Stakeholders in perspective

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cg special issue cover.qxd

9/9/04

3:29 PM

Page 1

ISBN 1-84544-037-4

ISSN 1472-0701

Volume 5 Number 2 2005

Corporate Governance The International Journal of Business in Society

Stakeholders in perspective Guest editor: Yvon Pesqueux

A partnership project from:

With the support of:

www.emeraldinsight.com

Table of contents Special issue: Stakeholders in perspective Guest editor: Yvon Pesqueux Volume 5 Number 2 2005

Departments Access this journal online Editorial

Feature articles 2

Stakeholder theory in perspective

3

Yvon Pesqueux and Salma Damak-Ayadi

5

A critique of stake-holder theory: management science or a sophisticated ideology of control?

22

Elena P. Antonacopoulou and Je´roˆme Me´ric

Some philosophical issues in corporate governance: the role of property in stakeholder theory

34

Maria Bonnafous-Boucher

Human rights as a normative basis for stakeholder legitimacy

48

Bert van de Ven

Towards the relational corporation: from managing stakeholder relationships to building stakeholder relationships (waiting for Copernicus)

60

Josep M. Lozano

In search of new organizational values: the irruption of beauty in an entrepreneurial creation

78

Herve´ Colas

Changing managers’ values towards a broader stakeholder orientation

89

Sybille Sachs and Edwin Ru¨hli

Stakeholder theory, society and social cohesion

99

François Le´pineux

State as a stakeholder

111

Sibel Yamak and O¨mu¨r Suër

The stakeholders’ perspective on the international business school

121

Albert Sta¨hli

Towards a stakeholder responsible approach: the constructive role of reporting

130

Stefano Zambon and Adele Del Bello

Organizations which make a difference: a philosophical argument for the ‘‘people focused organization’’

142

Ed Weymes

The measurement of responsible governance and management of NPOs in New Zealand: an evaluation tool for NPOs, donors and government. ‘‘If you have no money – you have no mission’’

159

J. Mueller, D. Williams, A. Higgins and M. Tou

Lead, respond, partner or ignore: the role of business schools on corporate responsibility

174

Louise Gardiner and Peter Lacy

VOL. 5 NO. 2 2005, p. 1, Emerald Group Publishing Limited, ISSN 1472-0701

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Editorial s the President of the European Academy of Business in Society (EABIS) and Director General and CEO of the European Foundation of Management Development (EFMD) we would like to warmly welcome you to this special joint edition of the Corporate Governance Journal.

A

We would particularly like to thank this special edition’s editor, Yvon Pesqueux, for all his hard work in pulling this project together. We would also like to thank the journal’s regular editor Nada Kakabadse and the team at Emerald, as well as Matthew Wood from EFMD and Peter Lacy of EABIS.

EABIS and EFMD: a shared vision The publication of this special joint edition is a demonstrable sign of the ongoing spirit of partnership between EABIS and EFMD in working towards a commonly held goal: to raise the bar on knowledge and skills on business in society. We both recognize that for business to be able to create sustainable commercial and societal value, it will need managers with the knowledge and skills to do so. In our partnership, EFMD and EABIS leverage and combine our respective strengths to create a cohesive and ‘‘joined up’’ approach to this issue.

Corporate responsibility in European business education: where are we now? The integration of corporate responsibility in to European business education is at an important crossroads. Many schools have responded, in some shape or form, to the challenge laid down by business for the development of new types of management education that deal with corporate responsibility as an integral part of business operations. However, when looking at the issue from a broader, pan-European perspective, our experience has shown us that there is still a long way to go in achieving true integration of corporate responsibility into the mainstream business curriculum. This was clearly demonstrated by the results of Europe’s first comprehensive assessment of business in society teaching and research, conducted by Nottingham University Business School’s International Centre for Corporate Social Responsibility, in conjunction with EABIS and EFMD. The survey revealed that corporate responsibility is being included in some business education and research, but this is happening in isolated pockets of activity, often led by a specific scholar at a specific school. What is lacking is a coherent institutional commitment to these issues from school leadership downwards. Furthermore, many schools have adopted a ‘‘stand alone’’ framework for including business in society issues in their curriculum, through either compulsory or elective specialist modules: an approach in contradiction to the view of enlightened companies that see corporate responsibility as an integral part of all core business operations. Schools are also overlooking the value of an inter-disciplinary approach to the issue of corporate responsibility: the traditional divisions between disciplines at business schools and at their associated universities often obstruct collaboration on an issue which, by its very nature, requires a diverse approach across different disciplines. This lack of diversity can also be seen in the scarcity of creative thinking regarding the teaching methods employed by business educators in corporate responsibility. Given the diverse social and economic nature of the subject, the traditional boundaries of teaching need to be pushed back to make way for new forms of cognitive and experiential learning.

Business – academic partnerships A creative approach is also required in shaping the corporate responsibility issues included in the management education agenda. In order to prepare students for the real world situations

VOL. 5 NO. 2 2005, pp. 3-4, Emerald Group Publishing Limited, ISSN 1472-0701

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they will inevitably encounter and to develop the future managers they will need, business needs to work with its educators to feed practical knowledge and ‘‘real life’’ issues concerning corporate responsibility into contemporary management education. So far, though, cooperation between the academic and business communities has been slow and uneven. At EABIS and EFMD we have been forging new methods of addressing this disconnect between supply and demand on business in society education. We draw on the EABIS network of leading European companies, business schools and other key stakeholders, and the EFMD global network of over 500 international business schools and companies to develop collaborative and innovative solutions for integrating corporate responsibility into business theory and practice. Our joint experience has highlighted some key learnings on business – academic partnerships. As Peter Lacy, EABIS Executive Director, touches on in his article later in this edition, business schools have several options as to how they can choose to ‘‘lead, respond, partner or ignore’’ their role on corporate responsibility. Due to the nuances of corporate responsibility across geographies and industry sectors, there can be no one prescriptive approach to this issue in business education. What is essential is that business schools work in partnership with companies to ensure they adopt a balanced and business relevant approach that brings value through diversity.

Conclusion In today’s global economy, the social impact of business is being felt on an ever-increasing scale. Business schools, therefore, not only have an essential part to play in developing business leaders that have the skills and knowledge to manage this impact, but they also play a part in setting the agenda for business’ future role in society. As such, corporate responsibility is starting to take on new meaning in the minds of some business educators, and enlightened business schools realize that corporate responsibility, and with it a commitment to combined economic, environmental and social growth, will only progress to the next stage of sustained value creation through effective knowledge and learning partnerships. However, we are now merely at the start of the learning curve, and there is a long way to go before both companies and business schools find ways to embed corporate responsibility as just another element of ‘‘business as usual’’.

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VOL. 5 NO. 2 2005

Stakeholder theory in perspective Yvon Pesqueux and Salma Damak-Ayadi

Yvon Pesqueux is a Professor and Holder of the ‘‘Development of Organisational Systems’’ Chair at CNAM, Paris, France. Tel: +33 (0)1 40 27 21 63, Fax: +33 (0)1 40 27 26 55, E-mail: [email protected] Site Web: www.cnam.fr/lipsor Salma Damak-Ayadi is an Associate Teaching and Research Fellow and PhD student at the European Centre for Research in Finance and Management (CREFIGE) at Universite´ de Paris IX Dauphine, Paris, France. E-mail: [email protected]

Abstract Those who use stakeholder theory as a reference are both underlining the correlation between facts and a certain conceptualization thereof, and trying to make the necessary shift from a ‘‘panoptic’’ analysis akin to a panoramic vision of texts and positions, to an ‘‘in-depth’’ one geared towards an understanding of their foundations. As a ‘‘theory of organizations’’, stakeholder theory helps to nourish a relational model of organizations by revisiting questions about ‘‘who’’ is actually working with (and in) the firm. Stakeholder theory is part of a comprehensive project that views the organization-group relationship as both a foundation and a norm. Keywords Business ethics, Stakeholders, Management theory

Introduction Stakeholder theory has become the focal point of a great many debates. It frequently serves as a point of reference in agents’ discourses, in their acts and in a host of ‘‘management science’’ studies (and even political analyses). Its current tendency is to impose itself as a point of reference by imitating corporate social responsibility policies, to such an extent that it has taken on the allures of a dominant discourse. This explains the proliferation of false arguments currently circulating on this subject. The purpose of the present text will be to recall those elements of comprehension that are a requisite in any references to stakeholder theory, and to suggest elements of evaluation. The question we ultimately ask is whether it is because of stakeholder theory’s apparent facility that it is so pleasing – even though its false evidence may in fact be masking ambiguities that could lead many analysts astray, whether or not they lend any credence to this school of thought. This theory constitutes a core issue in ‘‘pseudo’’ disputes today, a state of affairs attesting to the status of ‘‘the serious thing’’ that is the firm, and translating the existence of an US intellectualism in the field of management sciences. Texts derived from such discussions have gone forth and multiplied, filling up our libraries with cross-references and book synopses, and with ‘‘reviewers’’ and alternatively ‘‘reviewees’’ happy to join one or the other of the categories underpinning this construction of ‘‘academic capitalism’’. In truth, the very same criticism can also be made of the present text, even though its ambition is to position the elements needed to ‘‘decode’’ stakeholder theory at a level beyond the evidential one that would appear to be its lot. The very expression ‘‘stakeholder’’ has become so widespread today that many pundits have forgotten that it first arose in the USA as a liberal reaction (remember that what our US friends

DOI 10.1108/14720700510562622


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call ‘‘liberal’’ is what we would call oppositional) to the primacy being bestowed upon financial value, led by the figure of the shareholder – a primacy that became legitimate during President Reagan’s time in office. Here it is worth remembering the operation suggested by Ricoeur (1997) in the title of his book devoted to questions of ideology: utopia asks questions where ideology legitimizes, in which case stakeholder theory plays the role of a utopia. However, Ricoeur also warns us against the way in which utopia is co-opted by ideology. This is yet another issue we will have to deal with, given stakeholders’ presence inside of the old managerial utopia of agonism[1], i.e. the utopia of refusing to recognize the existence of antagonisms in the firm. Workers, shareholders, we are all in it together! Note first of all the speed with which this corpus has developed, as witnessed by the proliferation of articles and conferences on this subject. Academic research has reserved a special place for stakeholder theory over the past few years. According to Donaldson and Preston (1995), more than 100 articles and a dozen books have been devoted to this topic, with most having been published in reviews like Business Ethics Quarterly and Academy of Management Review. However, when taken out of its US cultural context, the stakeholder concept becomes a relatively vague one. It benefits from an ‘‘imperialist’’ effect relating both to the fact that it belongs to the field of management sciences and also to its US origins. The idea here is management sciences are so indebted to US sources that it might as well accept the stakeholder construct without any further to do . . . Yet culturalist understanding is rich with potential. Stakeholder theory could be construed as existing along the same lines of understanding as those that we inherited from de Tocqueville (1835), with his vision of US democracy and its ‘‘heritage of pious merchants’’ whose interests can best be seen in the light of their ‘‘moral equality’’. It may also be congruent with the vision that Max Weber described in 1904 when commenting on Benjamin Franklin’s 1748 opus, Advice to a Young Tradesman. What we should not forget is the absence of this figure of the tradesman (or of his more generic version, the businessman) in Continental Europe, where the bourgeois was much more of a reference point. According to Mercier (1999), stakeholders are ‘‘all of the agents for whom the firm’s development and good health are of prime concern’’. Freeman (1984) defines them as ‘‘any group or individual that can affect or be affected by the realization of a company’s objectives’’. Ethical considerations are what have driven stakeholder theory’s rise, having been deployed as a way of constructing its normative aspect (the idea being that we are all stakeholders). For Donaldson and Preston (1995), stakeholders are defined by their legitimate interest in an organization. This implies that: J claimants are groups or persons with legitimate interests; that they are known; and that they have been identified; and J all stakeholder groups’ interests have at least a modicum of intrinsic value. Nowadays (Caroll, 1989), we usually distinguish between: J ‘‘primary’’ stakeholders, referring to those actors who entertain a direct and contractually determined relationship, as the name indicates, with the company (and who are sometimes still called ‘‘contractual’’ stakeholders); and J ‘‘secondary’’ stakeholders, combining actors who are situated at the borders of a firm and who may be impacted by its actions without having any contractual connection to it (a group that is still described as ‘‘diffuse’’ sometimes). Other distinctions exist as well, including between internal stakeholders; ‘‘traditional’’ external ones; and other external ones with the power to influence matters. Pelle Culpin (1998) offers a further distinction between institutional stakeholders (those involved in laws, regulations, interorganizational entities, plus professional organizations that may be specific to a given industry); economic stakeholders (actors operating in the markets of the company in question); and ‘‘ethical’’ stakeholders emanating from ethical and political pressure groups (a group whose figuration may be more difficult to define).

