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Chapter 5

A Principle of Stakeholder Fairness

To this point I have argued that the ethical issues that arise at the organizational level of abstraction are sufficiently different from the problems addressed by standard moral and political philosophy to justify an explicitly organizational-level moral theory.¹⁵⁶ I have further suggested—but have yet to argue—that stakeholder theory provides a strong candidate for just such an organizational-level moral theory. In the preceding chapter I pointed out some conceptual shortcomings in need of remedy if stakeholder theory is to adequately serve as a framework for organizational ethics.

In the present chapter I turn to an explication and defense of a principle that fills the conceptual gaps noted in the previous chapter. I argue for a principle of stakeholder fairness based on Rawls’s principle of fair play as a moral foundation of stakeholder theory.

A Principle of Fairness

While H.L.A. Hart is most often credited with the first explicit, contemporary discussion of the idea in 1955,¹⁵⁷ obligations and duties similar to those based on fair play were discussed by John Stuart Mill in 1859.86

When a person, either by express promise or by conduct, has encouraged another to rely upon his continuing to act in a certain way—to build expectations and calculations, and stake any part of his plan of life upon that supposition—a new series of moral obligations arises on his part towards that person, which may possibly be overruled, but cannot be ignored. … A person is bound to take all these circumstances into account, before resolving on a step which may affect such important interests of theirs; and if he does not allow proper weight to those interests, he is morally responsible for the wrong.¹⁵⁸

The principle of fair play finds further elaboration in the works of John Rawls, A. John Simmons, Kent Greenawalt, George Klosko, and Nien-hê Hsieh among many others.¹⁵⁹ Rawls describes the principle as follows:

Suppose there is a mutually beneficial and just scheme of cooperation, and that the advantages it yields can only be obtained if everyone, or nearly everyone, cooperates. Suppose further that cooperation requires a certain sacrifice from each person, or at least involves a certain restriction of his liberty. Suppose finally that the benefits produced by cooperation are, up to a certain point, free: that is, the scheme of cooperation is unstable in the sense that if any one person knows that all (or nearly all) of the others will continue to do their part, he will still be able to share a gain from the scheme even if he does not do his part. Under these conditions a person who has accepted the benefits of the scheme is bound by a duty of fair play to do his part and not to take advantage of the free benefit by not cooperating.¹⁶⁰

Taking this definition as a good starting point, I would now like to analyze obligations of fairness.¹⁶¹ From Rawls’s description we can isolate six qualifications for consideration as a cooperative scheme in which the duty of fair play is operative:87

1. Mutual benefit
2. Justice
3. Benefits that accrue only under conditions of near unanimity of cooperation
4. Cooperation that requires sacrifice or restriction of liberty on the part of participants
5. The possibility of free-riders
6. Voluntary acceptance of benefits of cooperative scheme

My aim in analyzing this definition is threefold: (1) to clarify the implications of the principle of fairness, (2) to show how it may be constructively altered, and (3) to determine the extent to which commercial exchanges may be considered the proper subject of such obligations of fairness.

a. Mutual benefit The idea of commerce as being to the mutual benefit of the participants is as old as economics. Indeed, it is the foundation of the oft-quoted passage in Smith’s Wealth of Nations concerning the butcher, brewer, and baker.¹⁶² In addition, “benefit” need not be a direct personal benefit to the cooperator. Benefit may include other directed desires in addition to purely egoistic ones. For instance, if a person is engaged in a cooperative scheme to obtain a benefit for her child or friend, then the scheme may still be considered mutually beneficial for current purposes.

b. Justice The second requisite feature of an appropriate cooperative scheme is that it be relatively just. As my focus is on the organizational cooperative scheme and there are many who seriously question the justness of free market economies (or at least the capitalist version of it practiced in the United States and much of the world), this condition could have a serious impact on arguments herein. Rawls defends the justness condition by claiming:

It is generally agreed that extorted promises are void ab initio. But similarly, unjust social arrangements are themselves a kind of extortion, even violence, and consent to them does not bind.¹⁶³88

The problem with this line of argument lies in the meaning of extortion. While it may be quite correct that an extorted promise is no promise at all, it does not follow that consent to an unjust individual or organization is necessarily coerced. The analogy of a promise to an unjust person is instructive. It would be mistaken to suggest that a promise to an evil or unjust person results in no obligation to fulfill the promise. Rather, it is the strength of the obligation that can be mitigated or overridden by other (possibly) higher order moral considerations such as a duty to fight injustice. It becomes a matter of adjudicating the relative strength of the obligations and duties.

It may be objected that if the injustice of the institution to which you are ostensibly obligated is always a mitigating circumstance, then is not that the same as justice being a precondition of obligation?¹⁶⁴ Certainly, there may be individuals and organizations that are so thoroughly unjust that any obligation to them runs counter to the duty to fight injustice. This argument is sound, but is subtly different from Rawls’s ab initio argument. The latter argument contains an intervening step in which the degree of injustice is weighed against the power of the obligation—the obligation is outweighed rather than immediately void. Such thorough evil and injustice are, moreover, thankfully rare. It is more typical that a given individual or organization is some mix of just and unjust. The question becomes how unjust an individual or organization has to be for all consent and obligations to them to be considered null and void. This brings the question back to that of adjudicating between the force of obligation and the degree of relevant injustice.

Some may suggest that the entire free-market system is unjust and therefore obligations within such a system are void. Although I do not believe this to be the case, a thorough critique or defense of the free-market system is outside the scope of the current inquiry. It is, moreover, at a different level of analysis than the project of establishing organization level moral obligations. I will simply assert that although certain aspects of free-market economies and specific organizations, in practice, create injustices, this does not serve as a blanket indictment of the entire free-market system nor less still of any particular organization within such a system. Even within the most egregiously unjust system, there may well be organizations and individuals that operate fairly. Obligations to these particular individuals and organizations are important considerations even when operating within an unjust system. Even when they are eventually overcome by other obligations or duties, they are still relevant to this determination.89

Thus, if I voluntarily (i.e., uncoercedly) incur an obligation, then this obligation is relevant to moral decision making regardless of whether fulfillment of the obligation emerges as the most ethical course of action. While organizational or systemic injustice may override obligations, this does not render such obligations immediately void. Justice is relevant to obligations of fairness, but not a necessary precondition to such obligations at the individual or organizational level.

c. Benefits that accrue only under conditions of near unanimity of cooperation There are also strong reasons for doubting the necessity of this precondition for obligations of fairness. If all of the other necessary conditions obtain, it would still be unfair to take the benefits of a cooperative scheme without contribution, even if the benefits could be obtained under conditions of substantially less than unanimity of cooperation (i.e., the benefits could be obtained with only one-half or two-thirds of the people cooperating). Indeed, when the possibility of a great many free-riders exists, obligations of fairness take on an even greater significance.

