Reforming the Triad - Corporate Governance and Business Ethics

Although Donaldson and Preston’s three theses do not exhibit mutual support among genuine and distinct normative, instrumental, and descriptive stakeholder theories, perhaps reformed versions of the theses versions better capturing normative, instrumental, and descriptive stakeholder thinking can be constructed. Perhaps mutual support exists among the reformed theses and, therefore, the reformed theses compose collectively the omnibus theory that Donaldson and Preston seek, but do not provide. In the present part, I construct reformed normative, instrumental, and descriptive theses better capturing these strands of stakeholder thinking.

Reformed Normative Thesis

Donaldson and Preston’s normative thesis is troubled for two separate, but related, reasons. First, its content does not separate the normative stakeholder theorist from her opponents by setting out and arguing for a distinctive position. Second, its content, if true, does not imply the moral impermissibility of the investor-owned firm with fiduciary duties to shareholders alone.

These results are peculiar because many stakeholder theorists understand their normative commitments to be incompatible with the investor-owned firm with fiduciary duties to shareholders alone, a firm which Donaldson and Preston (1995) themselves claim is “normatively unacceptable”. As they advance no argument for this claim, the most ready explanation is that it is supposed to be, and the reader is supposed to recognize it as, an implication of the normative thesis. That is, the normative thesis is incompatible with the investor-owned firm with fiduciary duties to shareholders alone. So, if the normative thesis is true, the claim that the investor-owned firm with fiduciary duties to shareholders alone is morally permissible must be false.

But Donaldson and Preston’s normative thesis calls only for managers to consider the legitimate interests of all stakeholders. There are many ways to consider stakeholder interests, only some of which are incompatible with extending fiduciary care to shareholders alone. Moreover, there can be rival accounts of which stakeholder interests are legitimate and why, only some of which are incompatible with extending fiduciary care to shareholders alone. Therefore, it does not follow from Donaldson and Preston’s normative thesis that the investor-owned firm with fiduciary duties to shareholders alone is morally impermissible. If the normative thesis is to have this upshot, it requires commitment to the claim that

  • the kind of consideration that ought to be given is incompatible with the investor-owned firm with fiduciary duties to shareholders alone as well as an account of what that kind of consideration is and why it is called for or
  • the interests that are legitimate are incompatible with the investor-owned firm with fiduciary duties to shareholders alone as well as an account of what those interests are and why they are legitimate. Many such accounts could be advanced, but for present purposes let us stipulate only that a reformed normative thesis, in order to advance a non-trivial normative view, includes commitment to (a) a kind of consideration incompatible with extending fiduciary care to shareholders alone or (b) the inclusion of interests the legitimacy of which is incompatible with extending fiduciary care to shareholders alone.

Reformed Instrumental Thesis

In drawing on Goodpaster (1991), I argued that instrumental approaches to stakeholder thinking can facilitate pursuit of questions about the merits of stakeholder analysis as a procedure for mapping and interpreting a firm’s strategic terrain. Whereas Donaldson and Preston recognize only research into the effects of practicing normatively-driven stakeholder management, instrumental stakeholder theory can also contemplate hypotheses about the usefulness of stakeholder analysis as a component of decision making, whether or not the prescriptions of normative stakeholder theory are afforded priority or even recognized at all. Jones (1995) contemplates a version of this kind of instrumental stakeholder theory. A reformed instrumental thesis, capturing adequately the projects, both actual and potential, that can be pursued under its rubric, could be formulated in these terms:

Reformed Descriptive Thesis

Abandoning Donaldson and Preston’s statement of the descriptive thesis, one is left with the task of constructing a plausible alternative. Presumably, it will refer to the behavior of managers in firms or to the beliefs and attitudes informing that behavior. Although Donaldson and Preston’s account fails in this regard, the reformed normative and instrumental theses point readily to two commonsense, alternative descriptive theses. Call these the normative descriptive thesis and the instrumental descriptive thesis.

Normative Descriptive Thesis

The normative descriptive thesis expresses the view that firms are managed in a way that at least attempts to implement what the normative thesis commends. The point is less one about the success or failure of these endeavors than about the ends informing managerial deliberation about action. The normative descriptive thesis is just the view that firms, through the actions of their managers, seek to realize the aims that the normative thesis says they ought. Jones and Wicks (1999) contemplate a version of the normative descriptive thesis.

Instrumental Descriptive Thesis

The instrumental descriptive thesis expresses the view that firms adopt stakeholder oriented practices whether those commended by normative stakeholder theory or those that merely conceive of the firm’s strategic terrain in stakeholder terms to achieve their objectives. The point is less one about the success or failure of these endeavors than about the means by which managers seek to achieve the firm’s ends. The instrumental descriptive thesis is just the view that firms, through the actions of their managers, employ the means that the instrumental thesis says they ought to employ. Jones (1994) contemplates a version of the instrumental descriptive thesis.

Rather than select antecedently one version of the descriptive thesis over the other, I will refer to each, as necessary, in order to establish the logical relationship that exists among the three reformed theses. The important differences between Donaldson and Preston’s theses and the reformed theses are summarized.

Donaldson-and-Preston-(1995)-and-Reformed-theses-compared

Donaldson-and-Preston-(1995)-and-Reformed-theses-compared


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