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Those who use stakeholder theory as a reference are both underlining the correlation between facts and a certain conceptualization thereof (section 1), and trying to make the necessary shift from a ‘‘panoptic’’ analysis akin to a panoramic vision of texts and positions (section 2), to an ‘‘in-depth’’ one geared towards an understanding of their foundations and highlighting its ambiguities (section 3).

1. Correlation between facts and conceptualization As indicated by Le´pineux (2003), stakeholder theory sprang out of a maelstrom of ‘‘affairs’’. In 1967, community groups in the USA invited themselves to an Eastman Kodak AGM against a backdrop of racial tension and mass unemployment among Greater Cleveland’s black population. In the USA again, consumer organizations invited themselves to a General Motors’ 1970 AGM to complain about safety defects on the cars being sold, and to ask other questions about group social practices. The grilling of GM’s board of directors received a great deal of media airtime. Both of these ‘‘generating facts’’ attest to the significance that executives in these large companies attached to the ‘‘societal’’ dimension, and to shareholder activism’s potential for criticism. In the UK in 1997, several shareholders began to ask questions about the political nature of Shell’s relationships with the Nigerian government of the time, thereby highlighting a whole series of human rights and environmental protection issues. This ‘‘affair’’ is considered the starting point for stakeholder governance, i.e. for the emergence of shareholder activism. 1.1. Stakeholders and corporate governance Facts of this ilk (some of which are still imbued with a symbolic dimension) are the forces that gave birth to the shareholder capitalism-stakeholder capitalism debate for which stakeholder theory has been a bedrock (Friedman, 1970; Jensen, 2002). Corporate governance issues highlight any and all relationships that may exist between a firm and its partners. In other words, they have contributed greatly to the development of stakeholder theory’s practical aspects.

1.2. Counting all stakeholders The stakeholder issue raises questions about how such parties are to be counted. Le´pineux (2003) suggests classifying them into different categories of actors: J shareholders; J internal stakeholders (employees; labor unions focused on issues such as employees’ direct and indirect participation – via their pension funds – in the firm’s capital structure, and on issues pertaining to union representation and/or to a shareholder activism that can be implemented either working alone or else with other investors who also want to get their resolutions adopted); J operational partners (customers; suppliers – including subcontractors; banks acting as creditors but also as parties that expect stability and solvency; and insurance companies having to contend with classes of risk currently undergoing a substantive and in-depth renewal, i.e. ‘‘greater’’ catastrophes related with climatic changes today); and J the social community (state authorities; specialized organizations like trade unions; nongovernmental organizations; and civil society). For this latter category, NGO interventions were what first triggered the current debate. One example is the denunciation of the environmental spoliation being caused by oil, mineral and chemical companies, etc. (air and water pollution, deforestation, toxic waste, etc.). Wellpublicized trials by media have progressively mutated into greater collaboration with the companies involved. Modern NGOs unite a host of different entities that can be quite disparate in nature, both in terms of their scope and also as regards their geographic reach (with the largest ones being structured into international networks). Moreover, their areas of competency

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have expanded from green issues in the 1980s to include human rights now, such as these are conceived of by the ‘‘stakeholder’’ concept using the ethical and political precepts it tries to apply. 1.3. The ambiguity of ‘‘social community’’ when seen as something ‘‘singular’’ or ‘‘plural’’ The US construct of ‘‘community’’ is often mentioned as one of the stakeholders in regards to which firms are supposed to behave responsibly. Waddock and Boyle (1995) noted a shift in focus from relationships geared towards a single (close) community, towards more complex relationships with a multitude of communities that can be both close and more distant. This shift has led to greater reliance on the stakeholder concept. The challenge here is how to define the community in its stakeholder form (Altman, 2000) in such a way as to account for the multiplicity of groups concerned, while covering whatever they may have in common among themselves (as well as the modalities for managing such relationships). 1.4. Stakeholders’ changing action modes Le´pineux (2003) tried to classify these relationships by distinguishing between: J the shift from dialogue to partnership (i.e. NGO representatives’ presence in decision-making processes and/or the acquisition of shares so as to have the right to question executives at AGMs – all portrayed as shareholder activism in full flow); and J the proliferation of the sorts of instruments of pressure that can be brought to bear within a conflictual context, including suggesting resolutions at AGMs, hijacking a company’s communications resources (‘‘right-wrong’’ Web sites, counter-advertising, etc.) opinionshaping campaigns, organizing boycotts and lawsuits. But stakeholder theory is different from a mere classification exercise. As shown by an analysis of the texts comprising this school of thought, it is in fact a plan to rearrange the theory of organizations by incorporating ethical perspectives or, if one prefers, by enhancing said theory.

2. A ‘‘panoptic’’ analysis of stakeholder theory Before suggesting any investigations of the field covered by stakeholder theory, we should remember its postulates: J An organization will maintain relationships with several groups that affect or are affected by its decisions (Freeman, 1984). J Theory will be dependent on the nature of such relationships because of the way in which the processes involved, and the outcomes achieved can affect society and stakeholders. J Stakeholders’ interests have some intrinsic value, but no one interest should be able to dominate all of the others (Clarkson, 1995; Donaldson and Preston, 1995). J Theory is interested in managerial decisions (Donaldson and Preston, 1995). In regards to the concept of (corporate social) responsibility, stakeholder theory has two variants: J The first relates to the empirical nature of responsibility. Theory here is based on the idea that an organization’s interests are the first to be taken into account, and that its subsequent efforts are then ‘‘divided’’ up among its various stakeholders in a way reflecting their respective levels of importance. Here information is seen as a crucial element allowing the organization to ‘‘manage’’ its relationships: at the very least to avoid stakeholder opposition; and where possible to gain their adherence. J The second relates to the organization-stakeholders relationship, conceived of here as a social relationship implying the genesis of an organization’s responsibility to its stakeholders. This is a normative approach to responsibility. The article by Donaldson and Preston (1995) offers a taxonomy of the different stakeholder theories by placing them into three separate categories. Based on the following elements, this taxonomy has served ever since as a benchmark for this field:

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J Firms and managers act with moral perspectives in mind (category 1, which is normative). J Achieving results becomes more doable if managers act with moral perspectives in mind (category 2, which is empirical and instrumental). J Organizations and managers behave with specifiable moral perspectives in mind (category 3, which is empirical and descriptive). Jones and Wicks (1999) think that this typology helps to delineate the intellectual areas that are covered by stakeholder theory’s two founding schools: the empirical stakeholder theory (based on descriptive and instrumental perspectives); and the normative theory (based on ethics). Hence their suggestion, above and beyond the aforementioned ‘‘disputes’’, of a ‘‘convergent’’ stakeholder theory predicated on the following arguments: J Postulates: organizations operate publicly in an economic marketplace that can be described as competitive; decisions are taken by professional managers; and behaviors are contingent (on circumstances and contexts). J Theory focuses on the manager-stakeholder relationship, which is deemed to have moral foundations. J At the same time, theory is also empirical and normative since it offers practical results, i.e. describable norms. It remains that this perspective has been criticized as lacking in formal construction or empirically testable variables (Donaldson, 1999; Trevino and Gray, 1999). Another distinction traverses this corpus (Mitchell et al., 1997) between those who refer to stakeholders as representatives of a moral or economic interest (with ‘‘diffuse’’ stakeholders not necessarily entering the equation). 2.1. Is stakeholder theory empirical in nature? This initial question requires first of all a precise delineation of the framework that surrounds stakeholder theory in its two variants. 2.1.1. Descriptive stakeholder theory This is the thesis that Donaldson and Preston (1995) put forward. In their opinion, this theory considers that organization is what one finds at the center of cooperation and competition situations, each of which possesses its own intrinsic value. Here the theory is being used to describe (and sometimes to explain) specific characteristics and behaviors, including for example firms’ nature (Brenner and Cochran, 1991), how executives’ management of their firms should be conceived of (Brenner and Molander, 1977), how some organizations are actually being managed (Halal, 1990; Clarkson, 1991; Kreiner and Bhambri, 1991), the diffusion of societal information (Ullmann, 1995; Pelle Culpin, 1998), the notion of target stakeholders (Mitchell et al., 1997) and the significance attributed to each stakeholder, something that will vary depending on the phase that a firm has reached in its lifecycle (Jawahar and Mclaughin, 2001). This descriptive approach only allows for exploratory propositions, however. It does not enable any connection to be made between stakeholder management and traditional business objectives (growth, earnings, etc.). 2.1.2. Instrumental stakeholder theory Instrumental stakeholder theory was advanced by Jones (1995). The main idea here is that everything else being equal, firms that practice stakeholder management will perform better in profitability, stability, growth, etc. terms. One accepts that ‘‘certain’’ results can be obtained if ‘‘certain’’ behaviors are adopted. In other words, the instrumental theory is a contingent one (meaning that it involves reliance on certain types of behavior).

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Several recent studies have referred to the instrumental theory implicitly or explicitly by using conventional statistical methodologies focused on: J the relationship between the pressure that stakeholders can bring to bear and the way in which strategy is formulated (Weaver et al., 1999); and J the relationship between social and financial performance (Cochran and Wood, 1984; Cornell and Shapiro, 1987; Barton et al., 1989; McGuine et al., 1988; Preston and Sapienza, 1990; Preston et al., 1991). Due to the diverse nature of the outcomes obtained, however, no clear relationship in one direction or the other can be affirmed. 2.2. Is stakeholder theory normative in nature? Donaldson and Preston (1995) also stress stakeholder theory’s normative bases. In their opinion, this perspective is distinct from the functionalism found in empirical theory. Instead of compiling data and using ad hoc quantitative methods to test hypotheses, the focus here is on normative outcomes, hence on specifying the moral obligations found beneath stakeholders’ positions. What the various approaches of this kind have in common is the fact that they treat stakeholders both as an end and also as having interests that possess an intrinsic value. The narrative interpretation also characterizes the normative perspective by offering narrative representations of firms’ moral behavior. Here emphasis is placed on the ethical obligations a firm faces, and on how it can satisfy them without denying its interest in achieving economic success. A further goal is that of explaining how it is that the objectives being pursued by the actors themselves (by the stakeholders and by the organization) can be mutually reinforcing. Researchers adhering to this school of thought will try to uncover the ‘‘best’’ alternative so as to steer corporate activities in ethically more constructive directions. They aver that individuals will modify the language they use (expressing conceptual schemes through images and metaphors) depending on how they think and act. In other words, actors’ underlying representations will influence the individual conceptions via which ‘‘reasonable’’ strategic actions are developed.