Rawls includes the unanimity condition because the principle was originally suggested as a grounding for political obligations. In the current context, it is argued that the principle serves to create obligations in commercial interactions. As such, the unanimity condition may be a logical impossibility in this usage as the principle is designed to determine just who should or should not be included in the operative group. Therefore, the question, “unanimity among whom?” is suggested by this condition. If the particular group is unknown or undelimited, it is impossible to know how close the group is to unanimity. This was among the problems with using Rawls’s “veil of ignorance” at the organizational level described in Chapter 3. Hence, this condition is discarded for current (organizational) uses.90

d. Cooperation that requires sacrifice or restriction of liberty on the part of participants In the case of the previous two conditions, I did not seek to determine whether commercial transactions qualified, because the two conditions were found unnecessary in the organizational context. Returning now to conditions of central importance to the idea of fairness, I also return to the effort of ascertaining the extent to which such conditions obtain in the sphere of commercial dealings. When a person engages in a trade, several restrictions on liberty arise. The most obvious example is that of the worker. When she agrees to sell the product of her labor to an organization, she generally must arrive at work on time, stay for a set period, and in general obey the rules and respect the norms of the organization. This clearly constitutes a restriction on the person’s liberty.¹⁶⁵ So, too, is the case with the exchange of property. A property right is nothing more than a right to more or less exclusive use and thus in exchanging property, one actually sacrifices one’s liberty to use that property.¹⁶⁶ Similarly, when a community allows a company to build a plant in its vicinity, it sacrifices its land and many other resources to the cooperative venture with the company, and the company sacrifices some of its capital assets as well. Commercial transactions involve sacrifice and restriction of liberty and thus meet this qualification as a cooperative scheme in which obligations of fairness may arise.91

e. The possibility of free-riders Given the breathtaking amount of research and literature on the problems of free-riders in commercial systems, it is difficult to conceive of what an argument against their existence would look like. I therefore take it as axiomatic that this condition is adequately met in the case of commercial transaction and interaction.¹⁶⁷

f. Voluntary acceptance of benefits of cooperative scheme This condition is vital to the existence of obligations of fair play. It is the voluntary acceptance of the benefits of a scheme that actually create the obligations described. The voluntarist condition, one may notice, is not mentioned explicitly in the passage from the definition. It is, however, present in Rawls’s definition in Theory and is vital to the relevance and viability of the principle.

It is axiomatic that uncoerced consent creates obligations on the part of the consenter and would provide adequate moral justification for such obligations. However, consent is not the only type of activity that may create such obligations. The voluntary engagement in, and acceptance of the benefits of, a cooperative scheme can similarly serve to create obligations of equal strength to the obligations created by consent. Such voluntary actions also provide strong normative justification for such obligations. In addition, such obligations based on fairness may be more useful than consent-based obligations due to the more frequent occurrence of the requisite obligation creating activity. Further, obligations of fairness exist even if the obligation creating implications of such activities are unknown to the actor. This is in contrast to consent-based theories wherein knowledge of the content of the obligation is imperative. Even express dissent cannot diminish the existence of obligations of fairness if the dissenter has undertaken the requisite acceptance of benefits from a cooperative scheme. The idea of voluntary acceptance will become clearer as I proceed.

The final attribute to the principle that is not explicit in Rawls’s principle of fair play is nevertheless vital to the principle of stakeholder fairness. I call this the proportionality condition. As will become more evident during the defense of the principle, the obligation must be proportional with the benefit. Among the criticisms to be addressed is that nothing in the principle of fair play prevents one from being disproportionately obligated to a cooperative scheme while accepting relatively little of the benefit thereof. This is particularly important in the context of establishing obligations among organizations and their stakeholders.92

Though there are several defensible schemes of distribution depending on the goals of the particular institution in question, organizations with commercial purposes and other private associations typically rely on merit or contribution as the appropriate scheme of distribution. As discussed in Chapter 3, the principle of stakeholder fairness is intended to apply to such private associations. Therefore, I have made explicit the idea that obligations are proportional to benefits.

I conclude on the basis of the previous discussion that commercial transactions do indeed qualify as cooperative schemes and, further, that these schemes admit of obligations of fairness. Therefore:

Whenever persons or groups of persons voluntarily accept the benefits of a mutually beneficial scheme of co-operation requiring sacrifice or contribution on the parts of the participants and there exists the possibility of free-riding, obligations of fairness are created among the participants in the co-operative scheme in proportion to the benefits accepted.

As a caveat, it is logical that obligations of fair play would be reciprocal. Indeed, Rawls considered the concept of reciprocity central to his own work.¹⁶⁸ I will write mostly of the obligations owed by organizations to stakeholders; however, these obligations (nearly) always cut both ways. Where the firm has an obligation to a stakeholder group, the stakeholder group also has an obligation to the firm—although the strength and content of the obligations may vary. Further, inasmuch as the first qualification for the existence of such obligations is “mutual benefit,” it follows that the obligations would also be reciprocal.93

It might be objected at this point that the relationships described are legal and/or contractual ones and that little or nothing is added through allusion to stakeholder obligations. That there is a vast amount of regulation, legislation, and legal precedent attendant to the relationships between organizations and stakeholders is conceded. This does not lead to the conclusion that stakeholder obligations are redundant or meaningless. In fact, fairness-based stakeholder obligations may be the normative motivation for much of this law, though I shall not attempt to argue for this here. Contracts are notoriously incomplete. Employment contracts cannot possibly state in advance every duty of an employee, even at the lowest levels of the organization. Some stakeholder relationships are not the subject of formal contracts. Many small transactions with customers do not require contracts. Nor are the organization’s obligations to local communities always the subject of a formal contracting process. The concept of noncontractual relationships with derivatively legitimate stakeholders (i.e., stakeholders whose status is derived from their power to affect others for good or ill) is discussed in the next chapter.

