603 (1982). 71 Actually, some promising preliminary steps in meeting this challenge have already been taken by Professors Dennis Quinn and Thomas Jones in their article An Agent Morality View of Business Policy, supra note 14. Normative ethics is interested with questions in regard to the underlying principles that are the guiding light of the applied ethicist. The central question of normative ethics is determining how basic moral standards are arrived at and justified. Alan Strudler (2016), Respectful Lying, Ethical Theory and Moral Practice, 19 (4), pp. However, the sections of the ALI report that the authors cite state nothing more than that corporate officials are legally permitted to take ethical considerations into account even where doing so would not enhance corporate profit or shareholder gain and that they are “subject to the same ethical considerations as other members of society.” Id. Econ. Render date: 2020-12-12T08:03:02.859Z I should point out that Friedman does not always describe the constraints on the pursuit of profit this precisely. 2 J.D., Ph.D., Philosophy, Duke University, LL.M. The largest current controversy in normative ethics is how to determine whether a particular act is right or wrong. Cheung, Gordon C.K. In many cases, such activities are necessary as a matter of corporate self-defense. Normative ethics seeks to set norms or standards for conduct. The ALI report is indeed inconsistent with the claim that corporate managers should pursue profit by any means without regard to legal or ethical constraints. 18 Thomas Donaldson, The Ethics of International Business 45 (1989). However, it is at least arguable that what should be done when managers have made inconsistent commitments is itself an issue that would have to addressed by an adequate normative theory of business ethics. The more specific statement given in the text does define a substantive position worthy of serious consideration, and so, that is the formulation that will be used in this article. 27 See Evan and Freeman, supra note 14, at 76. "comments": true, at 79. "clr": false, Despite this, the stockholder theory can be applied to all forms of business. First, we re-examine the structure of business ethics as a separate discipline and suggest a tripartite structure (normative, positive, and practical) instead of more traditional division on two parts (normative and descriptive). Professor Donaldson has assured me that this is not intended as an appeal to the ethical authority of the law, but rather to the normative reasons behind the change in the law as indicated by the article’s next sentence: “The normative basis for these changes in current mainstream legal thinking is articulated in the recent American Law Institute report, Principles of Corporate Governance (1992).” Id. It is, of course, true that this approach defines managers’ ethical obligations partially in terms of their legal obligations and implies that their ethical obligations will change as the legislation that defines and regulates the business environment changes. 9 I wish to emphasize again that the stockholder theory is a normative and not a descriptive theory. 2003. 25 Unlike ‘agency theory,’ however, the phrase ‘stakeholder theory’ cannot be avoided. Normative ethics is guided by ethical theories like the utilitarian and egoism theories. 30 In stating that management must give equal consideration to the interests of all stakeholders, I am not ignoring the work being done to distinguish among different classes of stakeholders. For example, should only the consequences or our duties or our character matter? 64 As was the case with the stakeholder theory, although the social contract theory is sometimes expressed in the language of the corporation, it clearly applies to businesses generally. 24 As mentioned previously, see supra note 8, because of its historical association with debate over corporate social responsibility, the stockholder theory is expressed in language that suggests the corporate form, e.g., stock, stockholders. Rev. 85, 87 (1995). The Zicklin Center organizes lectures, seminars, and similar events at which thought-leaders in practice and academia discuss their work in this field. "relatedCommentaries": true, (Crane and Matten, 2010). 28 Id. However, I will attempt to show how each of the theories may be generalized to apply to other forms of business as well. 19 Robert C. Solomon, Ethics and Excellence 45 (1992). Currently, the best that can be said about this version of the social contract theory is that it is, at most, as well established as John Rawls’ theory of justice. However, the theory does not seem to address the situation in which one has entered into incompatible agreements within a single community. Certain industries have professional organizations setting and promoting certain ethical standards. 1327, 1330 (1979). Kurs im HIS-LSF Further, even if this did make sense, placing oneself in such a position would appear to be unethical. 937-945. 31 Evan and Freeman, supra note 14, at 82. If you should have access and can't see this content please. 