Such studies entertain close relationships with the search for paradigms found beneath the interpretative theory of organizations, which affirms that individuals will build and maintain their own organizational realities at the social and symbolic levels. 2.3. How are the different stakeholder theory approaches related? The typology we have just presented can be criticized as being derived from a positivism whereby it is assumed that descriptive theory will tell us how the world really is; that normative theory will prescribe how it should be; and that instrumental theory will indicate the shape we can give to it. The main points of divergence between the two theoretical perspectives are as follows: J Stakeholder theory’s descriptive side reflects and explains the past, present and future. It tends to generate exploratory and predictive propositions, whereas instrumental precepts try to apprehend the connection between stakeholder approaches and mutually beneficial outcomes such as profitability. The instrumental approach is generally used to explore the relationship between causes (the management of stakeholders) and effects (organizational performance). Normative theory tries to study these relations based on their ethical aspects and philosophical principles. In other words, the instrumental approach is mainly hypothetical (i.e. to achieve an objective ‘‘X’’ one needs to adopt – or not to adopt – principles and practices ‘‘Y’’), whereas the normative approach is categorical rather than hypothetical (doing or not doing something because it is the right – or wrong – thing). Hence the qualifier of ‘‘Kantian capitalism’’ given to some of its avatars. J Depending on the point of reference being used, there may be some disagreement about Donaldson and Preston’s (1995) typology. In an interpretative perspective, there is nothing

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automatic about the empirical-normative distinction (for instance, what is the interpretation based on?). Furthermore, certain ‘‘normative’’ studies affirm that moral behavior has no need of being justified, since morality possesses its own innate merits. Such studies consider that the biggest contribution of the instrumental theory’s habitual variant is that it allows for the prediction of certain forms of moral behavior will be sanctioned in the end, even though this may not occur in the short or medium term. J ‘‘Narrative’’ modes seem unable to achieve the status of ‘‘good research’’, even if one does accept that it is possible to derive acceptable theory from narrative representations. After all, how does one distinguish between ‘‘good’’ and ‘‘bad’’ representations given that theoretical representations of this sort spring from their narrators’ own imaginary worlds? J Jones and Wicks (1999) believe that ‘‘good’’ theory must help individuals to lead ‘‘better lives’’ within organizations. The question here is whether one should in fact validate the idea that narrative representations do actually help people to lead ‘‘better lives’’ in the absence of any empirical verification for this proposition. J The interpretative theory contrasts with attempts to give higher marks to studies that try to create consensual paradigms. Weaver and Trevino (1994) have suggested a hierarchy of interactions between empirical and normative theoretical perspectives based on three different conceptions: 1. parallelism; 2. symbiosis; and 3. integration. This perspective is grounded in two main ideas. The first is practical in nature and refers to stylistic and methodological differences amongst different empirical and normative requirements. The second is conceptual and involves theoretical conceptions and hypotheses, mainly as regards human behavior, which is portrayed as being mechanistic in the empirical approach and autonomous and responsible in the normative one: J For conceptual and practical reasons, parallelism rejects any connection between the empirical and the normative. In a sense, the only items that the two perspectives have in common are a ‘‘certain’’ interest in ‘‘certain’’ types of behavior. There is no connection between the two, however. Empirical research is carried out without any reference to philosophical, ethical or religious developments. The opposite holds true as well. J Symbiosis signifies that the two perspectives (empirical and normative) feed into one another but remain distinct in terms of their theoretical principles, methodologies and hypotheses. A symbiosis principle is conducive to the existence of at least a modicum of agreement in given areas, i.e. in addition to both approaches’ interest in the same area of research they also share certain values and explanations. The shared values include the idea that stakeholders’ demands do possess some intrinsic merit, and that egotism is to be rejected since it is impossible for an individual or an organization to serve its own purposes and nothing else. Interest in others is therefore a norm that the two theories share. This theme has been covered in several studies including the debate on corporate social responsibility (Jones, 1995), the moral debate (Konrad, 1982), ‘‘Kantian capitalism’’ (Evan and Freeman, 1983; Bowie, 1994), feminist approaches and property (Donaldson and Preston, 1995) and agents’ morality (Quinn and Jones, 1995). Regarding the compatibility between morality and capitalism, the two aforementioned values do not intimate that acting in one’s own interest necessarily constitutes something suspicious. What is suspicious, however, is the strict search for profit. A ‘‘reasonable’’ consensus exists around the idea that if capitalism is to be in good health it will require a ‘‘modicum’’ of morality. There is only partial agreement on these values, however. Normative theory considers morality as something that ‘‘by its very nature’’ is a given, even though the actual source of this morality has long been a topic of heated philosophical debate. Empirical and normative studies also share certain general explanations. Jones and Wicks (1999) believe a consensus exists that it is unlikely that descriptive theory will develop much further in the short run. They also consider economic

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theories’ opportunism hypotheses as being much too simplistic. Elements like irrationality, altruism, generosity, cooperation, trust, honesty, interest in others, etc. are just as typical a characteristic of human behavior. Lastly, there is widespread conviction that those organizations that focus on stakeholders and behave in a socially responsible manner perform better than those that only seek financial gain. J Integration signifies that the two perspectives can be seen as belonging to one and the same theoretical framework; and that they manifest themselves via the importing of concepts (with one approach evoking concepts found in the conceptual framework of the other), theoretical reciprocity (incorporation of both empirical and normative theory in one and the same study) and theoretical unity (rejection of distinctions between the empirical and the normative at the methodological and meta-theoretical levels). Authors from this school consider that all theory is incomplete when it is exclusively empirical or normative in nature. Methodologies and hypotheses can be combined if such an action is grounded in a partial consensus driven by whatever points are shared by the different components involved. Integration leads to a recognition of empirical theory’s normative foundations (principles of mutual trust and cooperation), thereby increasing their credibility. It remains that integration has been sharply criticized by Freeman (1999) as being incapable of avoiding the deontologism-consequentialism debate. Stakeholder theory also contains ambiguities that an in-depth examination should be able to reveal.

3. An in-depth analysis of stakeholder theory Despite its ostensible facility and ‘‘false’’ evidences, stakeholder theory was born in correlation to the ‘‘liberal movement’’ of the 1980s and is therefore rooted in the developments of the philosophical school of thought that we can call ‘‘neo-liberal’’. It is with regards to the various categories that make up this particular school that we can offer the modalities for a comprehensive and ‘‘in-depth’’ analysis, once we have taken all necessary precautions against the ‘‘exoticism’’ that one needs to mention when referring to this particular corpus. Indeed, it appears to be entirely unacceptable for an analyst to make any remarks whatsoever regarding stakeholder theory without simultaneously commenting upon its presuppositions, grounded as they are in the pragmatic foundations of this particular school of philosophy. The authors themselves recognize this affiliation (at least Donaldson, Goodpaster and Freeman do). Didn’t they all used to study philosophy? Phillips et al. (2003) have been forced to express themselves on the incorrect usages being made of this theory. Among other things, they have affirmed that it constitutes an ethical theory of organizations – a point of view to which we will return at the end of our argument, albeit in regards to other elements. The analysis we are pursuing here is based on arguments that are quite different from the ones put forward by these two authors. This is because the theory is not actually a contractualist one. It is born in US ‘‘neo-liberal’’ philosophical perspectives whose central purpose is to develop a theory of justice. The stakeholder concept can be seen as referring to a communitarian perspective, with the stakeholder thereby helping to define the contours of a group to which actors can belong on a nonexclusionary basis. Indeed, this is what constitutes the theory’s wealth and its ambiguity. A citizen can simultaneously be a customer, shareholder, employee and a ‘‘diffuse’’ stakeholder. Analysis of his/her position should be organized in terms of the category (defined by the particular type of search for fairness involved) that is relevant to the specific stakeholder role s/he is playing at a given moment in time. 3.1. ‘‘False evidence’’ in stakeholder theory The first false evidence in stakeholder theory relates to its ostensibly descriptive status, which may justify using a ‘‘Mintzberg complex’’ (1999) to qualify this theoretical perspective. In much the same way as organizations that used to live ‘‘happily’’ before it came along allegedly suddenly turned into adhocracies or professional bureaucracies, now they are deemed to have become the central foci for stakeholders! In which case it is possible to assert that stakeholder theory is merely a reformulation of the old introductory lesson in corporations and partners, this

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time around using an ostensibly more ‘‘modern’’ discourse. This viewpoint raises questions about the not always very obvious dichotomy that is said to exist between the theory’s descriptive usage (does it create better descriptions?) and its normative usage (are we all stakeholders or else destined to turn into one?). A further usage is supposedly found in the strategy categories. This involves an intermediary expression that one can apply in its vaguest connotation, with the stakeholder reference being seen as something enabling a superior formulation of strategy (or strategic discourse). The idea here is that stakeholder theory serves to reinvigorate functionalism by not answering any questions about what it is that constitutes an organization’s actual foundations. What we would then be dealing with is an organizational metaphor that is ideological in scope. Simplification and incantation would be some of the traits of this construct, which is capable of specifying ‘‘friendly’’ or ‘‘enemy’’ factors at both the conceptual and the ‘‘real’’ levels (this being the place where we uncover one aspect of its embeddedness in pragmatism). The second false evidence pertains to the possible merger between stakeholder theory and ‘‘the new theories of the firm’’. Hill and Jones (1992) see the former as being generalized throughout the different categories of agency theory, in the sense that they focus mainly on the stakeholder-manager relationship. In this sort of ‘‘forced’’ contractualist perspective, managers are depicted as agents, whereas stakeholders are distinguished from one another on the basis of their importance and power vis-a`-vis managers. When reinterpreted thus, agency relationship involves, in accord with market ‘‘mechanisms’’ and the ingredients comprising its logic, a balancing of interests. Freeman and Evan (1990) integrated stakeholder theory into the transaction cost theory that Coase (1937) and Williamson (1985) had developed based on the assertion that managers are there to ‘‘manage’’ contracts with employees, owners, suppliers, customers, communities, etc., with a view towards developing ‘‘fair contracts’’ that should be analyzed as the necessary moral precondition before the different parties can commit themselves. Since all parties have an equal right to sign contracts, any group is capable of investing in specific transactions that might affect the other groups, but in so doing the goal should remain that of developing a mode that enables conflict resolution and safeguards the rights of all committed parties. Here the concept of ‘‘fairness’’ becomes a key benchmark since it is based on the normative perspectives that are inherent to human behavior. Donaldson and Preston (1995) tried to connect stakeholder theory to property rights theory to justify the idea of getting property rights categories to represent the interests of stakeholders other than shareholders. The main difficulty here is how to connect different stakeholders by means of property rights that have been reduced to their formal dimension, and to do this within a distributive justice perspective. Remember that distributive justice is a key concept in modern neo-liberal philosophy, with its reference to Becker (1992) and especially Rawls (1987). The reference to Becker seem particularly strange given the fact that many ‘‘much more’’ important philosophies have already dealt with this question. This reference was primarily chosen in an attempt to devise a property theory that can be correlated with stakeholder theory (so that each stakeholder can be allocated legal rights and formal property rights). Freeman (1994) has in fact already validated this stance. Jensen (2000) severely criticized stakeholder theory in this respect, however, when he complained that it does not allow for a sufficiently objective substantiation of a company’s mission, and that it provides an excuse for executive opportunism. It remains that these attempts to connect stakeholder theory to ‘‘the new theories of the firm’’ have stumbled over several postulates and their underlying hypotheses. These include: J the market efficiency postulate, since the normative foundation of stakeholders’ interests leads to their being recognized as possessing social ‘‘depth’’, in turn disturbing the ‘‘purity’’ of the economic signals being diffused; J the normative perspective, which is not in tune with the methodological individualism postulate; and J inter-individual contractualism is replaced by a categories-based contractualism that imbues it with a metaphorical dimension.