In addition to independent standing as moral obligations alongside contracts, fairness-based moral obligations to stakeholders may be considered interstitial. They fill in the gaps left underdetermined by the legal system. These are moral obligations that add richness and detail to the thin, formal relationships established in contracts and other legislation and regulation. While the legal system dictates much about stakeholder relations, there is still much left to the moral discretion of managers and administrators. The principle of stakeholder fairness provides a moral basis for directing this discretion. 94

Obligations

A vital feature of the principle of stakeholder fairness is the technical meaning of the term obligation. As such, it is important to note what is meant by obligation in the current context and how obligations are different from other moral concepts such as duty. This distinction is vital to the two-tiered approach necessary to organizational ethics discussed in Chapter 3.

Obligation, as the term is used here and following Hart, Rawls, and Simmons,¹⁶⁹ carries a somewhat technical meaning. An obligation is characterized by four conditions:

1. An obligation is a moral requirement generated by the performance of some voluntary act (or omission).
2. An obligation is owed by a specific person (the “obligor”) to a specific person or persons (the “obligee[s]”).
3. For every obligation generated, a correlative right is simultaneously generated.
4. It is the nature of the transaction or relationships into which the obligor and obligee enter, not the nature of the required act, which renders the act obligatory.

Taken in order, the first condition is vital in discussions of stakeholder theory because stakeholder status, if it is to be meaningful, must indicate some degree of additional moral consideration from the organization and its managers over and above that due all humans as humans. This additional moral consideration arises from the voluntary, obligation-generating act of cooperatively creating and accepting benefits or goods of some kind.

The voluntary omission in the first condition refers to, for example, the failure to speak under conditions where one’s silence indicates consent. A meeting where the leader says, “We will meet Monday at 5:00 unless there are objections,” is an occasion when silence or omission means having consented to the meeting and having created an obligation to be there.95

The second condition (an obligation is owed by a specific person to a specific person or persons), similar to the first condition, indicates that an obligation implies a specificity of the parties involved as opposed to a duty that is due all. Both the first and second conditions can be contrasted with “duties,” which are owed by all to all simply by virtue of being human. In the case of obligations, however, specifiable acts create the obligations and specific parties to the obligations.

This second condition should not be misunderstood as a requirement of methodological individualism. That is, it should not be read as excluding collective entities from being either obligors or obligees. The “specific person or persons” conditions is to be contrasted with the “all people” nature of duties rather than with “groups of people.”

The third condition is rather straightforward. The creation of an obligation also creates a right on the part of the obligee to fulfill the obligation. Rights are also, however, correlative with duties owed to all (e.g., human rights). As such, to avoid confusion of this and other sorts, this book will have little discussion of rights.

Lastly, the existence or nonexistence of obligations is not based on content of the obligation, but the obligating act itself. For example, I am under no obligation to not murder you (although I obviously have a duty to not murder you and you have a right not to be murdered) unless I state, “I hereby promise to not murder you,” at which point I incur the obligation. Note that it is not the nature of the act of murdering that created the obligation, but the nature of the act of promising.

The preceding discussion of the nature of obligations is important for two closely related reasons. First, the distinction between obligations and duties described by the first two conditions help to respond to the problem of stakeholder identity—the problem raised and exemplified by the discussion in Chapter 7 of the stakeholder status of the natural environment. Secondly, obligations of the type described provide the backbone for a fairness-based stakeholder framework from which claims of stakeholder status for the natural environment will be analyzed. It is to the fairness-based approach that I shall now return for a description of those parts of the model that bear on the current topic.96

Summarizing the arguments to this point, I have argued that an amended principle of fairness that I call the principle of stakeholder fairness is operative in all contexts of commercial interaction. Hence, obligations of fairness exist between and among an organization and its stakeholders. The principle of stakeholder fairness thereby provides a normative justificatory framework for stakeholder theory. In the next section I discuss some objections to the principle and compare the fairness-based stakeholder framework to another justly well-known theory of organizational ethics. In the process I hope to further clarify the principle and its operation as well as suggest some theoretical advantages that it may hold over other theories.

Defending Fairness

While many have criticized the principle of fairness as a grounds for the political obligation for which it was originally intended,¹⁷⁰ Robert Nozick argues that it fails as a moral principle in every context.¹⁷¹ His arguments are answerable with the addition of the voluntary acceptance condition and the distinctions it makes possible. Nozick begins with the following example of his interpretation of the principle of fairness:

Suppose some of the people in your neighborhood (there are 364 adults) have found a public address system and decide to institute a system of public entertainment. They post a list of names, one for each day, yours among them. On his assigned day (one can easily switch days) a person is to run the public address system, play records over it, give news bulletins, tell amusing stories he has heard and so on. After 138 days on which each person has done his part, your day arrives. Are you obligated to take a turn? You have benefited from it, occasionally opening your window to listen, enjoying some music or chuckling at someone’s funny story. The other people have put themselves out. But must you answer the call when it is your turn to do so? As it stands, surely not. Though you benefit from the arrangement, you may know all along that 364 days of entertainment supplied by others will not be worth your giving up one day… Whatever you want, can others create obligations for you to do so by going ahead and starting the program themselves?…97

At the very least one wants to build into the principle of fairness the condition that the benefits to a person from the actions of others are greater than the cost to him of doing his share.¹⁷²

Nozick uses this and another example of people who thrust books into your living room and subsequently demand payment for the books as arguments against the principle of fairness. Nozick’s examples suffer, however, from a serious misinterpretation and confusion concerning the operation of the principle. In these examples, the person Nozick finds exempt from obligations of fairness may indeed be exempt from such obligations (or subject only to a lesser degree than others). But it is not due to the failure of the principle in general, but rather to Nozick’s conflation of voluntary acceptance and mere receipt of benefits. In the cases he cites, the relevant people are, to use Simmons’s phrase, “innocent bystanders” and not members of the cooperative scheme in the appropriate sense.

