Do Stakeholder Ethics Have a Useful Role in Business Ethics - Assignment Example

Prof’s Do “Stakeholder Ethics” have a Useful Role in Business Ethics? Business ethics have been, since their origin,a difficult subject to define. Part of the reason for this difficulty is the fact that, unlike many forms of ethics that rely to one degree or another on ideas of altruism (Heath 2006, p. 541), whereas much of capitalistic business ethics relies on groups acting in their own self interest. Simply acting in one’s own self interest, however, is not the basis of business ethics; the construction of capitalism rests on the idea of self interest, but current discussions of business ethics understand that there are some in such great positions of power that acting in their own self interest, or their shareholder’s self interest without recourse to other considerations could lead to disastrous consequences. This is especially true of managers, who have, in the common conception, a variety of responsibilities including the maximisation of profits of shareholders, the maintenance of professional practices, and the proper treatment of employees In order to reconcile these vast and complex issues, a theory called “stakeholder theory” was developed, which essentially sought to use the model of shareholder profit maximisation, but apply it to more interested parties in the transaction. Essentially, a managers duty was thus to balance and coordinate the interests of all interested parties, including employees, customers, and shareholders, so that an “everyone wins” scenario could occur (Heath, 2006, 545). But is this in fact a useful way to understand business ethics? A successful business-ethical model must pass a number of common-sense tests to be useful. It must be comprehensible enough to be practically useful and practical for managers in real world situations. It must be internally self-consistent, in that following its own precepts will not cause violations of its own internal ethical code. It must feel “intuitively” moral, so that it can work with broader moral compasses (Heath 2006, p. 542), and it must actually be useable and able to be executed in the field. The Stakeholder model, though fulfilling some of these requirements, fundamentally fails at the majority of them, and is thus not a useful moral code for the business world. In terms of the first requirement, that a system of business ethics must be comprehensible enough to be understood and used by managers in the field, stakeholder theory actually meets those requirements. The fundamental relationship on which the stakeholder model is built is that of the profit maximisation role of the manager, which Boatright (2006, p. 106) calls the “stockholder” model. The stockholder model is essentially that it is the managers responsibility to maximise profits for the shareholders, essentially regardless of consequences, because of their fiduciary responsibilities to the stockholder. This, despite being morally problematic for a variety of reasons, such as willingness to harm the customer, engage in unethical business practices, harm the environment and so on, is still widely understood in the business world. It is widely understood because profit maximisation, within the confines of ethical and regulatory constraints, is widely understood as one of the primary responsibility of any business. Stakeholder theory builds off of this relationship, but places the obligations held by the managers towards shareholders to maximise profits towards a variety of other “stakeholders” in terms of their interest to the transactions (Heath 2006, p. 550). These interests, though vaguely defined, include: the employee’s interest in being adequately compensated for their labour, or a customer’s desire to not vastly overpay for the services rendered. In this way, in its most basic forms, a stakeholder model will make sense to mangers, because they are used to understanding the interests of varied groups and supporting them as much as possible within moral constraints. While the stakeholder manages to meet the first requirement of being comprehensible enough to be used in the field, it fails several other aspects of the common sense needs of a business ethical code. The second qualification, that it is internally self-consistent, fails somewhat miserably. Firstly, it assumes a similar level of fiduciary responsibility to a wide array of stakeholders, regardless of what degree of responsibility is owed. Marcoux (2003, p. 6-12) indicates that a level of vulnerability is inherently part of any fiduciary responsibility, though sometimes in subtle ways (one example the author uses is that of a trust managed by a person who is less intelligent than the trust’s holder, where the more intelligent trust holder is still vulnerable to the manager because of the fact that he has control of the money’s management, for whatever reason). A fiduciary responsibility is necessary, in sort, when some sort of vulnerability occurs in a relationship. But this kind of vulnerability is not inherent to all of the stakeholder imagined in the stakeholder theory: shareholders, for instance, have a much greater vulnerability than a customer does, because they have money outside of their own control, where the customer chooses where to use his or her money. Furthermore, a customer has recourse to competition, and to their own suite of negotiating and other tools to secure the best price. A customer is thus not as vulnerable as a shareholder, and should not deserve the same level of fiduciary protection. Furthermore, there are certainly instances in which shareholder interests will be incompatible at some level – the customer could save a little bit of money at the cost of some shareholder profit, and no degree calling stakeholder theory “coordination” of interest will stop that from being true. Beyond simply failing the internal-consistency test, stakeholder theory also fails the “intuitive” moral sense test (Heath 2006, p. 541). This is important at least two important reasons. Firstly, one component of business ethics is to defend business practices to outside groups, such as law-makers. Secondly, it is important that managers experience their business ethics in a way that are compatible with their personal ethics, which will lead to increase application in the world. Stakeholder theory fails this test just as it does the previous one, because it shares the same weaknesses as its parent theory, shareholder theory. Rather than accommodating people’s sense of altruism, this simply diffuses actions based on self interest, so that the manager is making decisions that benefit the selfish needs of different groups. And it also benefits stakeholders with organization far more than stakeholders without it (Boatright, 2006, p. 110). In Boatright’s (2006, p. 111) example, consumer advocacy groups will have more protection under this model than, for instance, people who are concerned with inflation or unemployment, thus making the self-benefiting aspects of this idea more apparent, and thus more inconsistent with basic morality. Finally, a business ethical system must be practical, and able to actually guide decision making in order to be useful. The stakeholder model fails this more prominently than almost any other test. Firstly, the mere definition of a stakeholder is hard to actually form in a concise mode, meaning that an effective manager, under this system, would always have to try to be thinking of possible new stakeholders. Some are obvious: customers and shareholders, for instance, come to mind often, as do employees who desire wages, benefits, job security and so on. The problem is, there are many, many more stakeholders in any particular transaction than just those simple ones, and some of their interests are hard to define. For instance, is the government that sets regulatory laws stakeholders? In that case does a business have to go beyond simply obeying the letter of their laws, but also obeying their spirit, even when competitors do not? The difficulties with creating a concise group of stakeholders, and, as mentioned, the fact that these stakeholders will often have competing interests, means that stakeholder theory produces a paralyzing effect, which fundamentally undermines the essential role of business in society, creating wealth (Heath 2006, p. 545). In a wide variety of ways, stakeholder theory fails to be a practical, useful theory that managers can actually transfer into palpable actions. Stakeholder theory is a widely accepted and talked about way of understanding business ethics. It fails, unfortunately, to pass several common sense tests any successful business-ethical system must. Though it is understandable, it cannot be transferred into real action. And though it is an ethical model, it fails to feel intuitively moral and altruistic. Finally, it cannot be put into action by managers with any degree of ease, and thus cannot actually be used as a guide for practical actions. This combination of failing means that Heath (2006) is correct in asserting the idea that stakeholder theory not useful in discussions of business ethics. Works Cited Boatright J (2006. “What’s Wrong – and What’s Right – With Stakeholder Management” Journal of Private Enterprise 21. Pp. 106-130. Heath, J (2006). “Business Ethics without Stakeholders” Business Ethics Quarterly 16. Pp. 533-557. Marcoux A (2003) “Argument against Stakeholder Theory” Business Ethics Quarter 13. Pp. 1-22 Read More