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The third false evidence relates to the theory’s psychological aspect and is part of a drive to refuse egotistical subjects and to accept more reflective ones that are merely expressing a desire that they may have. In referring to a ‘‘generic’’ subject, however, the theory is seeking less of a footing in neo-liberal perspectives (particularly those found in an ultra-liberalism predicated upon the bestowal of radical primacy upon individuals, and therefore on the proliferation of rights that can be valued in a ‘‘market’’). Instead, it is sinking roots into a civic type of republicanism (belief in the existence of a ‘‘common good’’ that adapts stakeholder interests so they can encompass ‘‘civic virtues’’; plus a denunciation of deviations like the type of corruption that is caused by a conflict of interests – this being the place where we spill over into governance questions). The fourth false evidence relates to its sociological aspect. Stakeholder theory features subjects that are ‘‘generic’’ (customers, suppliers, employees, etc.) but which do not constitute social categories. What we should be mostly discussing here is stakeholder theory’s contribution to the anthropological conception of organizations that benefits from this genericity. The generic subject that is the subject of the organization still appears here in his/her daily reality, i.e. in the concrete and peculiar form of ‘‘being in situation’’. As such, stakeholder theory paves the way for kinds of categories where subjects can have two reasons for belonging: one as the fully formed human beings they are; and the other as a specific form thereof. By so doing, stakeholder theory offers a sort of false validation for cultural studies that, it should be remembered, advises rethinking about cultures no longer in terms of any culture-nation links but instead in light of the culture-social groups connection (Hoggart, 1973; Hall and Jefferson, 1975; Willis, 1977; Hall and Jacques, 1990, etc.). Cultural studies of this ilk currently enjoy a great deal of media-driven success in business school education and research. The ‘‘masses’’ and the perspectives for understanding them have replaced ‘‘class’’-oriented reasoning, with stakeholders constituting the figures used to enhance understanding of these ‘‘masses’’ based on a ‘‘complex equality’’ between each of their individual interests. Of course, with its reference to a roles concept, stakeholder theory does have something to contribute to the sociology of organizations. Along with Crozier and Friedberg (1977), it should be remembered that an actor is someone who plays a role in an organization based both on his/her imaginary world (possibility of identifying with an ideal person or of masking one’s personality) and functional aspect (involvement in a specific situation). As such, the stakeholder concept offers the socialization process a comprehensive perspective whereby it becomes possible to design an ideal-type role combining organizational and personal aims. This would also mean being able to imagine stakeholders being brought back into the ‘‘old’’ categories, as analyzed by Katz and Kahn (1966, 1978) when they distinguished among varying expectations of role, role transmission, role reception and behavior within a role. It is also by starting out with this role concept that we can move on to a games concept related to cultural models of society. Here stakeholders are seen as concrete evidence of such ‘‘games’’ socialization power – in which case the stakeholder concept does indeed lie at the heart of the role-game-strategy trilogy – and of the influence concept. After all, influence is what creates a perspective that can be both intentional and interactional. It also creates a duality between substantive rationality (values) and procedural rationality (codifiable behaviors). At the same time, stakeholders are characterized by an erosion of the universalistic nature of social contracts. They open the door to a cultural relativism that is connected to each and every one of them. We should also stress, from an ideological point of view, the theory’s absorbent characteristics: J From a descriptive point of view (since it appears to ‘‘use up’’ organizational description due to its exhaustive nature). J From a normative point of view (since as many stakeholders crop up as are necessary, with ‘‘diffuse’’ ones following in the steps of their ‘‘contractual’’ counterparts). J From a deterministic point of view (in which case all stakeholders are to be viewed as the structuring agents of an organization, this being the very expression of their ‘‘essence’’).

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J From a theoretical point of view (with stakeholder theory being seen as a parallel to the transaction cost theory that it echoes – and the same applying to the contractualist perspective, even though what we are dealing with in the present case is a ‘‘pseudocontract’’). The two corpuses benefit, in a multiplicative manner, from their respective outlooks. The moralism found in stakeholder theory combines with the contractualism and economicism found in transaction cost and agency theories (Clarkson, 1995). J From a justificatory point of view (with philosophy and ethics entering alongside of it into the domain of ‘‘affairs’’). J From a ‘‘spontaneist’’ point of view (given stakeholders’ ‘‘indisputable’’ existence). Here we are having to contend with the fact that it is relatively easy for many of the theories that one finds in the social science fields to be turned into ideologies (Boudon, 1986). All this requires is: J simplification; J a semblance of representativity; J a vehicle for comprehensive presuppositions; and J a sympathetic aspect. This justifies our questioning of the quality or inversely the relative mediocrity of any references to this theory, particularly given the way its legitimacy has developed over time. Built in opposition to the figure of the shareholder, the stakeholder first appeared as a means for preventing the merry-go-round of excessive dividend distribution, before being ‘‘co-opted’’ (as is so often the case with criticisms) to such an extent that stakeholders are now viewed as the expression of a communitarian liberalism that has started to ‘‘sag’’ due to the ‘‘spontaneist’’ nature of its occurrence. Of course, its main ambiguity stems from the fact that ‘‘non-stakeholders’’ are ‘‘legitimately’’ excluded – raising questions as to what society these excluded parties belong to. Stakeholder theory is neither economic, nor psychological, nor sociological, nor (and this is crucial for anyone interested in ‘‘the theory of organizations’’) psycho-sociological. Ultimately it is ethical, with all the ambiguity and richness that this entails. 3.2. The ethical foundations of stakeholder theory All in all, stakeholder theory raises a number of questions about the actual ethical bases upon which it is based. At the very least, authors in this field agree that it requires some ‘‘practical’’ aspects so that it can be grounded in ‘‘applied ethics’’ from the very outset. Nevertheless, this formal perspective does not resolve all of the questions pertaining to the theory’s foundations. Is stakeholder theory rooted in needs or in desires? This question is a source of ambiguity. We find both aspects with so-called contractual stakeholders (expression of the need for ‘‘honest’’ sourcing from suppliers; the confusion between needs and the desire for honesty from customers; the desire with shareholders for honest gains). On the other hand, neither needs nor desires are capable of accounting for the foundations of the expectations of diffuse stakeholders working to develop ‘‘good lives’’ that they can use as a benchmark. For this group, the goal is to ‘‘wake up’’ at the right time, that is, whenever their ‘‘good life’’ starts to be perturbed by the consequences of a firm’s actions. More generically, and above and beyond the duality between needs and desires, we might be able to use the concept of people’s interests to ascertain the foundations for stakeholdership. Here stakeholders are situated in categories defined by the modern reinterpretation of moral sentiments. Remember the simultaneously ontological and normative perspective by which moral sentiments are characterized. In this vision, honesty is construed as a moral sentiment, and is connected to the subject at a fundamental level because of the honest subject’s presuppositions, and because of the way in which s/he normalizes his/her behavior depending on circumstances. To a certain extent, moral sentiment is situated between reason and emotion: reason because it provides an axiological foundation for behavior (which can be either

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‘‘good’’ or ‘‘bad’’); and emotion because of its deeply subjective underpinnings. Stakeholder theory is therefore a means for narrating one’s ‘‘good life’’ to oneself, against the backdrop of the moral substance of today’s economic activities, and from an eudemonistic perspective (based on a conception of happiness) as opposed to a hedonistic one (solely based on desires). In fact, it is at this level that the theory can be truly described as a ‘‘theory of organizations’’. It is also here that stakeholder theory can be linked to countless organizational narratives (Pesqueux, 2001). The present text will not linger on this question of narratives, but it should be noted that it is in this sense that the stakeholder concept is attached to membership categories as opposed to citizenship ones (Walzer, 1998). Having started out with the theory’s ethical foundations, we can now shift to its political consequences, and discuss the contours of stakeholder capitalism (creation of value for customers, suppliers, communities, employees . . . with shareholders and banks only coming at the end of the chain). Freeman is one of the most fervent defenders of this construct, but also of stakeholder society, a vision that Hutton (1999) helped to found. Yet is not true that both these schools raise the question of democracy only after having first embedded it in capitalism, which they construe as a political order? And don’t both perspectives lead to a conception of democracy in which it is defined using the stakeholder construct? There is little doubt that these visions constitute a reversion to the contours of ideology, in the ‘‘initial’’ political sense of the term, an ideology whose existence was evoked at the beginning of the present text in regards to the stakeholder concept. In turn, this helps us to talk about how the stakeholder concept has been used to substantiate the political validity of a society that is reticular, i.e. where categories are not treated equivalently, but where treatments are differentiated by territory and by institution.

Or else, might it be that stakeholders are the drivers of a new strategic organizational discourse, leading to the formulation of a strategy that is no longer merely responsive, but which is in fact proactive in its efforts to create greater value (the initial vision having turned out to be excessively anchored in the short-term)?

3.3. Stakeholders as a potential foundation for deliberative democracy The issues raised by the deliberative democracy construct are relatively subtle ones, since the categories it uses are currently being developed within the confines of representative democracy categories. Of course, this latter system is still being presented as a palliative – although we view it, through the reference to the stakeholder construct, as akin to a fullyfledged democratic structure. Remember first of all the reduced contours that Gutmann and Thompson (1996) lent to deliberative democracy by depicting it as a situation where forms of politeness are the only things that need to be respected – a stance that disturbingly resembles the codes of conduct that usually prevail in acts of discussion undertaken in the attempt to develop norms. As such, deliberative democracy indicates the significance that has been attributed to reciprocity in such deliberations; to the publicity surrounding announcements of the stances held by the different protagonists (stakeholders whose positions, however extreme, have to be broadcast in the name of some transparency principle); and to the responsibility of the debater towards the community s/he is representing during the debate. To a certain extent, this operates ‘‘independently’’ of the general representativity of this community, much as is the case with stakeholders. Making references to deliberative democracy means distinguishing between politics construed as a place for reconciling divergent interests and based on the antagonism dimension (polemos) – and politics whose purpose is to ‘‘establish an order’’, organize coexistence (polis) and enable actors to live together in a dimension of agonism. The deliberative democracy project is, therefore, one that is based on a pluralistic order where the transformation of enemies into adversaries constitutes a pre-condition for democracy’s existence in society and within firms – this being a society that we can describe as being reticular since it does not imply the equivalent treatment of all parties located on a territory at a given moment in time, be it a geographic territory and/or in the ‘‘institutional’’ sense. Using stakeholder capitalism categorizations,

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modern societies can be portrayed as reticular since the groups by which they are comprised are said to result from more or less stable relationships that are built upon the expression of preferences, affiliation and interests, and not on a territorial and/or institutional (i.e. citizenbased) type of belonging. This would appear to result from the fact that relationships here are easier to modify and therefore more ‘‘plastic’’ than traditional social stratifications are. It is because of this pluralistic expression of points of view, and due to this innovation-related interplay, that we are given permission to envision stakeholders from a global governance perspective. In this view, multiculturalism is equated to confrontation with a plurality of interests in a world where such a pluralism of positions (and of their underlying values) itself tends to constitute a value. The deliberative democracy that ensues is simply construed as lack of coercion as regards stakeholders’ possibilities for expression. It is important to put this position into perspective when dealing with republicanism traditions and the proliferation of the new political spaces that mark the ‘‘liberal moment in time’’. In any event, due to the implicit primacy being attributed to individual freedom, categories of this sort are destined to ‘‘stumble’’ over equality issues in a society where the possibilities for communication have increased due to the proliferation of information and communications networks. To explain the ever-greater legitimacy being awarded to deliberative democracy categories, one thing we can do is reproduce arguments that Boblio first formulated in 1987 when discussing modern life’s excessive scale, the growing bureaucratization of the state apparatus (and of corporate apparatuses, we should hasten to add), the increasing technicity of decision-making and civil society’s tendency to become a mass society. The democratic challenge here is how to create compatibility between pluralism and individualism – and, given the connections between the different ‘‘flexible’’ specialization’s one finds in society and in organizations that have become reticular in nature, how to act out the increasing significance being attributed to decentralized economic regulations. ‘‘Common good’’ issues are raised in this reference to democracy, be they representative or deliberative in nature. With the latter, ‘‘common good’’ neither derives from a generalized will nor is it the product of whatever legitimacy may have been attributed to individuals’ atomistic nature or to the marketplace. In the different categories found in deliberative democracy, the point of reference is the role attributed to the notion of ‘‘merit’’, when associated with the different stakeholder-specific avatars of the ‘‘common good’’ (Macintyre, 1984). Merit becomes the basis for those constituent commitments that serve to unite members of a given community (Sandel, 1982) around the representation of a ‘‘common good’’ – the idea being that this constitutes a reasonable plan. Here the thought that the common good comprises something ‘‘moral’’ replaces another perspective in which it is viewed as something ‘‘political’’ in the aspects of a complex equality in relation with these different ‘‘common goods’’ (Walzer, 1983). This might explain why some areas are dealt with an inter-stakeholder discourse like sustainable development and global responsibility. This led to the idea that policies should be designed ‘‘in their time’’, hence that deliberations should be organized in a way that interconnects the members of the community. The goal becomes that of establishing a technical democracy as an alternative to a state intervention that is deemed to be excessively ‘‘unequivocal’’. It is within this framework that ‘‘technicized’’ civic virtue can materialize and be used to denounce, observe and enable expression. In short, stakeholder deliberations should be organized in a way that allows for the constitution of a civic consciousness without the imposition of any eudemonia. Such an organization should be positioned between a negative conception of liberty (the absence of coercion) and a positive one (the individual’s desire to be his/her own master without such a desire being nothing more than mere individualism). The deliberation’s organization would then enable the formulation of ‘‘reasonable interests’’ within the framework of an effective response to a pluralism in which power, laws and knowledge would be marked by a lack of determination. This would create the possibility that a truly reticular society could take shape, and that modern democracy could be designed both with and against the ‘‘total’’ state – paving the way for a deliberative democracy that is freed from the facade and the deforming intermediation of political parties, thus