In the examples described, the scheme has been built up around the person in question making the person, therefore, not a party to the scheme in the appropriate sense. The person has not acted in such a way as to be interpreted as having voluntarily accepted the benefits in question. The person neither tried to get (and succeeded in getting) the benefit nor took the benefit willingly and knowingly.¹⁷³ Instead, the person has merely received the benefit of others’ sacrifice through no action of his own. In such a case a person indeed has no special obligation of fairness vis-à-vis the particular scheme in question; this does not, however, tell against the principle in general, because the example is based on a misunderstanding of the principle and its conditions.98

It would not, however, be entirely accurate to say that the person in the PA system example has no obligations. Recall that Nozick says, “You have benefited from it, occasionally opening your window to listen, enjoying some music or chuckling at someone’s funny story.” Arguably, this activity—opening the window and enjoying—may indeed create obligations of fairness on that person’s part. The obligations may not be of the same magnitude or content as the obligations that the organizers and real PA aficionados hold by virtue of these latter receiving greater benefit from the scheme; but obligations exist nonetheless. Thus, while some people may be obligated to give more than one day, the person in the example may only be required to contribute several hours to the scheme with the content of the obligation based on the benefit received. This is consistent with the equitable proportionality and meritocracy condition in the principle of stakeholder fairness.

Finally, Nozick ends his treatment of the fairness principle by stating:

Hence, even if the principle could be formulated so that it was no longer open to objection, it would not serve to obviate the need for other persons’ consenting to cooperate and limit their own activities.¹⁷⁴

Nozick is here expressing the idea that obligations based on fairness devolve into or require some form of consent and thus offer nothing new in moral theory. In a later section I will contrast obligations of fairness with consent-based obligations—to show that Nozick is mistaken on this last count. The principle of fairness is indeed different from consent and creates obligations that are no less binding than those based on such consent. In fact, I will show that obligations of fairness may render consent redundant in some cases.

To summarize, objections to the principle of fairness such as those of Nozick are based on a misunderstanding of the principle itself. Nozick’s “innocent bystander” objections do not take proper account of the volitionality condition of the fairness principle and therefore do not count against it. It is the fact that the benefits are voluntarily accepted that renders the obligation.99

Fairness and Consent

Scholars of both political theory and organizational ethics have attempted to account for the obligations of individuals and associations, respectively, through the use of what they term “tacit” or “implicit” consent. There is, of course, some reason for the initial belief that obligations of fairness are the same as actual or tacit consent. For one thing, many of the situations that would ordinarily give rise to obligations of fairness are also often characterized by a consensual relationship. This would be the case especially at the inception of a given cooperative scheme wherein it is the original cooperators who initiate, participate in, and gain the benefits of the scheme. In cases such as these, characterized by actual mutual consent, obligations of fairness would indeed be redundant and superfluous although extant nonetheless. However, obligations do arise within cooperative schemes quite apart from consent. In fact, obligations of fairness may exist even in the face of express dissent if the person or group in question does indeed successfully and voluntarily undertake to receive the benefits of the scheme.

An example may help clarify the difference between the principle of fairness and consent. Suppose that workers in an office agree that they all enjoy coffee, tea, and small snacks and wish to establish a breakfast club. Each person is expected to contribute a set amount to the venture each week for the purchase of the necessary goods. At the beginning of the breakfast club, those who wish to join the venture consent to become members and to contribute their share. Further, after some time others may wish to join the breakfast club, thus consenting to future contributions. All the people to this point have obligations based both on consent and fairness to do their share. However, we may further suppose that there is a person in the office who is a known coffee lover who, though invited, declined to join the breakfast club at its inception saying, “This is a ridiculous idea and I will never consent to such a scheme.” Once the venture was successfully underway, however, she is often seen taking coffee and occasionally a doughnut. She is even overheard walking down the hall shouting, “You people needn’t think that this means I’m consenting to your scheme. I still think the idea of a breakfast club is absurd and I’ll not join in.” This person clearly refuses to consent, but does she not still incur obligations to the scheme? Despite the absence of an act of consent, she has engaged in a voluntary action that creates equally strong obligations based on the principle of fairness.100

Some may still wish to argue that the activity requisite for the creation of obligations of fairness (e.g., taking the coffee from the co-op) amounts to nothing more than tacit or implicit consent. That is, by partaking of the benefits of the scheme one has tacitly or implicitly consented to doing her part in the scheme and, therefore, the obligations of fairness remain nothing more than a special kind of consent. This is the stance taken in recent work by Donaldson and Dunfee on their Integrative Social Contracts Theory (ISCT). The next section further clarifies the conception of tacit consent and other pertinent issues raised by Donaldson and Dunfee’s important work.

Fairness and Integrative Social Contracts Theory

In two essays and a book, Donaldson and Dunfee describe and defend their ISCT.¹⁷⁵ In addition to helping us better understand the preceding discussion of tacit consent, ISCT also contains many other points of interest for comparison with the fairness model and therefore merits a rather close inspection in the current context. This section will consist of a brief summary of ISCT, a brief critique of the idea of tacit consent in ISCT, and an analysis of Donaldson and Dunfee’s treatment of the principle of fairness. 101

ISCT ISCT is a two-tier hypothetical social contract conception for the modeling of organizational and commercial morality. On this account, there is first a macro social contract that binds for all people in all societies. This macro social contract is similar to many others in that it should describe what people in a suitable initial situation such as Rawls’s original position would rationally agree to. This much is standard social contract theory.

Donaldson and Dunfee go on to describe their micro social contract that they take to be communitarian in nature. That is, the macro social contractors will insist on “moral free space” in their commercial (and presumably other private) dealings and as such will allow some latitude in the establishment of ethical criteria within the myriad commercial and other communities. The more specific agreements concerning the ethics of these various communities are the subject matter of the micro social contracts. The ethical norms dictated by the micro social contracts are, however, subject to their compatibility with the “hypernorms” of the macro contract as well as being subject to various priority rules for arbitrating between community norms.

Although the fairness theory discussed here has several commonalties with ISCT, they differ importantly regarding the source of moral obligations. ISCT relies heavily on the idea of tacit consent and an examination of this concept is vital to illuminate the difference between the two theories.

Tacit Consent Donaldson and Dunfee are not insensitive to the objections that have been raised regarding tacit consent.

