Jones and Wicks (1999): CONVERGENT STAKEHOLDER THEORY We describe two approaches to stakeholder theory – a social science approach and a normative ethics approach- since neither of them is complete without the other. One group of scholars views stakeholder theory as a potential foundation for the growth of social science-based research; another views stakeholder theory as an umbrella term describing a class of narrative accounts, each based on its own moral principles. We argue that convergent stakeholder theory demonstrates how managers can create ways of doing business that are both moral and workable.
THE CURRENT STATE OF STAKEHOLDER THEORY RESEARCH The essential premises of stakeholder theory are: 1. The corporation has a relationship with many constituent groups (stakeholders) that affect and are affected by its decisions 2. The theory is concerned with the nature and of these relationships in terms of both processes and outcomes for the firm and its stakeholders. 3. The interests of all (legitimate) stakeholders have intrinsic value, and no set of interests is assumed to dominate the others. 4. The theory focuses on managerial decision making.
This domain description is unique in its reluctance to assume the predominance of one stakeholder group – that is shareholders. Early formulations suggested that 1. Firms/managers should behave in a certain way NORMATIVE 2. Certain outcomes are more likely if firms/managers behave in certain ways INSTRUMENTAL 3. Firms/managers actually behave in certain ways DESCRIPTIVE/ EMPIRICAL We will group these in 2 somewhat broader categories: 1. Social science based theory: Instrumental + descriptive/empirical 2. Ethics based theory: Normative issues
STAKEHOLDER THEORY AS SOCIAL SCIENCE Can good social science research be done under the rubric of stakeholder theory? Descriptive stakeholder theory: Theory that purports to describe actual behavior. The following theoretical claim is unique to stakeholder theory: “Managers behave as if stakeholders mattered because of the intrinsic justice of their (the stakeholders) claims on the firm” (Jones 1994) Although this proposition is theoretically interesting and empirically tractable, claims of this type do not fully exploit the possibilities for stakeholder-based descriptive theory.
There is another “theoretically more aggressive” approach: “The stakeholder theory of the firm posits that the nature of an organization? s stakeholders, their values, their relative influence on decisions and the nature of the situation are all relevant information for predicting organizational behavior” (Brenner&Cochran, 1991) Unfortunately, this formulation is empirically less tractable than the previous claim. Authors stop short of either substantive prediction or description of the mechanism(s) through which the predicted behavior might occur.
Instrumental stakeholder theory: Posits that certain outcomes will be obtained of certain behaviors are adopted. It does not require the theorist to make simplifying assumptions about the fundamental nature of human behavior. One form of instrumental stakeholder theory: if firms contract (through their managers) with their stakeholders on the basis of mutual trust and cooperation, they will have a competitive advantage over firms that do not. One of the central (normative) tenets of stakeholder theory is that firms should attend to the interests of all their stakeholders.
A broader measure, such as Corporate Social Performance (CSP) is needed. There are tow methods of measuring CSP. 1. Data envelopment analysis (DEA) 2. “Halo removed” reputational surveys With the advent of testable theory and some viable means of operationalizing the relevant dependent variable, it seems that an instrumental form of stakeholder theory can meaningfully be called social science. STAKEHOLDER THEORY AS NORMATIVE ETHICS This mode of inquiry involves specifying what moral obligations stakeholder theory places on managers, particularly the relative importance of obligations to shareholders and those to other stakeholder groups.
Firms ought to treat stakeholders as “ends”. One strain of normative stakeholder theory, which we call “narrative interpretation” focus on what the firm ought to do, both in terms of the ends it pursues and the means it utilizes, as well as why these oughts’ are appropriate. They come up with understandings of business in which these objectives are linked and mutually reinforcing. These researchers seek alternative accounts that could guide business activity in more constructive ways.
For advocates of narrative interpretation, the challenge of a stakeholder theory is not to develop a single (descriptive or instrumental) stakeholder theory but to develop and evaluate a broad array of narrative accounts regarding the nature and purposes of the firm and the activities of people who work for it. They incorporate insights from both ethics and business, without drawing a sharp distinction between the two. Freeman describes this process as the development of normative cores: accounts that describe the basic functions of the firm and the responsibilities of managers.
Others have developed methods for forms to develop such normative cores within parameters that are likely to make them ethically sound. AGREEMENT AND DISAGREEMENT AMONG STAKEHOLDER THEORISTS The shared values and shared understandings driving stakeholder research render fundamentally incomplete any theory that is either exclusively normative or exclusively instrumental. We argue that a hybrid form, which we call convergent stakeholder theory, is conceptually superior to either existing form. SOCIAL SCIENCE AND NARRATIVE ACCOUNTS IN CONFLICT 1.