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reoccupying spaces in political discussion. As a material form, this organization could constitute an alternative to the forces of persuasion and symbolic violence that come with the exercise of power. It would offer the guarantee of pluralism as a value. This could also constitute a shared identification framework for both individuals and citizens, based on a rationalist humanist perspective inherited from technical perfectionism broken down into political dimensions. To a certain extent, this would involve organizing the techno-ideal conditions of a debate that combines reasonableness and neutralism, with a view towards the expression of a reasonable plurality developed using stakeholders as a reference. Deliberative democracy would lead to the implementation of a ‘‘fair effect process’’ that could connect fairness and a feeling of fairness (in a sort of self-fulfilling prophecy that also takes the discourse’s perlocutory effect into account) by using the ‘‘convergent lenses’’ of ‘‘differentiated common goods’’ and thereby leading to yet further justification for the reticular society expression. The organization of the deliberation would pave the way to a self-government perspective (given that it would constitute one of the enabling conditions thereof).

Conclusion As a ‘‘theory of organizations’’, stakeholder theory has helped to found a relational model of the organization. The relations in question could in fact start to form an organizational ‘‘substance’’, but the perspective would then remain relatively functionalist in nature. Once again, ‘‘organizational sciences’’ are predicated here on the implicit postulate of the following continuum: individual-group-community-firm-organization-institutions-state. After all, a firm is also an organization. This explains why stakeholder theory is considered a likely way of offering scientific substance to explanation of what institutions are really made out of, since these entities can then be studied by means of organizational concepts. In this way, stakeholder theory leads to the organization being reified in an a-historical dimension, an act that reduces their ‘‘formal diversity’’ and diminishes their institutional and political nature. Let us briefly recall the doubly epistemological dimension of the organizational model (Pesqueux, 2002). This model is based on a ‘‘reduction of reality’’ and on a normative reference – with all of the discursive dimensions associated with these two perspectives and that enable discussions of the model concerned within the lexical field to which it belongs. Here stakeholder theory becomes part of a comprehensive project relating to the organization-groups relationship and is simultaneously viewed as a foundation (‘‘the essence’’ of the organization being born from the relationship with these groups); a norm (so that it is up to the organization to affirm ‘‘perseverance in its being’’ by managing the stakeholder relationships); and a theory of action (enabling analyses of organizations’ relational strategies, c.f. Baron, 1995; Bucholz et. al., 1994). Its current status in organizations correlates to whatever legitimacy is being bestowed upon the management-by-project idea. The upshot is that stakeholders should give voice to any differences in values that may exist at a given moment in time – in which case the project should fall in phase with stakeholders’ federating role.

Note 1 The expression ‘‘agonism’’ derives from the term ‘‘antagonism’’ and indicates a lesser degree of opposition. Corresponding to the enemy (antagonism) is the figure of the adversary (agonism). As such, agonism sketches the contours of a society (or of an organization for our present purposes) in which the quest for consensus has replaced the recognition of conflict.

References Altman, B.W. (2000), Defining ‘Community as Stakeholder’ and Community Stakeholder Management: A Theory Elaboration Study, in Research in Stakeholder Theory 1997-1998, Clarkson Center for Business Ethics, University of Toronto. Baron, D.P. (1995), Business and its Environment, Prentice Hall. Barton, S.L., Hill, N.C. and Sundaran, S. (1989), ‘‘An empirical test of stakeholder theory predictions of capital structures’’, Financial Management, Vol. 18 No. 1, pp. 36-44.

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A critique of stake-holder theory: management science or a sophisticated ideology of control? Elena P. Antonacopoulou and Je´roˆme Me´ric

Abstract In this article a critique of stakeholder theory is presented. The analysis highlights several concerns regarding the scientific rigor of this body of knowledge revealing the assumptions and inconsistencies that underpin its main propositions. The discussion shows in particular some of the internal contradictions between, on the one hand, the ideology of social good, and on the other hand, the ideology of control which we argue is not fully accounted for in the way stakeholder theory was popularized in recent years. Our critique opens up more possibilities for engaging with stakeholder theory acknowledging the underlying values that are at stake, thus, revealing the political and value-laden nature of the concept of stake-holder. What we seek to draw particular attention to is the way stake-holder analysis reveals the challenges when not only subjectivities but identities are at stake. This latter point we hope will encourage greater reflexivity among theorists and researchers in this field, recognizing that their personal biases and partialities influence their scholarship, and the way they shape the ideologies stakeholder theory is presented by.

Elena P. Antonacopoulou is a Fellow at the Advanced Institute of Management Research and Professor of Organizational Behaviour and Director of GNOSIS, Management School, University of Liverpool, Liverpool, UK. Tel: +44 (0)151 795 3727, Fax: +44 (0)151 795 3001, E-mail: [email protected] Je´roˆme Me´ric is Maıˆtre de Confe´rences, CERMAT (Centre d’Etudes en Management de Touraine), IAE (Institut d’Administration des Entreprises), 37206 Tours Cedex 03, France. Tel: +33 (0)2 47 36 10 36, Fax: +33 (0)2 47 36 10 11, E-mail: [email protected]

Keywords Stakeholders, Management theory

Introduction For the last decades, stakeholder theory has become a central discussion point in management science as well as in the field of managerial practice. The swift development of the key concepts proposed in this ‘‘theoretically declared’’ corpus can be explained with their apparent obviousness, that could facilitate their acceptance in both academic and professional worlds. Suddenly, from the middle of the 1980s to the beginning of this century, various examples of managerial situations have converged to prove and to strengthen the accuracy of the main hypotheses on which this so-called theory is based. Descriptive papers have first tried to help identify and classify the main stakeholders. Subsequently, normative and instrumental articles have proposed target decisions, actions and responsibilities that could meet the particular requirements of specific stakeholders. The stakeholder concept has become self-evident, just as natural as breathing or drinking water. Yet, ironically, despite its wide acceptance it remains very fuzzy as a concept, especially because of its apparent clarity and generalizability. It would seem that if anybody were to be asked to define what a stakeholder is, they would respond by saying that it is ‘‘any group or individual who can affect or be affected by the objectives of companies’’ (Freeman, 1984, p. 46). This definition is directly drawn from Freeman’s (1984) first steps in the discovery of stakeholdership. This extensive approach of ‘‘whom can be affected by the organizational goals’’ leads to at least two

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DOI 10.1108/14720700510562631

immediate social and ethical implications: First, the field of management responsibility is extended to the entire society; second, any social actor is legitimately concerned with organizational decisions and actions. When referring to the age of enlightenment’s concepts, citizenship appears to be extended to organizations. Such an intellectual process is nothing new. Since the early days of management science (Chandler, 1969; George, 1972), issues of reification have become key scientific concerns. The mere transfer of strictly human concepts towards non-human entities such as organizations has become common place. This tendency towards anthropomorphism is a key concern in current debates in the field of organizational learning (see Kim, 1993; Simon, 1991; Argyris and Scho¨n, 1978), for instance. Initially, the tendency to transfer human concepts to non-human concepts was seen as unproblematic, even self-evident as part of building management science and learning/transferring and applying knowledge from other sciences, e.g. anthropology, psychology, sociology, biology, etc. However, subsequently some of the modalities of transfer from different scientific perspectives have started to emerge. The main modalities are often the same. Either individuals are considered as the operator for this main transfer (from a single one to a group of ones), or the relational network linking these individuals has to be compared, metaphorically, with images of neural networks (drawing on neurology) or cognitive processes (drawing on psychology). In this paper we seek to provide a systematic critique of stakeholder theory, highlighting some of the epistemological pitfalls in the way it is positioned as a scientific tool, particularly when reference is made to ‘‘stakeholder analysis’’ (Burgoyne, 1994). We explore some of the more fundamental ideological assumptions that underpin the main thrust of the theory, the view of ‘‘stakeholders’’ and, in particular, we focus on the key element of stakeholder theory; what do different stake-holders have at stake to show that power and control issues are unresolved aspects of this management ideology. By revealing some of the strongly political underpinnings of the theory, we question whether instead of a scientific management theory it is in fact a sophisticated ideology of control. By exploring stakeholder theory as an extension of the theories of control, and, as it is declared to belong to the field of science, it could be analyzed in epistemological terms. For instance, agency theory sets a framework for analyzing problems of delegation in a contractual context. Control has often been approached as a set of processes that allow principals to influence and check their agents’ decisions. Enlarging the scope of responsibility to other actors from the environment of firms, stakeholder theory stresses the limits of contractual models, and thus proposes to absorb them in a wider framework. The strength of such a theory is based on the fact that this enlarged responsibility seems a positive as much as an obvious one. This basic hypothesis could be contested, and, along with this, so could be contested the scientific rigor of the theory. At least two types of issues may lead us to contest the hypothesis on which stakeholder theory rests. First, under which conditions and assumptions did this corpus of ideas emerge? Second, the use of this theory – as far as its implementation principles are not fully detailed (for instance, how are the problems of information asymmetry taken into account?) – can become purely political. In fact, it can be implemented as a simple communication vector, or as a way to dilute the power of official ‘‘principals’’ (primarily shareholders). This instrumentation of what could be considered as a solid and normative description of organizational concerns leads to more questions such as: does the appearance of science (simplicity, rigor of the later implementations of concepts) hide a deeper ideological meaning of stakeholder theory? These questions lie at the core of the systematic critique this article seeks to present. We embark on our critique by analyzing the very nature of stakeholder theory, to identify if it belongs to the field of science, or to the domain of instrumental management ideology. As a first step, a general method is adopted to confront stakeholder theory with the criteria of scientificity to which it implicitly refers. This analysis helps to underline the ambitions for generalization and absorption that this new corpus has proven to have. The effectiveness of such ambitions are further analyzed through the case of the assimilation attempt of contractual theories, thus highlighting only more clearly how power and control issues remain key political underpinnings

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of stakeholder theory. The discussion concludes with the implications of this critique of stakeholder theory in highlighting how what is at stake is often what defines how agents are conceived and how stakeholder theory translates in the analysis of social interactions in organizations. Our analysis leads us to conclude that stakeholder theory is an ideological product rather than a scientific one.

Does stakeholder theory belong to the field of (management) science? As far as human sciences, including management, have acknowledged that their evolution could not be propelled by periodic revolutions (Kuhn, 1996), they seem to have accepted that their nature is deeply multi-paradigmatic. Nevertheless, our aversion towards contradictions incites us to consider that our new ideas just enrich an existing theoretical corpus, and that they offer the synthesis for which our discipline was looking. This may be the case of stakeholder theory, which does not hide its ambitions in this context. Nevertheless, the problem is to know if these attempts of absorption, as well as the general method that surrounds these new concepts, is identifiable within a scientific evolution process.