Consent to membership in a community can derive from an express contractual commitment as in the case of entering into an employment contract with a term of years, or it may just involve participating in a group.… Consent may thus be found in an express commitment to membership in a community, but it may also be implied from an individual’s actions in participating in a community. … In many instances, one may implicitly consent to membership by making instrumental use of a community.¹⁷⁶102

In political theory, tacit consent has been severely criticized as a basis for political obligation, as has reliance upon attitudinal factors in finding tacit consent (Simmons, 1979, generally at p. 93).… Indeed, reliance upon attitudinal factors in discussing norms and conventions is supported by the literature.¹⁷⁷

The criticisms to which they refer hinge on the distinction between acts that are “signs of consent” and acts that “imply consent.”¹⁷⁸ Acts that can be taken as “signs of consent” constitute actual express consent, but are not restricted to positive action. Thus, actions such as the statement, “I consent to be a part of scheme X” may be considered a sign of consent as may silence in the appropriate context. For instance, when the person presiding over a wedding asks, “Is there anyone here who objects to this marriage?” then silence in this context would be a sign of consent. Tacit in the sense of “signs of consent” refers to how the consent is expressed rather than the absence of expression. Donaldson and Dunfee are after something like the example of “silence as consent” in the note on fairness that will be discussed shortly.

Acts that imply consent, on the other hand, are actually no consent at all. Rather, they may be either acts that demonstrate a favorable attitude toward the prospect in question or acts that induce obligations similar to those induced by genuine express consent (e.g., obligations of fairness). The attitudinal form of consent involves actions that lead one to believe that, were the appropriate conditions to obtain, the actor would (or would have) indeed consent(ed). Donaldson and Dunfee write:

[W]hen there is a question concerning whether an action implies consent, it is appropriate to use further means, such as scientific surveys of attitudes, to determine whether consent is genuine.… Under ISCT, the ultimate test is whether or not one has sufficient association with a community to allow for an attribution of moral obligation. This may be based on a formal, contractual connection, but it may also be based on entering into a transaction environment in which one acts within the boundaries of a self-recognized group and participates to fulfill some particular desire…. It might be the case, for example, that a community might excuse the elderly or infirm from certain obligations of membership, effectively on the grounds that there is insufficient reason to assume consent to authentic norm obligations (emphasis added).¹⁷⁹103

No genuine act of consent has been performed under these circumstances. Rather it is the opinions and conclusions of others that dictate that the actor has obligated herself. This is contrary to the Hart/Rawls/Simmons understanding of “obligation” employed here according to which a voluntary action by the obligated entity is required. Consent is not something that others assume for us based on our attitudes.

This attitude-based implied consent runs afoul of Nozick’s “book thrusting” example. One may enjoy the books thrown into her living room, she may even appreciate the delivery service, but there is no obligation generated to pay for the books. One must perform some action or appropriate omission to be obligated, rather than have an obligation imputed by a survey. Actual consent is such an act, but barring that, Donaldson and Dunfee require something like the principle of fairness to generate an obligation. They come close to the principle of stakeholder fairness in describing “the ultimate test” for ISCT: “[S]ufficient association” sounds much closer to a fairness-based obligation than a consent-based one. I briefly compare the implied consent of ISCT with fairness-based obligations in this chapter.

Donaldson and Dunfee’s final defense against these arguments over tacit consent is that of minimizing the importance of the distinction between actual and tacit consent. 104

The original macro contractors who rely upon consent are not seeking to justify coercive power on the part of the state, or the imposition of severe punishments. Instead they are concerned with ethical standards in business; normative principles whose enforcement will be through informal sanctions and mechanisms.¹⁸⁰

But, the commercial sphere of life in the early twenty-first century is every bit as important as the political if not more so as multinational corporations extend beyond any geopolitical boundaries. Indeed, the current political environment is often driven by considerations of a commercial nature. Further, it is unclear how the relative importance of the context in which obligations arise has any bearing on which type of actions constitute express consent, which create obligations of other kinds, and which create no obligations at all.

Employing a similar strategy, they write: “In most of the basic cases of business ethics, we do not believe that this issue of consent to membership is a serious problem. Employees are bound by legitimate corporate morality. . .”¹⁸¹ How employees come to be so bound is precisely the question at issue. The repeated response of minimizing the relevance of consent is a dubious one—especially in light of the centrality of consent to the overall project of ISCT (according to the index, consent appears over forty times under eight different headings in Ties That Bind).

ISCT and Fairness Although the evidence of it lies in a note, Donaldson and Dunfee are aware of the possibility of obligations of fairness.

Fair play has been recognized as a supplemental justification for obligation in political theory and in law (Greenawalt, 1989) and, particularly in the context of ethics in economic life, it can represent an important justification for basing obligation on consent to membership, buttressed by a right of exit. We assume that the participants in the macro social contract are willing to allow for consent to norms to be implied when individuals are making instrumental use of economic institutions. Therefore, the macro social contract announces in advance the circumstances under which consent will be implied. Such an approach combines fairness with a notice-based approach to consent. Individuals are given advance notice that consent will be assumed in certain circumstances. Therefore, if they act in a manner in which they know that consent will be inferred, they are held to have consented.¹⁸²105

Although several points of interest here have already been covered, I will briefly mention then again. First, consistent with the conflation of acts that imply consent and acts that are signs of consent, they see fairness as merely a kind of consent (“it can represent an important justification for basing obligation on consent to membership”). Second, there is an attempt alluded to earlier to bring what are clearly acts that imply consent closer to the type of acts that are seen as signs of consent (and therefore qualify as true consent). This is the effect of the “notice-based approach to consent” and is analogous to the example of the wedding where silence can be taken as an expression of consent within the appropriate background context. Such a move would bring the theory more in line with a genuine consent theory.

A third point of interest in this passage concerns the use of the word are in the passage reading, “Individuals are given advance notice that consent will be assumed in certain circumstances.” The sentence appears to be descriptive in nature; that is, it looks to be depicting an actual activity in organizational contexts that would thus bolster the claims to tacit consent. However, such an activity is observed rarely at best in such situations. The quoted passage is not a description of actual economic or organizational experiences.