69 It may be more precise to say that the stockholder theory fails to address the obligations arising out of those agreements that are not inconsistent with the managers’ antecedent agreement with the stockholders. However, it does appear to be the first effort to derive the stakeholder theory directly from a widely accepted principle of philosophical ethics. For example, an attorney who represented two parties with conflicting interests would clearly be guilty of a violation of the canon of ethics. The sentence which immediately follows it is: “Changes in state incorporation laws to reflect a ‘constituency’ perspective have already been mentioned.” Id. In simple words, it analyses how people ought to act, in terms of morality. Whenever the stockholders have indicated that they wish their resources to be used for other purposes, the stockholder theory requires managers to attempt to fulfill those purposes, even if doing so comes at the expense of profits. Full text views reflects PDF downloads, PDFs sent to Google Drive, Dropbox and Kindle and HTML full text views. Whether the business concerned is a corporation, partnership, or sole proprietorship, the business’s stakeholders, those who are vital to its survival and success, can be identified. In The Moral Responsibility of Firms, edited by Eric W. Orts and N. Craig Smith, (Oxford University Press, 2016), Amy Sepinwall, “Conscientious Objection, Complicity and Accommodation”. American business ethics are based around the idea that it is possible to maximize wealth and profit while also being committed to upholding values and laws. In order to avoid this ambiguity in the present context, I employ the label ‘stockholder theory’ to indicate that I am referring strictly to a theory of how businesses or business people should behave. The stakeholder theory requires the managers to manage the business for the benefit of these stakeholders, regardless of the business’s form. On this point, it is essential to distinguish between the stakeholder theory as a normative theory of business ethics on the one hand and as either a theory of corporate social responsibility or a theory of management on the other. } At any particular point in time, the theory can be understood as asserting that a business or business person must refrain from engaging in deceptive practices and violating the laws of the land as they exist at that time. 38 (1993). 10.1007/s11406-016-9785-9, Brian Berkey (2017), Review of Dale Dorsey, The Limits of Moral Authority, Ethics, 128 (1), pp. All sessions will be held at The Wharton School, in Room 641 of Jon M. Huntsman Hall. 29 This corresponds to Goodpaster’s strategic stakeholder synthesis and Donaldson and Preston’s instrumental stakeholder theory. See also Friedman, Capitalism and Freedom, supra note 10, at 135. This, however, is wholly consistent with the stockholder theory which asserts that corporate managers are not only legally permitted, but ethically required to restrict the means by which they seek to carry out the instructions of their stockholder principals to those which fall within the ethical boundaries set by the law and the principles of honest dealing and open and free competition. However, the theory is clearly perfectly general. Each implies that all stakeholders are entitled to equal moral consideration. ISBN-10: 0742548414. The specific description of the social contract theory that follows is taken from this source. Normative ethics is the study of ethical behaviour, and is the branch of philosophical ethics that investigates the questions that arise regarding how one ought to act, in a moral sense. Over the 2014-2015 academic year, the Carol and Lawrence Zicklin Center for Business Ethics Research at the Wharton School, University of Pennsylvania, will be convening a regular works-in-progress series for scholars working in normative business ethics (NBE). Oztark, Sevgi Normative Theory and Business Ethics by Jeffery D. Smith, 9780742548411, available at Book Depository with free delivery worldwide. Total loading time: 0.502 Ryan, Lori Verstegen A normative theory of business ethics is an attempt to focus this general theory exclusively upon those aspects of human life that involve business relationships. As a result, the theories of corporate social responsibility should probably be seen as a genus of which what I am calling the normative theories of business ethics are a species. February 21, 2016 February 21, 2016 Tagged Adam Smith, Business, Kant, Locke, Theories. See Thomas Donaldson and Thomas W. Dunfee, “Toward a Unified Conception of Business Ethics: Integrative Social Contracts Theory,” 19 Acad. The fuller articulation it deserves must await a more detailed consideration of the stockholder theory than the present overview of the normative theories of business ethics permits. Download it Normative Theory And Business Ethics books also available in PDF, EPUB, and Mobi Format for read it on your Kindle device, PC, phones or tablets. 23 January 2015. In this article, I undertake a critical review of the supporting arguments for each of the theories, and argue that the stockholder theory is neither as outdated nor as flawed as it is sometimes made to seem and that there are significant problems with the grounding of both the stakeholder and social contract theory. ISBN. 14 See, e.g., Dennis P. Quinn and Thomas M. Jones, “An Agent Morality View of Business Policy,” 20 Acad. Given the wide variety of enterprises that are described by the word ‘business,’ from the smallest closely-held family business to the largest publicly-traded multinational conglomerate, and from the most mission-oriented nonprofit to the most bottom-line-oriented entrepreneurial venture, it is reasonable to doubt whether this term has a definite enough referent for the construction of a general normative theory of business ethics to even be possible. 