Stakeholder theory and its ambitions: a brief overview Pesqueux and Damak-Ayadi (2003) offer the most up-to-date review of the developments of stakeholder theory. They precisely underline both dimensions of it. First, an empirical view, based on descriptive and instrumental aspects, and second, a normative approach, which leads to ethical considerations. Jones and Wicks (1999) propose to go beyond this distinction in order to integrate the moral basis of relations between managers and stakeholders, and the practical implications that the theory can stimulate. As far as its descriptive aspects are concerned, stakeholder theory provides many classifications of cooperative or competitive stakeholders (Donaldson and Preston, 1995). Beyond these identification processes, the descriptive side of the theory is used to analyze organizational phenomena such as decision processes, information disclosure, or stakeholders’ attractiveness. This process naturally leads to instrumentation. The concomitance of observed results and attitudes leads to a consideration of the effects of stakeholders’ attitudes over managerial decisions, or even the financial benefits companies can draw from taking into account social concerns (see, for instance, the incremental analysis proposed by Balmer and Greyser, 2002, or the wide-range survey by Florida and Davison, 2001). This concomitance is measured through statistical tools and leads to the formulation of purely instrumental recommendations. Using other methodologies, like case studies, some contributions try to classify stakeholders according to their positions inside a three-dimensional strategic setting (resource base, industry structure, and social-political arena, see Post et al., 2002a). Another stream of investigations tries to identify the moral foundations that should animate organizational directions (Jones and Wicks, 1999).

The traditional distinction between the descriptive, instrumental, and normative dimensions seems obvious inside the academic field, whereas practice seems to mix all of them in a single stakeholder approach, where wealth-creation objectives and moral concerns are considered altogether. The instrumentality of the theory is declared to harmoniously join the firm’s interests and its implication inside the ‘‘larger society’’ (see the Cummins or the Motorola case in Post et al., 2002b). ‘‘Ethics pay’’: firms that respect the integrity of individuals inside and outside the organization, ensure the avoidance of costs due to crises, their recognition from the professional community (especially the consulting area), and finally their own survival inside competitive markets. Causes are ‘‘ethics’’, even if they are not the only ones (Koll, 2003), and consequences are ‘‘economic’’ ones (see the model proposed by Greenley and Foxall, 1998). Stakeholder theory clearly expresses its ambitions for absorption and generalization. Extending the organizational frontiers to all stakeholders is assumed to lead to a panacea view of the organizational phenomenon. First, all stakeholders have to be listed. Then, all stakeholders are supposed to shape the organizational structures and decisions. Moreover, this corpus combines pragmatism and ethics in order to encapsulate a variety of view points. Finally, the

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idea of stakeholder seems obvious, because it is identifiable to observed objects. Absorption is much more a matter of theories. This corpus is declared to be compatible with all organizational theories that have been proposed before, and, at the same time, it is supposed to offer a wider explicative power.

The scientific status of stakeholder theory First concern: instrumental approaches and causality As a process of knowledge production in management science, stakeholder theory has favored the development of many instrumental conclusions. The point of this critique is not to discuss the only case of this corpus, but to question a main characteristic of management knowledge creation, which consists of modeling causal relations from observation, and to extract directly implementable conclusions once these causalities are confirmed. As far as the instrumental approaches are concerned, one ought to be reminded that many fundamental sciences have abandoned the models based on pure causality or contingency (Blanche´, 1975). It is time for management science to become aware of such limitations as well. The notion of cause is everything but precise. It has been denounced as being a purely utilitarian and anthropomorphic concept. Causality is one of the first constitutive elements of human intelligence. The experience of action leads to biased approaches of causal relations. First, any effect is supposed to come from an agent. Moreover, looking for causes is an ‘‘interested’’ quest: we are used to looking for what we can control. As a result, according to the most natural processes, we analyze human relations as an agents-effects nexus, trying to isolate ‘‘real’’ causes (the agents) from the conditions that could lead to effective consequences (the context). Science is often defined as the process that formalizes the ‘‘natural laws’’, these laws being represented as causal relations. Epistemologists have adopted a much more rigorous image of what science is supposed to look for. The problem of causality lies in the fact that causes and effects are a matter of scope. If causes are ‘‘perfectly’’ isolated from other phenomena (ceteris paribus), they will be confused with their effects, because they constitute a single and indivisible fact (Russel, 1921). On the contrary, causes will tend to infinity if all the conditions for the phenomenon to occur are considered (Blanche´, 1976). When physicians (a domain for which the isolation of factors seems much easier than in human phenomena) have abandoned the idea of cause for seeking functional laws, management science is still at the stage of looking for the causal intelligibility of situations. Of course, the acceptance of research conclusions in professional contexts appears much easier when they are crafted in the ‘‘if you do this, so this will happen’’ way. At most, we can formulate propositions that are based on the concomitance of observed (when not declared) phenomena. These propositions in turn can guide the formulation of tentative causal presumptions that can inform contextually specific recommendations. There can be no doubt that attempting to generalize from this proposition can only lead to broad brushed statements, which are meaningless in practice. The most rigorous researchers would introduce the term of ‘‘probability’’ between causes and effects, but, in such an approach, is an assumed cause still a cause? This first discussion leads us to reconsider the scientific nature of stakeholder theory (as well as one of many managerial concepts). The main counter-arguments we can find to this observation is that many researches tend to prove the real efficiency of such concepts, but does this assertion offer any guarantee of scientificity from the stakeholder view? The concerns of falsification and generalization should help provide a clearer answer to this question. Second concern: falsification, generalization and ideology To prove its scientificity, any theory should offer guarantees for either its generalization, or for its falsification. Two epistemological streams have emerged in the 20th century which propose two opposite conceptions of science. The Vienna Circle has defended generalization criteria (i.e. confirmative processes), whereas Popper (who took part in the Vienna Circle, 1963), developed the concept of falsification. His inaugural thought found its origins in the criticism of the

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‘‘explicative power’’ traditionally attached to scientific theories. From the simple statement that all events could be explained through some corpuses (Marxist, Freudian, or Adlerian), Popper started discussing their validity. Cumulative confirmation appears as a powerful proof, because it seems an obvious process, and because it hinders any shape of contradiction. Nevertheless, this methodology leads to the development of auto-confirmative circles. When a researcher like Adler (Popper, 1963, p. 62) considers a new case as a confirmation of his theory, he assumes at the same time that he interpreted the case through his past experience. Such a recursive explanation cannot authenticate a scientific approach. Thus, Popper proposes that we consider these types of corpuses as ideological, say dogmatic, products (as opposed to Einstein’s relativity, for instance, which was formulated without any confirmative observation). Psychoanalysis, according to Popper, cannot be tested nor refuted. The origins of dogmatism lie in the fact that the regularity of observations is the source of science. On the contrary, tending to prove the ‘‘falseness’’ of theories should be the main attribute of science. Instrumental approaches of scientific knowledge provide one of the best examples of the prejudicial effects of confirmation. Popper compares instrumental theories with any technical components that could be tested before assembling. According to this approach, an instrumental theory is considered to be usable under certain conditions that have to be defined; it is just an ad hoc object of knowledge. Refutations that could appear lead to no rejection, but to more restrictive conditions of use: ‘‘If the theory works under certain circumstances, it is still valid’’. This attitude underpinned Heisenberg’s statement that: ‘‘Therefore, we do not assert that Newtonian physics are false . . . Classical mechanics are perfectly ‘right’ when their conceptions are applicable’’ (Popper, 1963, p. 173). Because it confuses ‘‘rightness’’ and applicability, instrumentalism is a dogma as well. When referring to social sciences, Popper underlines the ambition to provide predictive frameworks, but, once again, this ambition leads to formulations of corpuses that will be confirmed in any case, whatever events may occur. Based on the example of Marx, his criticism of historicism is based on the idea that predictions provided by this theory are confused with their usefulness. If the quest for predictiveness had to be abandoned, social sciences could be seen as studying the behavior of collective categories. But Popper objects that social groups like ‘‘bourgeoisie’’ are ideal constructs more than the result of empirical observations. This should lead social sciences to consider individual interests and actions instead, but only if social phenomena are not exhaustively explained with human willingness. Otherwise, social ‘‘pests’’ like economic crises or unemployment would be interpreted as having individual origins: social sciences would run the risk of producing theories of conspiracy. On the contrary, Popper suggests that this research field ought to focus on the unexpected and involuntary consequences of human actions.

As far as stakeholder theory is concerned, we can easily observe that the main debates it arouses have nothing to do with its falsification. On the contrary, many academic productions are attempts to enrich its contents. Confirmation does not appear as necessary: the general framework is already admitted as a non-discussable model of organizational relations. Most of the literature dealing with stakeholder theory just proposes to analyze implementations or derived productions from the initial propositions. The theoretical legitimacy of this approach is also reinforced when some authors try to identify its precursors (see the case of Penrose, in Pitelis and Wahl, 1998). The descriptive aspect of the stakeholder view proposes a categorization of society according to the functional analysis of firms. These categories have never been questioned, probably because they seem obvious to the professional and the academic worlds. The only discussions we could find around this approach have to do with the regrouping and the non-functional role of already accepted categories. As far as we know, no alternative view of how a stakeholder could be identified among social groups has been proposed until now. As far as instrumental approaches are concerned, some contributions aim at restricting the conditions of use of this framework, just because of the existence of other contingencies. Moreover, a pure instrumental approach cannot be compatible with Popper’s suggestions on how social sciences (as a general meaning) should evolve. Indeed,

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instrumentalism aims at establishing cause-and-effect propositions that exclude any shape of unexpected and involuntary consequences of action. Stakeholder theory seems to have reached a status of an unquestioned obviousness – common sense. When surveys are proposed only for applying the concepts to new contexts (organizations or countries), they tend to follow the Adlerian process denounced by Popper. A new confirmatory research is based on the frameworks that it is supposed to confirm. All this turns out to create a self-fulfilling prophecy. The problem is to identify why such a process can occur inside a scientific field. There is probably some responsibility from academics, who accept such a corpus without questioning it, and restrict their investigations to descriptive and instrumental approaches. But this attitude is probably due to the intrinsic aspects of the stakeholder view. This theory fits with one necessary but insufficient criterion of scientificity: it is based on a simple idea (Popper, 1963). The aesthetics of simplicity have always been an attractive pole for science. Moreover, it seems to refer to other connected sciences such as economics, and not merely to psychology and to sociology, which bring much more legitimacy to its contents. Finally, it is declared to be compatible with pre-existing frames of organizational science. The last two points have to do with the ‘‘generalization-by-absorption’’ process in which the stakeholder theory has been inserted since it was proposed for the first time. According to Popper, a theoretical corpus that can provide exhaustive explanations of observed phenomena and that, at the same time, can integrate previously formulated knowledge, belongs to the field of ideology. Criticizing such an absorption process should help underline the ideological aspect of stakeholder theory. In a detailed analysis of the stakeholder view, Pesqueux and Damak-Ayadi (2003) strongly criticize the ‘‘misleading obviousness’’ of stakeholder theory. They first consider its descriptive appearance as a pragmatic screen that hides the militant discourse that it supports. For instance, it seems obvious that stakeholder theory is based on psychological and sociological concerns. The psychological aspect of this corpus is supposed to present individuals as volunteers and at least partially altruist people. Damak-Ayadi and Pesqueux (2003) explain that this assertion is inspired from a republican representation of ‘‘civic virtues’’, that promote the transcending of conflicting interests and of all their prejudicial consequences. From another point of view, the stakeholder theory proposes classifications of stakeholders that are the generics of management science (customers, providers, employees, etc. . . .), but these categories have nothing to do with the ones of sociology. Due to the fact it focuses on roles and behaviors, it would be much closer to systemic approaches of organizations (Katz and Kahn, 1966). In the field of management science, the case of control theories provides a fine example of how stakeholder theory apparently absorbs the original contractual frames, whereas it finally fails in its attempts to generalize the pre-existing concepts.