Another alternative is that the passage is normative and thus indicates how the world would or should operate according to the ISCT contracts. However, if the fairness model described herein holds, then the requirement that people be given advance notice is unnecessary in establishing moral obligation in organizational and commercial contexts and may be redundant in most cases. This brings us to the final and most interesting point from this passage.106

Whereas Nozick, and to some extent Donaldson and Dunfee, wish to reduce obligations of fairness into obligations of consent, thus rendering the former redundant, the quoted passage shows how the opposite is often the case in such theories. If a person is engaged in a cooperative scheme under the circumstances of the “notice-based approach to consent” and they are voluntarily receiving the benefits of the scheme, then there already exist obligations of fairness. In this situation, the inaction and the consent for which it is taken as a sign after due notice is itself redundant. What is added to the obligation of fairness that already exists when the person’s notice is up and she is taken to have consented? Consent adds nothing to the extant obligations of fairness in such cases. In addition to the possibility that obligations of fairness may be rendered meaningless in some circumstances by preexisting consentbased obligations, so too the opposite may be true. It seems to be a matter of temporal priority, which is to be deemed operative. Or, as is more likely the case, it may be a matter of factual occurrence. In the actual world of transactions and economic cooperative schemes, there may be many fewer incidents of genuine consent than Donaldson and Dunfee require to make their theory adequately general. Alternatively, as argued earlier, virtually any commercial transaction may be interpreted as a cooperative scheme.

I have argued that the principle of fairness, properly conceived, does not fall victim to Nozick’s criticisms. Neither do obligations of fairness depend on nor devolve into a form of consent. Indeed, obligations of stakeholder fairness have an advantage over such tacit consent-based theories as ISCT—the obligation-generating activities of the principle of stakeholder fairness actually happen in concrete situations.107

It has been suggested, however, that the principle of stakeholder fairness is not adequately Foundational to provide the justification so claimed. The next section addresses this criticism.

On the Question of Justification

Among the primary goals of the fairness-based stakeholder theory suggested here is the provision of a normative justification for stakeholder theory; for want of which the model has been justly criticized. Some, however, have criticized the fairnessbased model as itself being little better than extant stakeholder literature on this point; that is, the principle of stakeholder fairness provides little more normative justification of the necessary type than any other discussion of the model.

As I understand the criticism, the fairness-based model does not qualify as a normative foundation because it is inadequately “Foundational.” The principle of stakeholder fairness makes no reference to any “comprehensive moral theory.”

There are at least two ways to answer this criticism. First is the pragmatist line. While I will not attempt to address all of the myriad intricacies of the pragmatist critique of metaphysics and foundationalism, I would like to express a level of skepticism regarding the existence of a Foundational Truth. Various stories allow humans to live. Some stories allow us to live better, some worse. Some narratives are more convincing than others and some less. Scientific explanations, for example, receive a great deal of credence in modern society—and for good reason. The methods of science have yielded society an unprecedented level of material comfort for much of the world.

However, our success in discovering more and more about our world and ourselves has created a false sense of comfort in our abilities to discover the Truth. There is no better reason to believe that we are now in possession of the Truth any more than were the well-informed of the time of Ptolemy¹⁸³ or Kant. In short, my initial response to the critic’s charge that the principle of stakeholder fairness provides no Foundation is that there is no such Foundation to provide. As with Descartes’s “evil genie” objection (see Chapter 2), this criticism counts no more against the principle of stakeholder fairness than any other theory.¹⁸⁴ The principle of stakeholder fairness is a deeper justification than is currently available in the literature and as such represents an advance in our understanding of stakeholder theory. For current purposes, it is as deep as I will be attempting to delve. I have every reason to believe, however, that still deeper explications and justifications exist and will be the subject of later exploration.108

The second response to the critique that the principle of stakeholder fairness does not count as justification of the required kind is to point out that it provides an amendment and addition to Rawls’s Theory of Justice. Elaboration on the principle of fairness is an attempt to describe what a Rawlsian conception of the organizational organization might look like.

Various scholars have attempted to describe what could be termed a Rawlsian view of the organization. They have searched for answers to the question, What would the organization look like within a Rawlsian framework?¹⁸⁵ Their explications, however, relied heavily on the use of the Rawlsian “veil of ignorance.” What made the particular theory “Rawlsian” was the suggestion that its parameters be established in some original position where the relevant stakeholders are ignorant of their place in the organization once the veil of ignorance is lifted. (I am sympathetic to such models having worked for some time on a similar such model).

As discussed in Chapter 3, Rawls explicitly does not intend that his use of the original position extend to “private associations.” Although the economic system as a whole is clearly within the purview of the original position, individual corporations are not. For this and other reasons described in Chapter 3, I argue that something like the principle of stakeholder fairness is more consistent with Rawls’s justice as fairness than is the use of the veil of ignorance in the description of the Rawlsian organization.109

This argument has implications for the foundationalist critic: If one seeks a deeper justification for the principle of stakeholder fairness, then Rawls’s justice as fairness provides such a justification. The principle of stakeholder fairness is an elaboration and expansion of Rawls’s theory and represents the conception of the private association most consistent with a Rawlsian framework.

Rawls himself is an antifoundationalist of a sort and so the two responses to the foundationalist critique may still not satisfy the critic’s objection. Inasmuch as Rawls defends himself far better than ever I could, I defer to his arguments for his own framework and submit that, for those who would demand a deeper justification than is here provided, justice as fairness provides such depth.

Discourse Ethics and the Content of Stakeholder Obligations

As mentioned previously, the principle of stakeholder fairness provides only the method for deriving stakeholder obligations—the principle itself provides no content to the obligations. In other words, the principle of stakeholder fairness determines that there are obligations, but not what the parties are obligated to do. As such, the principle of stakeholder fairness might be criticized as inadequately practical or even hollow—the whole enterprise an exercise in empty formalism. This criticism is partially correct. The principle of stakeholder fairness by itself is indeed unable to direct a manager’s action. This is not, however, what the principle is intended to do. Rather, the principle describes how obligations arise among stakeholders. The content of the obligations arises within the specific context of the stakeholders’ interactions. The stakeholders decide among themselves how the cooperative scheme is to be organized once it is determined who are the participants.110

Rather than taking any norm to be as good as any other, stakeholder norms in particular contexts may be critically analyzed using the method of communicative (discourse) ethics. The work of Jürgen Habermas is among the most interesting, thorough, and insightful in the literature on discourse ethics. I will briefly discuss Habermas’s work as a potential contribution to stakeholder thought and practice. The following is at best suggestive of an outline of Habermas’s work and is farther still from representing a serious contribution to the literature on discourse ethics. The idea is merely to point out the relationship between actual organizational norms and the principle of stakeholder fairness as well as hint at a possible source of adjudicating disagreements among competing stakeholder norms.