59, 59 (1980), and, to some extent, as a reaction against the stockholder theory, one of the normative theories to be examined in the body of this article. For ease of expression, I intend to follow the convention and employ the terminology of the corporate form in my representation of the theories. Therefore, to some extent, the comments made in this article may be extrapolated to apply to ISCT as well. Why is ISBN important? As such, it asserts not that managers are, in fact, the agents of the stockholders, but that they are ethically obligated to act as though they were. It is useful to note that Friedman himself offers this deontological argument in support of the stockholder theory, not the utilitarian argument described previously. 67 This is as true of corporations as it is of any other type of business organization. In Rethinking Punishment in the Era of Mass Incarceration, edited by Chris W. Surprenant, (2017), pp. Normative Theory and Business Ethics Jeffery D. Smith No preview available - 2008. Clearly, this is Goodpaster’s multi-fiduciary stakeholder synthesis. Consequentialists believe that an act is right if it leads to good consequences or maximizes good consequences. 48 See Donaldson, Corporations and Morality, supra note 47, at 43. Because several groups are affected by managerial decisions, legitimacy depends on acceptance of this authority by several types of ‘stake holders.’” Jones and Goldberg, supra note 34, at 606 (emphasis added). It follows that in describing a business as a voluntary association of individuals united by a network of contracts, the contracts being referred to are actual interpersonal agreements, not hypothetical social contracts. Temple University School of Law. 65, 81-2 (1995). 16 This argument can be expressed in more philosophically sophisticated language by stating that one who breaches an agreement that induced another to deal with him or her is treating the other merely as a means to his or her own ends, and is thus violating the Kantian principle of respect for persons. 6 Consider, for example, the recent special issue of Business Ethics Quarterly devoted to the social contract theory. Mgmt. See also E. Freeman and D. Reed, “Stockholders and Stakeholders: A New Perspective on Corporate Governance,” in Corporate Governance: A Definitive Exploration of the Issues (C. Huizinga, ed., 1983). As the home of normative business ethics at Penn, the Zicklin Center actively supports Wharton faculty and graduate students, as well as other scholarly partners on research projects that explore ethical issues in business from critical and evaluative perspectives. Bucar, Branko Mgmt. Business Ethics & CSR. Bucar, Branko 5 Business Ethics Quarterly 167 (Thomas W. Dunfee, ed., 1995). Recently, Thomas Donaldson and Lee Preston have further clarified the situation by identifying and distinguishing three different “types” of stakeholder theory; descriptive/empirical, instrumental, and normative. Hisrich, Robert D I conclude by suggesting that a truly adequate normative theory of business ethics must ultimately be grounded in individual consent. This paper has greatly benefitted from the thoughtful comments and suggestions of Thomas Donaldson, Dennis Quinn, and Tom Beauchamp of Georgetown University, Thomas Dunfee of the Wharton School, Thomas Jones of the University of Washington, Ian Maitland of the University of Minnesota, Jeff Nesteruk of Franklin & Marshall College, Douglas Den Uyl of Bellarmine College, Patricia Werhane of the Darden Graduate School of Business Administration, Ann C. Tunstall, and my anonymous reviewers. Every normative theory needs to address these seven issues: it needs to specify a moral principle that identifies (1) recommended values and (2) the grounds for accepting those values. Although this has been the source of much criticism of Friedman’s particular expression of the stockholder theory, it need not concern us in the present context. Thomas Donaldson, “Rethinking Right: Moral Epistemology in Management Research” Journal of Business Ethics. Normative Theory and Business Ethics Jeffery D. Smith No preview available - 2008. Then we analyze publications in the leading business ethics journals for last 30 years and reveal some trends in the changing structure of business ethics research. In fact, there is some question whether all extant social contracts are true agreements since it is claimed that consent is implied by “merely enjoying the benefits of the community or even engaging in transactions within the realm of the community.” Id. A perspective of business ethics that is a simple documentation of what is happening in a business situation is termed _____ perspective. normative. 27 Discourse and Normative Business Ethics 555 the purity of ethical discourses is not neutral or self-evident but normative. By thus limiting its range of application and translating the language of philosophical ethics into the everyday language of the business 44 Philosophers such as Robert Nozick would not accept this contention nor would anyone who argues from a classical liberal perspective. "peerReview": true, 20 Evan and Freeman, supra note 14, at 77-8. 58 Because this version of the social contract theory appears to be based on what is essentially a Rawlsian theory of justice, this task would indeed be a formidable one. The three normative theories of ethical behavior allow us to apply reason to business decisions as we examine the result (utilitarianism), the means of achieving it (deontology), and whether our choice will help us develop a virtuous character (virtue ethics). 