Stakeholder theory as an extension of control theories: the effects of enforced generalizations. The theories of control are mainly based on the concept of contractual agreements. Agency theory provides a conceptual framework to analyze both intra- and extra-organizational relations. The agency relationship is defined as ‘‘a contract under which one or more persons (the principal(s) ) engage another person (the agent) to perform some service on his or her behalf which involves some decision-making authority to the agent’’ (Jensen and Meckling, 1976, p. 308). Using altogether the key hypotheses of agency, stakeholder theories have become integral to management and professional discourse. Freeman and Evan (1990) integrate the theory of Coase (1937) to explain that the relations between stakeholders cannot be imagined outside the formulation of fair contracts. Hill and Jones (1992) propose to consider that managers should be the agents of multiple and variably important stakeholders, within a nexus of unequally formalized contracts. Multiplying those relations should lead to a balance of partly or completely diverging interests. Such a statement concurs with the most recent approach in stakeholder theory which is an ‘‘absorbing’’ corpus, a synthesis, or a meta-theory that can reconcile the diverging aspects of former ideas.

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Unconsciously (as far as its conceivers and users are concerned), management science follows the Hegelian scheme of ‘‘going beyond’’ perpetually. Nevertheless, it seems that agency relations and the stakeholders’ considerations are not necessarily compatible. It is now necessary to provide details on the failures of stakeholder theory in its attempts to absorb another theoretical field. The attempt to generalize legitimacy Both theories are focusing on the idea of legitimacy of control processes, but legitimacy cannot be understood in the same way for these two corpuses. Contracts constitute the main basement for legitimacy in the agency theory, whereas the stakeholder approach considers that all the interests that can be aroused from the consequences of organizational action are legitimate (Donaldson and Preston, 1995). Here lies the first contradiction between contractual approaches and the stakeholder theory. Of course, the absorption of ‘‘contracts’’ into the new conception of managerial responsibility can set a fine argument against this first statement. But it can be questioned, because the foundations of contractual theories are individualistic ones, whereas multilateral and ‘‘non-economic’’ contracts promoted by the stakeholders’ theory (even in critical approaches, see Sutton and Arnold, 1998) are no more than a metaphor to express managerial appointments (Damak-Ayadi and Pesqueux, 2003). When managers are exhorted to consider ‘‘nature as a customer’’ (Florida and Davison, 2001), there is no other way for interpreting such a discourse than the metaphoric one. The attempt to generalize the informational role It is now admitted (Caroll, 1989) that stakeholders have to be split into two categories, namely: the ‘‘primary’’ ones (contractual stakeholders) and the ‘‘diffuse’’ ones (diffuse stakeholders). This distinction leads us to consider that classical control processes, because they were conceived in the context of formal (even though not formalized) contractual agreements, cannot be implemented towards all stakeholders. Agency theory proposes that control should be defined as the processes that can concur to reduce informational asymmetry. This phenomenon is the pure product of contracts, that focus on results and on a certain scope of methods, but it still guarantees the agent’s autonomy in the accomplishment of his/her tasks. At a time when the acceptance of informational asymmetry is highly criticized, when ‘‘transparency’’ is referred to as a magic spell, the social control over companies cannot be thought in exclusively informational terms. It also consists of taking part in the ownership or in setting lobbying means. In such a context, information is no longer a way to help principals check the achievement of organizational objectives. It turns into a key-factor to convince or at least to avoid any protest from the stakeholders (McPhail, 2002). The reversal of the informational function casts light over a second field of contradictions between contractual approaches and the stakeholder theory. The attempt to generalize ‘‘fair contracts’’ What about the ‘‘fairness’’ of relations? Contracts are said to be fair when they are conceived to be prejudicial to no party. In traditional theories of organizational control, the fairness of contracts is guaranteed through the efficiency of markets. Thus, the criteria for measuring to what extent a contract is supposed to be fair are mainly economic ones. The extensiveness of approaches induced by the stakeholder’s theory tends to diversify the points of view, and thus the criteria to be taken into account. Social and moral responsibility seems to go beyond what is assignable to formal contracts. As a result, fairness cannot be defined in the same terms in the stakeholders’ approach and in the ‘‘new theories of the firm’’. To a wider extent, the conception of contracts used in the agency or the transaction costs approach is essentially a business-related one. It supposes both parts enter a contractual agreement only if they consider that the sharing of revenues (or profit) compensates the sharing of responsibilities in all considered alternatives (Hirshleifer and Riley, 1979). This framework is perfectly applicable within shareholders-managers relations. As Boatright (2002) contends, these specific relations can engender a market for decisions to enter (or not to enter) contractual agreements. It seems

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much more complicated when considering other stakeholders, just as NGOs or consumers. In these particular cases, it is not possible to determine any shape of reciprocal obligations. For instance, what could be the duty of an environmental association towards a company that could not contradict the independence of the first constituency? Though Boatright (2002) assumes that contracts are the only means to ensure constituencies’ protection, and thus the fairness of relationships, it seems difficult, not to say impossible, to determine their precise content. In such a context, the model for basic contractual relations is no longer receivable, and ‘‘fairness’’ becomes something else that has to be redefined in a wider perspective. The sharing of ‘‘ownership rights’’ is used by Donaldson and Preston (1995) to justify the interests of non-shareholders social agents. This argument, based on neo-liberal conceptions of society (Rawls, 2001), can also bring some explanations on how the responsibilities of managers and stakeholders could be shared, though this conception remains highly hypothetical and hardly applicable. Moreover, this theoretical framework does not provide any idea of what could be the model for contractual agreement. If a contract were to be considered, it would be a ‘‘social contract’’, in the terms of Rousseau (1762). In fact, the generalization of social responsibility seems to be the only framework that would allow us to talk about ‘‘contracts’’ when considering the relations between organizational structures and an enlarged scope of stakeholders. We must acknowledge that such a view has nothing to do with the traditional two-parts contract supported by traditional theories of control. In a context of general, diffuse, and multi-criteria responsibility, fairness is no longer guaranteed by bipolar relations: it is more specifically the role of the general will, that is to say, the role of law and regulation. Facing such a contradiction leads some stakeholder promoters to develop ‘‘legal imagination’’, a way to build legal foundations for stakeholder theory (Radin, 2002).

This criticism seems to be acknowledged by later theorists, like Post et al. (2002a, b), who propose to distinguish the traditional transactions based model with the one of relationships, that can combine conflicting interests as well as collaborative elements. Striking is the fact that the same authors promote the development of opportunities for ‘‘mutual benefits’’. It would be quite naive to think all diverging attitudes could be erased with the help of simple contractual agreements. People normally engage into contracts when they find a common point of view and develop shared interests. In economic models people enter into exchanges, because they feel they gain from the exchange. Even social contract models portray an exchange as taking place. The only variants for such situations are the ones of ‘‘non-aggression pacts’’ (see the Second World War), or informal ‘‘balances of terror’’ (see the Cold War). Can we still consider such agreements as a special shape of contracts to be inserted into a general model for an harmonious society?

Here are the reasons why, in spite of appearances and declarations, it seems particularly difficult to consider that stakeholder theory can absorb the contractual concepts that have founded organizational control. Although this assertion may be seen as a gross generalization we argue that non-the-less it reveals the ideological nature of the stakeholder theory.

If stakeholder theory is not science then what is it? The main argument of the previous section is that stakeholder theory does not stand up to the test of scientific rigor and, therefore, cannot be treated as a science. If, however, stakeholder theory does not belong to the field of science, what is its function? Is it a purely normative discourse based on ethic concerns? Is it a framework that helps managers cope with a growingly complex environment? The acceptance of stakeholder theory among academics and professionals cannot be seen as a simple managerial fashion (though there is enough hype around the concept) (Abrahamson, 1996). It seems to come from a deeper ‘‘social fact’’, as if Durkheim’s (1893) ‘‘organic solidarity’’ was no longer sufficient to ensure social cohesion, as if economics were no longer acknowledged for their moral substance. The stakeholder concept is both highly functional in its definition, and ethical as far as its implications are concerned. The implementations to which

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it necessarily leads answer to economic representations of performance, but they also insert organizations in a ‘‘moralizing’’ process. It appears as a restoration of the Smithian philosophical idea of ‘‘moral feelings’’ (Smith, 1776). In other words, it reintroduces the alliance of reason and emotion in the construction and in the protection of ‘‘good lives’’. As a consequence, stakeholder theory is much more a remedy for a contemporary presumed lack of civic sense than a revolutionary scientific framework for analyzing organizational relations. What makes stakeholder theory ideologically appealing is that it brings to the forefront of our attention the relational nature of organizational life, helping us to acknowledge the different kinds of relationships and the stakes on which these relationships are based. Much stakeholder theory is presented in utilitarian terms relying on Kantian ideas, giving stakeholder intrinsic value (see Gray and Hay, 1986; McCann and Gray, 1986). We cannot look upon the various relationships between stakeholders with Kantian detachment. Contractual relationships, as we have argued in the previous sections, provide only a limited view of relationality, predominantly based on rationality. We would prefer to take a more concerted view of relationality focusing on the socio-political forces and the dynamic negotiations (not exchanges) in relationships between stakeholders. Applying a psychodynamically informed perspective on stakeholder relationships extends alternative approaches to stakeholder theory, which rely on feminist philosophy for their grounding (see Wicks et al., 1994). The latter, account mainly for the importance of ‘‘caring’’ as the cause and consequence of relationships between stakeholders. With some echoes of the theory of psychological contract (see Rousseau, 1990, 1995) the feminist interpretation of stakeholder theory places relationships at the heart of what organizations do, and, concretely rather than abstractly, promotes a personal connection to relationships. In other words, unlike an abstract relationship management view different stakeholders are interrelated, not only because of contractual or legal obligations, but also because of social obligation and a sense of care which is in fact self-imposed according to Burton and Dunn (1996). The caring perspective of stakeholder theory emphasizes the sense of duty towards others as a key dimension, and as Calton and Kurland (1996, pp. 160-70) argue, it fosters an affirmative ‘‘ethics of care’’ and an ‘‘institutional capacity for intimacy’’ that allows stakeholders to share their concerns through decentered voice mechanisms and pluralistic discursive practices. Stakeholders thus become co-authors of their destiny rather than means of development and growth. This degree of self-discipline central to the notion of duty and care can be equally a technique of control as Grey (1994) convincingly argues. Calton and Kurland (1996, pp. 164-7) support this view when they state that: Stakeholder theory would then be recognized for what it is, a thick cloak of bright-eyed ‘‘affirmative postmodernism’’ covering strategies of organizational seduction and manufactured consent. Our critique does not dismiss the possibility that stakeholder theory as an ideology of caring relationships and interdependencies would add value. What we do critique, however, is any naive presupposition that stakeholder theory is value free. In fact, the very essence of our analysis is to problematize further the key issue in stake-holder theory, by highlighting that what is at stake by definition is socially defined and pursued both individually and in community depending on the degree of interdependence between one or more parties. As we have argued elsewhere (Antonacopoulou, 2002, 2003), for a community to review its values and assumptions it needs to be more conscientized (from Freire’s (1973) concept of conscientization, i.e. a critical reading of commonsense reality) to the impact of ethical dilemmas embedded in day-to-day practices. Perhaps more importantly, a community needs to shift the discussion of such dilemmas and values from the realm of the unconscious and un-discussable into the realm of discussable and actionable (Argyris, 1994). If a community becomes more conscientized towards the implications of individual and collective actions then social negotiations could stand a better chance of being more constructive. Therefore, the socio-political ideology underlying stake-holder theory being value-laden as it is, reminds us to pay attention to the multiple and competing values of different participants which form part of the community at different points in time. Developing ways in which we can study and better account for the nature of the interconnections between agents and the structures they create (Latour, 1986; Antonacopoulou and Graça, 2004) would seem to be a critical next

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step. This could be a useful avenue for advancing further stakeholder analysis which is currently methodologically lacking. Perhaps this may be one way of adding scientific substance to this (stakeholder theory) management ideology. Our next steps in advancing stakeholder theory need also take into account the socio-political ideologies of knowledge production in management and organization studies. Adopting a more critically reflexive (see Antonacopoulou, 2004) stance towards stakeholder theory, enables us also to reflect on some of the biases and values which underpin our theorizing in the academic community. These values are evidently shaping the development of different perspectives around stakeholder theory. Some of these values clearly shape the ideologically driven view of stakeholder theory. Other sets of values seem to be driving the scientifically positioned accounts. And other values still are motivating a critical analysis of knowledge production in management and organization studies. These latter set of values reflect a commitment to unveiling hidden aspects and biases in our own theorizing but they are still reflective of certain values. It is in this latter category that the authors of this paper and the intended contribution of this critique also rests. Ultimately, viewing organizational phenomena is a matter of choice but choice is not value free when identities are at stake!