Habermas defends and explicates a particular methodology for justifying moral norms called discourse (or communicative) ethics. He argues for the following principle of discourse ethics.

(D) Only those norms can claim to be valid that meet (or could meet) with the approval of all affected in their capacity as participants in a practical discourse.¹⁸⁶

Consistent with the way in which the method of discourse ethics is used here, Habermas’s (D) provides a means of testing moral norms rather than generating them. It is thus, at one level at least, able to answer the neo-Hegelian and postmodern criticisms of formalistic ethics in general. These criticisms argue, in general, that any theory that attempts a foundational, ahistorical, transcendent justification of ethics is undertaken in vain due to the impossibility of escaping our own embeddedness in a particular culture and language. Habermas suggests that discourse ethics is able to avoid this problem because it is not formal in the sense criticized. Rather than generating justified moral norms, discourse ethics serves as a means for testing the validity of already extant societal norms. As such it depends on the existence of real norms and real conflict between norms for its content. Discourse ethics is more in touch with the “historical facticity” of the discussants and the neo-Hegelian critique is thus diminished.111

Habermas goes on to distinguish between strategic and communicative action. Whereas the latter is a moral activity, the former does not so qualify.

Whereas in strategic action one actor seeks to influence the behavior of another by means of the threat of sanctions or the prospect of gratification in order to cause the interaction to continue as the first actor desires, in communicative action one actor seeks rationally to motivate another by relying on the illocutionary binding/bonding effect (Bindungseffekt) of the offer contained in his speech act.¹⁸⁷

Inasmuch as the principle of stakeholder fairness is a moral principle, the method of discourse employed in testing the validity of the content of the obligations generated by the principle must also be moral. In other words, the discourse by which stakeholder norms are tested must have moral (i.e., communicative) restrictions rather than being merely strategic in nature.

For discourse ethics, these restrictions consist in what Habermas calls an “ideal speech situation” wherein “all external or internal coercion other than the force of the better argument” is ruled out. Thus, for example, a stakeholder discourse in which threats of layoffs are employed by management or strikes by labor unions as a strategic ploy would be considered strategic in character and not communicative and therefore not moral. Similarly, an organization that employs strong-arm tactics on its suppliers to try and force their prices lower would be in conflict with the aims of the ideal speech situation. A communicative discourse would, rather, attempt to establish norms that would be in the best interest of the cooperative scheme and would best conduce to the continuation of that scheme of cooperation and, in this way, may qualify as a moral stakeholder discourse. While difficult in practice, the implication is that managing for stakeholders would entail duplicating as far as possible the conditions of the ideal speech situation.112

Ed Freeman describes a time when he was called to consult a large organization on stakeholder management. He was taken into a room that “looked like mission control” filled with elaborate stakeholder maps, flow charts and computers. After surveying the contents of the room, Freeman asks, “How many stakeholders have you spoken with?” The answer was something like, “Well none. We’ve been too busy making stakeholder maps and flow charts.”¹⁸⁸

Such is the problem that is better addressed using a Habermasian ethic of discourse. Whereas many managers would be content to attempt to adjudicate between myriad stakeholders in the comfort of their own offices, such a method relies only on the individual manager’s perceptions of who the stakeholders are and what they would like to gain from their cooperation with the organization.¹⁸⁹ Frequently managers use internal proxies for determining stakeholder interests. For example, they rely on personnel or human resources departments for information regarding employee concerns, the marketing or sales department provides a proxy for the interests of customers, corporate finance is relied on for financier interests; and public relations is used to ascertain community interests. The discourse ethic described here eschews such approaches in favor of direct contact between managers and stakeholders. Actual discourse with the various stakeholders gives a more accurate representation of what the stakeholders want and hence provides the manager with better information on which to base a decision. Work is just beginning on a discursive methodology in organizational ethics by, for example, Jerry Calton¹⁹⁰ and Richard Nielson.¹⁹¹

An interesting example of a company that seems to exemplify stakeholder discursive management is Cadbury’s.¹⁹² This company was founded upon “a belief in achieving, as far as one can, agreement by consensus.” This belief enabled Cadbury’s to withstand the growing hostility between labor and the Conservative Party (e.g., under Margaret Thatcher) in Great Britain.113

Cadbury’s faced a situation that called for an updating of the company’s tea packaging equipment. The equipment upgrade also meant, however, that the work that had been previously undertaken in two packaging plants would now require only one plant and fewer workers. Rather than simply a “hardnosed business decision,” Adrian Cadbury viewed the decision through a stakeholder lens.

The… aspect of ethics in business decisions I want to discuss concerns our responsibility for the level of employment; what can or should companies do about the provision of jobs?… The company’s prime responsibility to everyone who has a stake in it is to retain its competitive edge, even if this means a loss of jobs in the short run. Where companies do have a social responsibility, however, is in how we manage this situation, how we smooth the path of technological change. Companies are responsible for the timing of such changes and we are in a position to involve those who will be affected by the way in which those changes are introduced.¹⁹³

This way of viewing a difficult situation is consistent with the fairness-based stakeholder theory sketched here. Cadbury’s (the company) and Adrian Cadbury himself exhibit a longstanding commitment to a concern for stakeholder well-being.

To solve the problem, Cadbury’s formed a “working party” (such problem-solving groups were a part of Cadbury’s tradition consistent with the previous statements) including managers, engineers, and shop stewards from both tea packaging plants. The solution of the working party—by unanimous consent—was to close one of the plants and operate with only half the workers. The decision also included “a package of employment displacement benefits with intraorganizational transfers, preferential rehiring, and layoff benefits…”¹⁹⁴ This decision could have been (and indeed has been) made in a more autocratic, topdown way with the same outcomes; however, the stakeholder discursive method of management tends away from the kinds of animosity and distrust that often characterize nearly identical decisions in such difficult situations.114

Therefore, if the situation is one in which management chooses to fire workers merely to increase the profits to the financiers, then it violates the principle of stakeholder fairness, because it privileges one stakeholder group (the share owners) to the detriment of another vital stakeholder group (the employees). Further, this norm is unlikely to meet with the communicative assent of all stakeholders. Employees would not agree to a norm stipulating that employees be fired in order merely to improve profits under the conditions of an ideal speech situation. The absence (impossibility) of a reasonable consensus denies the discursive validity of that norm.