11 The additional restriction of Friedman’s formulation that requires managers to engage solely in open and free competition is usually ignored. Published online by Cambridge University Press:  Normative Business Ethics Normative business ethics should address systemic issues such as oversight and transparency as well as the character of individuals who make up the organization. See supra note 25. This apparently accounts for the widespread attention it has commanded among the commentators. Amy Sepinwall, “Blame, Emotion and the Corporation”. As a result, they are often expressed as though they apply only to corporations rather than to businesses generally. 15 Adam Smith, The Wealth of Nations, bk. How does normative ethics develop a framework for defining right and wrong? 33 See, e.g., Donaldson and Preston, supra note 17, at 72, who point out that in most of the stakeholder literature “the fundamental normative principles involved are often unexamined.”. Author: Sophie … 32 Id. I am sincerely grateful to each of them for their assistance. Virtue, deontological, and consequentialist (utilitarianism, for example), theories are all instances of normative ethical theories.These theories aim to arrive at standards or norms of behavior, and in doing so provide a framework for ethical thinking. Scribd is the world's largest social reading and publishing site. I should add that I am not claiming either that the idea of a business as a network of contracts is a new or original insight (its long lineage is indicated by the source I cite in support of it in the immediately preceding note) or that it commands universal acceptance. This data will be updated every 24 hours. 2: Using Case Study 11-1 (pp. 41 The unsupported and counter-intuitive assumption that people are ethically entitled to a say in any decision which affects their interests appears to lie at the heart of most attempts to ground the stakeholder theory, and can be found even in those that predate the ones presently under consideration. Based on your answer develop and support your own strategy for development including the application of outsourcing or insourcing. Moral standards are the yardsticks of business ethics. 4 I am employing this phrase in an effort to avoid the confusion engendered by referring to strictly normative theories as “theories of corporate social responsibility.” The latter phrase has been used to refer to not only normative theories, which attempt to identify the philosophically verifiable ethical obligations of businesses and business persons, but also to theories that are either purely or partially descriptive or instrumental in nature, such as those that focus on businesses’ or business person’s responsiveness to societal expectations or demands. Currently, the stockholder theory is somewhat out of favor with many members of the business ethics community. 22, 24 (1995); William M. Evan and R. Edward Freeman, “A Stakeholder Theory of the Modern Corporation: Kantian Capitalism,” in Ethical Theory and Business 75, 77 (Tom L. Beauchamp and Norman E. Bowie, eds., 4th ed., 1993). Normative Theory and Business Ethics (New Perspectives in Business Ethics) by Jeffery D. Smith (Author), Norman E. Bowie (Foreword), Denis G. Arnold (Contributor), › & ISBN-13: 978-0742548411. For example, an accountant may be required to refrain from engaging in aggressive accounting, even when a particular type of aggressive accounting is not illegal. Close this message to accept cookies or find out how to manage your cookie settings. See, e.g., Thomas M. Jones and Leonard D. Goldberg, “Governing the Large Corporation: More Arguments for Public Directors,” 7 Acad. Far too many essays in business ethics begin with an extended attack on the use of traditional normative theory as applied to problems in business ethics. Robert Hughes, “Imprisonment and the Right to Freedom of Movement”. 3: Using Case Study 9-1 (pp. Thus, whether the managers are officers of a public corporation funded by stockholders, managing partners of a limited partnership funded by the limited partners, or sole proprietors funded by investors, they are obligated to use the business’s resources in accordance with the agreements they entered into with the stockholders, limited partners, or investors. For an early example of this, consider Jones and Goldberg’s 1982 assertion that “if legitimacy centers on the consent of the governed, the legitimacy of corporate decisions made by managers would hinge on the willingness of people affected by these decisions to recognize the right of the managers to make them. }. and However, because any attempt to resolve this point is beyond the scope of the current work, I will assume for purposes of the present discussion that all extant social contracts are true, consent-based agreements. See, e.g., Max B.E. Often, he merely states that businesses should “make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.” Milton Friedman, “The Social Responsibility of Business is to Increase Its Profits,” N.Y. Times Magazine, September 13, 1970 at 32-33. IV, ch. Thomas Donaldson (2015), Where the Facts End: Richard De George and the rise of business ethics, Journal of Business Ethics, 127 (4), pp. Mgmt Rev. 783-787. There are 4 modern Ethical Normative theories, which try to offer a certain rule which can be applied… 66 Robert Hessen, “A New Concept of Corporations: A Contractual and Private Property Model,” 30 Hastings L.J. 45 Like the other theories, the stakeholder theory is expressed in language suggesting the corporate form. The term is commonly used in reference to the discussion of general theories about what one ought to do, a central part of Western ethics since ancient times. Hence, a more detailed examination of this objection must be deferred until a later time. 2003. 