Disagreement exists over the propriety of dividing the field into 3 theoretical realms: normative, instrumental and descriptive: In the view of narrative interpretation advocates, the reductionism involved in employing such a taxonomy is inappropriate and unproductive; there should be no sharp distinctions among the 3 forms of stakeholder theory. Some ethicists believe that moral behavior need not be justified in instrumental terms; morality is, and must be, its own reward. 2. A social science objection to the narrative accounts perspective is that it fails to meet the standards of “good” research.
They still are concerned about some “quality control” issues. To date, instrumental implications of various normative cores have not been systematically developed. The narrative interpretation view questions the idea that what Kuhn (1970) calls normal science, and others have called functionalist social science is either desirable or possible. SOCIAL SCIENCE AND NARRATIVE ACCOUNTS IN AGREEMENT OR PARTIAL AGREEMENT 1. Focus on the same academic domain and the same general set of problems. 2. Shared values: a.
Belief in the intrinsic worth of the claims of all legitimate stakeholders (rejection of the normative foundation of stockholder wealth maximization) b. Egoism, as a normative standard, is rejected. Businesses are instrumental institutions, existing to serve social purposes larger than their own. c. Concern for others. d. Compatibility of morality and capitalism at a fundamental level also elicits widespread agreement. Acting in one? s own interests or making a profit is morally suspect per se. e. Healthy and efficient capitalism requires a fairly high level of morality.
Agreement on normative principles beyond this point is partial or incomplete. Emphases differ markedly among them. f. Only one facet of utilitarianism, a normative standard that admonishes moral agents to maximize net social benefits, s widely endorsed. g. A concern for distributive justice and fairness is also widely held among stakeholder theory adherents. In summary, there is near universal concern for moral processes and outcomes, based on the view that the claims of stakeholders have intrinsic worth; there is little agreement on what those moral processes and outcomes should be. . Shared understandings: regarding theory and its implications h. A measure of agreement on the existence of normative, instrumental and descriptive aspects of stakeholder theory. This classification scheme has also made it possible to differentiate the domain of ethicists –normative theory with a clear moral component- from that of social scientists –instrumental and descriptive theory. i. We may find there is room for agreement on the conclusion that the development of a descriptive stakeholder theory of the firm is unlikely, at least in the short term.
In particular, there seems to be a widespread rejection of psychological egoism. Thus, stakeholder theorists surely would not agree on the precise behavioral tendencies of human beings, they probably could agree that those tendencies are varied, variable and malleable. j. Firms that look after the interests of key stakeholders and behave in a morally defensible fashion will, all else being equal, achieve greater success in the marketplace than those that do not –that is, good CSP is related to good financial performance. . Consensus regarding an ideal measure of the firm’s responsiveness to its stakeholders; a composite measure of corporate outputs and processes, which includes the interests of all of the firm’s stakeholders. THE PROSPECTS FOR A HYBRID THEORY A PARTIAL CONSENSUS AND THEORY UNIFICATION Since the agreements among stakeholder theory involve many issues important to successful research in the field, there may be some basis for hope that a hybrid stakeholder theory. NORMATIVE FOUNDATIONS FOR INSTRUMENTAL THEORY 1.
Instrumental theory, like the narrative accounts approach, cannot be a class of theories, rather than a single theory. This agrees with the emergence of a class of theories centered on stakeholder principles is appropriate. 2. Stakeholder theorists consider normative issues to be of great importance. Most stakeholder theorists with a social science orientation should agree that any instrumental theory with its roots in the stakeholder concept must have morally acceptable ends and means. 3. Members of the social science camp should explicitly ground their instrumental theories in morally sound principles.
Separating the forms of stakeholder theory is not appropriate in this case; the narrative accounts adherents clearly have something to contribute to the social scientists. Instrumental stakeholder theorists may even enhance the credibility of social scientists contributions because theory of this type must be falsifiable –logically coherent and operationalizable- and useful. Instrumental stakeholder theory without a morally sound normative foundation not only violates the premises of stakeholder theory but also is incomplete as social science theory.
NARRATIVE ACCOUNTS BASED IN SOCIAL SCIENCE “REALITY” The criteria for good theory in ethics ought to apply. Narrative accounts list 8 criteria for “adequate” ethical theory, some of which, singly or in combination, have rough analogs in social science theorizing: coherence, explanatory power, clarity, output power, completeness, comprehensiveness, simplicity, and justificatory power. Justificatory power (the ability of a theory to justify, not describe) is mandatory. One of the most important for our purposes is the claim that ethical theory must me practicable.