However, the case may be otherwise if the layoffs are to preclude the dissipation of the organization itself. That is, if some layoffs are necessary to save the bulk of the jobs and other benefits derived by other stakeholder groups, then this action may more readily meet with agreement among stakeholders (including the employees). In this case, one stakeholder group is not being privileged at the expense of another stakeholder group; rather, the layoffs are for the sake of the continuation of the cooperative scheme itself and may, therefore, meet with agreement among all stakeholder groups. Such appears to be the case for Cadbury’s.

Cadbury’s tradition of stakeholder management is not exclusive to employees, however.

Starting with the assumption that Capital and Labour, Management and Workers, Manufacturers and Distributors, are to be collaborators in the enterprise of serving the community, it is worth while trying to determine the sort of industrial organisation which can pursue this aim most effectively.¹⁹⁵ 115

As stated here, Cadbury’s bears a striking similarity to Freeman’s notion that stakeholders are analytic to business organizations. Cadbury’s simply starts with the assumption that these constituencies are indispensable to the operations of the organization. Stakeholder obligations do not require further defense for Cadbury. This “analytic justification” merits a brief discussion.

Stakeholders as Analytic to Business

In logic, something is said to be analytic when it necessarily follows from some previous concept—a tautology. It has been argued that the principle of stakeholder fairness is unnecessary because stakeholders are analytic to business and organizations. Stakeholder theory does not require such a justification because business organizations are incomprehensible without stakeholders. All business organizations have consumers of their outputs, providers of inputs and creators of value, financiers, and a social context within which these myriad interactions take place. The concept of the business organization is dependent on the contributions of these groups and it could not exist without them. Discussion of organizations simply implies stakeholders; the moral status of stakeholders is in need of no further justification.

This analytic justification of stakeholders recalls the 1963 Stanford Research Institute memo defining stakeholders as “those groups without whose support the organization would cease to exist.”¹⁹⁶ This definition may be read as a conditional empirical statement. Should one of these groups withdraw its support for the organization, the organization itself would no longer be viable and would disintegrate. However, this definition may also be interpreted as a requirement of conceptual coherence. Not only would a business organization fail (empirically and strategically) as a going concern should a stakeholder withdraw its support, but also it could no longer be (conceptually) considered a business organization at all. According to the analytic justification, without stakeholders, there is no business organization at all.116

Though a reasonable and popular approach, and one that would have great practitioner appeal, the analytic justification of stakeholder theory could be considered preaching to the choir. Certainly these groups are necessary to the functioning, or even conceptual coherence, of the business organization, but it could be argued that this does not necessarily entail an obligation to them. For those who, like Cadbury, believe that doing business assumes an obligation to stakeholders, the principle of stakeholder fairness may add little. For those for whom stakeholder obligations do require further justification, the principle of stakeholder fairness provides such underpinning.

Conclusion

This chapter discusses the Rawls/Hart principle of fair play (including a suggestion that the principle has a heritage at least back to Mill) and the principle of stakeholder fairness on which it is based. Rawls argues that the principle of fairness is the appropriate method by which to establish obligations among less than basic structure entities within his “justice as fairness” framework. This chapter analyzes Rawls’s principle of fair play and suggests the following principle of stakeholder fairness for organizational contexts.

Whenever persons or groups of persons voluntarily accept the benefits of a mutually beneficial scheme of co-operation requiring sacrifice or contribution on the parts of the participants and there exists the possibility of free-riding, obligations of fairness are created among the participants in the co-operative scheme in proportion to the benefits accepted.

This principle suggests how obligations among organizational stakeholders arise.

The distinction between obligations, rights, and duties was also elaborated. The principle of stakeholder fairness creates obligations among the stakeholders distinct from the duties that these individuals and groups may have with regard to one another by virtue of their humanity.117

As a means of further explicating the principle of stakeholder fairness, this chapter defends the principle against the criticisms that have been leveled against it by, for example, Nozick in Anarchy, State, and Utopia. Nozick conflates the ideas of voluntary acceptance and mere receipt of benefits. It is argued that once this difference between the two is accounted for, Nozick’s critique is nugatory.

After defending the principle against Nozick’s critique and by way of further explication, I contrast the principle of stakeholder fairness with Donaldson and Dunfee’s Integrative Social Contracts Theory. This comparison allowed for further discussion of the important distinction between obligations of fairness and tacit consent. ISCT leans heavily on the idea of tacit consent. It is argued that tacit consent amounts to no consent at all and that the obligations described in ISCT may instead bear resemblance to obligations of stakeholder fairness. It is further argued that the principle of stakeholder fairness is a more useful description of organizational obligations than even actual consent in many organizational contexts due to the more frequent occurrence of the obligation-generating activity.

A final point is the difference between the establishment of obligations of stakeholder fairness and the content of the obligations. The principle of stakeholder fairness only provides for the existence of obligations among stakeholders; the content of the obligations is established and tested within the particular contexts of organizational interaction. That there are obligations and who the parties to these obligations are is determined using the principle of stakeholder fairness, while the content of these obligations (i.e., what the parties are obligated to do or refrain from doing) is established by the norms of the particular organization and its stakeholders.

It is not the case, however, that any norms are acceptable. Agreement while facing the business end of a revolver does not establish a legitimate norm. Coercion does exist and it does impact the moral validity of extant norms. A method is needed by which to test stakeholder norms. The method of discourse ethics is suggested and elaborated as a candidate for testing extant organizational norms.118

This chapter has undertaken to elaborate what stakeholder theory is and what moral concepts underlie stakeholder status and organizational obligations to constituency groups. In the course of this elaboration, I defend the principle of fair play against actual and potential criticism. Having done so, the next chapters defend a version of stakeholder theory based on the principle of stakeholder fairness. The first concept is that of stakeholder legitimacy in light of this principle.