26 See R. E. Freeman, Strategic Management: A Stakeholder Approach (1984); Donaldson and Preston, supra note 17, at 71. See Donaldson and Preston, supra note 17, at 69-73. The claim that a corporation is a “creature of the state,” endowed by the government with special privileges not available to other freely-organized forms of business is asserted so frequently that it is typically regarded as a truism. "crossMark": true, 22 This highly telescoped formulation of what is, in truth, a considerably more sophisticated consequentialist argument is employed strictly in the interest of conciseness. Business Ethics Wayne Norman “Business ethics” is a concise, but in many ways misleading, label for an interdis-ciplinary field covering a vast range of normative issues in the world of commerce. 337 (1990). However, given the arguments that have been provided in support of the stakeholder theory as a normative theory of business ethics (to be discussed below), it can not. Normative Theory And Business Ethics by Jeffery D. Smith. NORMATIVE THEORIES OF BUSINESS ETHICS21 A business’s or business person’s ordinary responsibilities are to manage the business and expend business resources so as to accomplish the specific purposes for which the business was organized. To be adequate, however, a normative theory of business ethics should apply to businesses of all types. 47 See Thomas Donaldson, Corporations and Morality, ch. However, because the purpose of the present work is limited to the critical examination of the arguments offered in support of the three main normative theories of business ethics, an attempt to fully evaluate the theories’ adequacy would clearly be beyond its scope. 10.1086/692952. It tries to determine if ethics are universal or a human construct, if ethics can be known by observation, and even why people would want to practice ethical behavior. Brian Berkey (2017), Business Ethics and Free Speech on the Internet, Philosophia, 45 (3), pp. With Tae Wan Kim. Human flourishing may not be the immediate concern of business, but managers and employees have a significant impact on business performance. The theory contemplates the possibility of one simultaneously belonging to several communities with incompatible social contracts and asserts that such conflicts must be resolved on the basis of an unspecified “priority rule.” (It should be noted that, like the filtering test discussed below, as long as the priority rule remains unspecified, it is impossible to fully evaluate this theory.) Normative business ethics Descriptive business ethics Practical business ethics Methodology Scientific approach This is a preview of subscription … Robert Hughes (2017), Would Many People Obey Non-Coercive Law?, Jurisprudence. and The answers to this question fall into two broad categories— deontological and teleological, or consequentialist. 70 This may well be an understatement. Its most general concerns are providing an account of moral evaluation and, possibly, articulating a decision procedure to guide moral action. As the home of normative business ethics at Penn, the Zicklin Center actively supports Wharton faculty and graduate students, as well as other scholarly partners on research projects that explore ethical issues in business from critical and evaluative perspectives. Hypothetical or tacit consent is, in fact, not consent at all, but the presumption of consent where none has actually been given. at 53. 63 This may be an unfair characterization. 43 Donaldson and Preston, supra note 17, at 82-4. Common terms and phrases. This raises the thorny problem of how one can be said to consent to an agreement without being aware one is doing so. "subject": true, 9. Feature Flags last update: Sat Dec 12 2020 07:08:22 GMT+0000 (Coordinated Universal Time) This dependence does not render the theory unintelligible, however. However, once consent has been abandoned as the basis for the social contract, there seems to be no avoiding this. 65 I have argued in the body of this article that there is, in fact, no ethical entitlement to have a say in any decision that affects one’s interests and that the attempts of stakeholder theorists to derive one from Kant’s principle of respect for persons, Rawls’ theory of justice, and a contemporary theory of property rights have been unsuccessful. The theories highlight the need for people to make the right decisions in … However, assuming arguendo that the stakeholder theorists are correct and that such an entitlement does exist, it would certainly imply that individuals are ethically entitled to control their own lives. This, in turn, implies that the stockholder theory is not self-sufficient, but is dependent upon the political theory (which delimits the scope of the state’s power to legislate) within which it is embedded. I am suggesting, however, that it is an accurate characterization of the ethical nature of business, and further, that support for it can be found in the centrality of consent to each of the three previously examined theories. BUSINESS ETHICS AND. This was not the earliest attempt to provide a normative grounding for the stakeholder theory. That this is not, in fact, the case, is amply demonstrated by Robert Hessen in the article cited in the immediately preceding note. Normative ethics is the study of what is right and wrong in general. Business Ethics and Normative Economics WS 2017/18, Simon Derpmann. Bus. and At any rate, it is entirely unclear how the comments cited by Donaldson and Preston provide any support for the assertion that the stockholder theory is normatively unacceptable. Model, ” 20 Acad: Revisited, Redefined, ” 22 Cal, Miroslav and hisrich, D., Lori Verstegen and Dennis, Bryan 2003 simple documentation of what is if! 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