Practicality is vital in the context of stakeholder theory. The firm remains viable, which usually means profitable. In short, an impractical normative core seriously compromises the well-being of those with an interest in the firms success –its stakeholders- and therefore, certainly fails the test of a morally sound normative core. Advocates of narrative stakeholder accounts should embrace some form of instrumental theory because they believe in (1) creating good ethical theory, (2) protecting the interest of corporate stakeholders, and/or (3) maintaining an integrated focus in stakeholder theorizing.
Narrative accounts without some form of instrumental argument as to their practicability are incomplete as stakeholder theory. The advocates of narrative interpretation are unlikely to agree with the social scientists on some fundamental issues, such as ontological assumptions (the nature of organizational phenomena), and methodology (the nature of appropriate means of studying organizational phenomena). The addition of social science evidence can improve narrative accounts by strengthening the case for their practicability.
THE STRUCTURE OF CONVERGENT STAKEHOLDER THEORY The term convergent stakeholder theory applies to a class of theories, each representative of which would have the following characteristics. 1. Conditions a. Publicly held firm, operating in a competitive market b. Decisions are made by professional managers c. Behavioral contingency (normative core) is adopted. 2. Does not depend on any specific behavioral assumptions d. Human behavior is both varied and variable e. Human behavior is malleable – depends on context and circumstances 3.
Theory of relationships 4. Simultaneously normative and instrumental 5. Its normative foundation (core) is explicitly moral and has to be explicitly defended in moral terms 6. Its instrumental means-ends chain is persuasively argued and demonstrates the practicality of the behavior called for in the normative core. 7. Instructs managers with respect to f. The way in which relationships with corporate stakeholders should be structured g. Moral foundation for structuring these relationships h.
Outcomes expected from structuring relationships in the specified way i. If the specified ends are unconventional, the moral defense of those ends The central question addressed by convergent stakeholder theory is: What kinds of stakeholder relationships are both morally sound and practicable? * Normative component: both the means employed and the ends sought must be morally sound * Instrumental component: the means-ends chain must be logically compelling, theoretically coherent and empirically viable. WHAT IS CONVERGENT STAKEHOLDER THEORY
There are 3 different possibilities to describe the relationships between the normative and empirical branches of business ethics: 1. Parallel: the 2 approaches share little but an interest in the same kinds of businesses behavior. 2. Symbiosis: The 2 modes of inquiry take insights from each other but remain “essentially distinct in their theoretical principles, methodologies and meta-theoretical assumptions 3. Integration: The 2 theories can be seen as elements of a single theory. This branch as 3 forms: a. Conceptual importation: Invoking concepts of one theory in the theorizing of the other b.
Theoretical reciprocity: both normative and empirical theories be incorporated into the explanatory framework c. Theoretical unity: Distinguishing between the empirical and normative elements of the theory is “methodologically and metatheoretically untenable” We chose the term “convergent” because our theory exceed the standards of symbiosis and meets those of integration (theoretical reciprocity). The relevant issue is whether or not scholars advancing convergent stakeholder theory can agree on sets of methods that include ethical and instrumental elements.
Convergent stakeholder theory includes the following statement of symbiosis: Attention to normative theory, aids empiricists in being self conscious about the purpose, character and results of their work. But it exceeds the criteria for symbiosis that states that there is a: Surface level practical relationship in which normative and/or empirical business ethics rely on each other for guidance in agenda setting or applying the results of their conceptually and methodologically distinct form of inquiry. In addition, convergent stakeholder theory meets the following criteria for theoretical reciprocity: 1.
Intentional interdependence of normative and empirical theories 2. The framework’s success in providing either an empirical description or normative evaluation of some phenomenon depends on its normative or empirical adequacy. CONCLUSION Each version must have a well-defended normative core and supporting instrumental arguments to demonstrate its practicability. A new theory can be connective (bridging the gaps between existing theories), or transformational (causing existing theories to be seen in new ways.
We argue that explicitly and unabashedly moral convergent stakeholder theory is a new way of theorizing about organizations and is, therefore potentially transformational. Properly conceived convergent stakeholder theory can show us how corporate managers can behave morally in a stakeholder context, without endangering either the viability of the firm or their relationship with it. Convergent stakeholder theory, in its most effective forms, could show managers how to enact environments appropriate to this task.