations in mind, the implicit “ethical framework” of the market looks more complex. From such a perspective, an account of the ethical framework of the market that focuses solely on property and contract will remain incomplete if it does not take more seriously its adversarial features. However, despite his attempt to take the market seriously and to describe the corporation as being mainly a “commercial” entity evolving in market settings, Mansell remains silent about these concerns.
A healthy departure from the domination of stakeholder theory in business ethics is probably welcome, especially if it also avoids a simple celebration of the shareholder primacy model. Mansell’s book is an initial, useful step into this direction, but there are some concerns about the way the author frames the recent debates.