Conclusions This paper sought to provide a critique of stakeholder theory focusing in particular to unravel the tensions in its identity as a body of knowledge. It is presented both as an ideology as well as a scientific method for analyzing contractual relationships between parties. We are not disputing its usefulness, but we do caution about its scientific rigor and some of the ideological assumptions about control shaping the nature of the relationship and interaction between stakeholders. It is the very nature of these relationships and the dynamics of the interactions between different individuals and groups that we argue, ought to be the focus of future research in this field. Our analysis also makes the case for the need to engage and critically reflect further on the various assumptions underpinning different perspectives informing stakeholder theory, so that greater conscientization on the values underlying knowledge production processes in management and organization studies can lead to more insightful and pragmatic representations of these complex and multifaceted aspects of social relations that stakeholder theory is committed to address.

Acknowledgement The author would like to acknowledge the support of the ESRC/EPSRC Advanced Institute of Management Research under grant number RES-331-25-0024 for this research.

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Koll, O. (2003), ‘‘Stakeholder value creation and firm success’’, Advances in Business Marketing and Purchasing, Vol. 12, pp. 141-262. Kuhn, T.S. (1996), The Structure of Scientific Revolutions, 3rd Edition, The University of Chicago Press. Latour, B. (1987), Science in Action, Harvard University Press, Cambridge, MA. McCann, J.E. and Gray, B. (1986), ‘‘Power and collaboration in human service domains’’, The International Journal of Sociology and Social Policy, Vol. 6 No. 3, pp. 58-67. McPhail, T.L. (2002), Global Communication: Theories, Stakeholders, and Trends, Allyn and Bacon, Boston, MA. Pesqueux, Y. and Damak-Ayadi, S. (2003). Pitelis, C.N. and Wahl, M.W. (1998), ‘‘Edith Penrose: pioneer of stakeholder theory’’, Long Range Planning, Vol. 31 No. 2, pp. 252-68. Popper, K.R. (1963), Conjectures and Refutations, Routledge and Keagan Paul, London. Post, J., Preston, L. and Sachs, S. (2002a), Redefining the Corporation: Stakeholder Management and Organizational Wealth, Stanford University Press. Post, J., Preston, L. and Sachs, S. (2002b), ‘‘Managing the extended enterprise: the new stakeholder view’’, California Management Review, Vol. 45 No. 1, pp. 6-28. Radin, T.J. (2002), ‘‘From imagination to realization: a legal foundation for stakeholder theory’’, Research in Ethical Issues in Organizations, Vol. 4, pp. 31-49. Rawls, J. (2001), Justice as Fairness: A Restatement, Harvard University Press, Cambridge, MA. Rousseau, D.M. (1990), ‘‘New hire perceptions of their own and their employer’s obligations: a study of psychological contracts’’, Journal of Organizational Behavior, Vol. 11, pp. 389-400. Rousseau, D.M. (1995), Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements, Newbury Park, CA. Rousseau, J.J. (1762), Le Contrat Social, Translated by Cranston, M. (1968), Penguin Books. Russel, B. (1921), ‘‘The analysis of mind’’, Outline of Philosophy, Unwin Hyman. Simon, H.A. (1991), ‘‘Bounded rationality and organisational learning’’, Organisation Science, Vol. 2 No. 1, pp. 125-34. Smith, A. (1776), The Wealth of Nations, Bantam, 2003. Sutton, S.G. and Arnold, V. (1998), ‘‘Deconstructing economic stakeholder theories or is might really right?’’, Critical Perspectives on Accounting, Vol. 9, pp. 251-60. Wicks, A.C., Gilbert, D.R., Jr. and Freeman, R.E. (1994), ‘‘A feminist reinterpretation of the stakeholder concept’’, Business Ethics Quarterly, Vol. 4, pp. 475-97.

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Some philosophical issues in corporate governance: the role of property in stakeholder theory Maria Bonnafous-Boucher

Abstract Focuses on what can be referred to as the ‘‘fundamental philosophical issues of corporate governance’’. Outlines the interdependence of various kinds of governance. Demonstrates that corporate governance is part of a bundle of governances and that, in this respect, it occupies a leading place to the degree that its principles are becoming consolidated. Then discusses in a more detailed manner what is meant by the term ‘‘dominant functionalism’’. Then deals with the question of the equilibrium between sovereignty and legitimacy from the point of view of corporate governance. In effect, rules of governance (considered as the designation of a sovereign power) are searching for a legitimizing instance originating outside the framework of those rules. Finally, covers the proprietarialist origins of stakeholder theory, origins which correspond to a moderate liberal tradition.

Maria Bonnafous-Boucheris is an Associate Professor and Chair of Organisation Systems Development at the French Academy of Sciences and Techniques (Conservatoire national des arts et me´tiers), Paris, France. Tel: 01 40 27 21 63, E-mail: [email protected] and [email protected]

Keywords Corporate governance, Philosophical concepts, Management theory

Introduction Due to the technical nature of theories about corporate governance, the status of the concept is distinct from that designated by the more general term ‘‘governance’’. The field is, in fact, dominated, in management science, by a functionalist and descriptive conception of corporate governance based on a theory that is either orthodox (property rights) or heterodox (stakeholder theory). Since its objective is essentially to perfect the principles of governance applied in what Chandler terms ‘‘big business’’, the functionalist approach turns away from other forms of governance, even though the essential meaning of all governance is to reveal the transformation taking place in power mechanisms and the wavering of the idea of sovereignty, and to expose the precarious equilibrium between principles of sovereignty (which attempt to base themselves on the credit provided by all the firm’s stakeholders) and a legitimacy based on shareholder value that is open to question by stakeholders. These questions cover what can be referred to as the ‘‘fundamental philosophical issues of corporate governance’’. In the first part of this article, I shall outline the interdependence of various kinds of governance. I shall demonstrate that corporate governance is part of a bundle of governances and that, in this respect, it occupies a leading place to the degree that its principles are – in spite of the fact that they are continually discussed in function of the model of governance adopted – becoming consolidated.

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DOI 10.1108/14720700510569229

In the second part of the article, I shall discuss in a more detailed manner what is meant by the term ‘‘dominant functionalism’’. The third section will deal with the question of the equilibrium between sovereignty and legitimacy from the point of view of corporate governance. In effect, for the first time in the history of the firm, or even of capitalism, rules of governance (considered as the designation of a sovereign power) are searching for a legitimizing instance originating outside the framework of those rules. Stakeholder theory is, in this regard, remarkable, since it envisages this new dimension of capitalism in terms of the development of the principles of governance of big business. The final part of the article will cover the proprietarialist origins of stakeholder theory, origins which, from my point of view, correspond to a moderate liberal tradition.

1. The interdependence of various approaches to governance 1.1. The inclusion of corporate governance in the bundle of approaches to governance Governance designates the entire raft of rules and practices – either in gestation or being put through their paces – which are the object of incessant compromises within an organization, whether the juridical status of that organization is private or public. Unlike government, governance is characterized by this compromise, which must always be renewed, between the various actors who produce rules, as if the stability of the principles of governance were not only historical (and, consequently, provisional), but also uncertain. Thus, governance in the plurality of its meanings and forms, manifests, first and foremost, a permanent reconsideration of the bedrock on which the mechanisms of governance are founded. This process of reconsideration gives rise to a power struggle between different governances, to a rivalry between sovereignties. I shall call ‘‘sovereignty’’ ‘‘the plenitude of power’’ ( plenitudo potestatis)[1] of the ‘‘public thing’’[2]. I shall call ‘‘legitimacy’’ the production of rules affecting and orienting ‘‘the plenitude of power’’ by a process of compromise initiated by the producers of rules. More generally, legitimacy is the quality of a power to conform to the aspirations of those governed, both in terms of its origin and its form, and to make possible the adherence or acceptance of those who govern[3]. In the context of corporate governance, the producers of rules are at once the shareholders and the stakeholders. These two parties influence corporate governance and are affected by it, but the first govern with the increase in the value of their shares and thus of their representation on governing bodies in mind, while the second are, in a certain manner, governed, but not overwhelmed by the power of shareholders, since they relativize that power by appealing to values that are, if not alternative, then at least complementary. Since the introduction of the NRE (‘‘New Economic Regulations’’) law in France, theses values have become integral to share value notation. In this sense, the governed are also affected by the principles of governance. We must also be clear about what we mean by the ‘‘public thing’’. If, in traditional thought, sovereignty is the sovereignty of a republic assimilated to a state[4] (according to Jean Bodin, Charles Loyseau and Thomas Hobbes, there is no sovereignty without the state), it is not too much to envisage that the objective of corporate governance is, through its shareholders, to achieve sovereignty as absolute (if not perpetual) power over the ‘‘public thing’’[5], or, in other words, in this context, over a public good. In the 16th and 17th centuries, the power of the ‘‘public thing’’ was, for the state, based on: 1. a power to command that was not private but public; 2. (a consequence of 1), this power was intended to be perennial, as sovereignty transcended the order of time; and 3. it was an unconditional power that was thus independent of burdens and conditions. However, it is not these characteristics that we shall retain, but, rather, the idea that sovereignty is the ideal of a normative power which implies the erection of a system of political right and the organization of a government which negotiates with internal and external parties. This is the spirit, if not the letter, expressed by theorists of sovereignty: families or ‘‘households’’ are the parts of a republic, while sovereignty is its form and expresses its essence.

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In the history of liberal democracies and of the capitalist economy, the relationship between sovereignty and legitimacy is characterized by a fine balance between, on the one hand, a regime of political liberty symbolized by representative democracy, whose first principle, to use Rawls’ terminology, is liberty (as well as respect and the right to property), and a regime of economic freedom to which free enterprise and the right of circulation of people and goods give concrete expression. These two complementary regimes have, within the context of this tradition, always existed concurrently. For the moment, this equilibrium has not been totally destroyed. But, still dependent on complementarity, it has become fragile and could collapse if the waning sovereignty of the nation-states were to find itself in a position of dependency vis-a`-vis emerging sovereignties such as that of corporate governance. As is well known, the French debate on pensions reveals nothing other than the dependence of the government on resources derived from pension funds, mutual funds and banks which concentrate capital, while at the same time, ‘‘the quantity of capital moved around in a single day of speculation is superior to all the reserves in the central banks combined’’. Of course, certain prerogatives of the nation-states remain intact[6]: they develop and apply laws and regulations concerning taxation, the functioning of the stock exchange, policies concerning competition and the protection of intellectual property, and they also offer important outlets to companies from whom they buy goods and services. For example, although it was presented as the most emblematic success of the free enterprise system, the Silicon Valley story can be reread as an example of one of the most important interventions of the US federal government into any young industry: 70 per cent of funds for research into IT science and engineering was provided by that same federal government. 1.2. Variously successful competing methods of governance Certain forms of governance seem to be more successful than others. In spite of the number of publications produced and the amount of investment poured in by the EC, political governance – European political governance – is probably still in its early days[7]. By comparison, the principles of corporate governance are relatively advanced. On the one hand, we have a governance still in search of its principles and, on the other, a consolidated governance which combines several ideals: a narrow ideal in Berle and Means, which calls for the development of a ‘‘neutral technocracy’’ providing checks and balances for the various groups; a wider ideal which finds its origins in two articles by Freeman (1984, 1994); and the appearance of the concept of stakeholder, the definition of which is now well known: ‘‘an individual or group of individuals that can affect or be affected by the realization of organizational objectives’’[8].

1.2.1. Mechanisms of public governance in search of themselves In Political Studies[9], Rhodes writes that governance refers to ‘‘the action of governing without government’’. This idea had previously been developed, in 1992, by Roseneau and Czempiel[10], who had published a book entitled, Une gouvernance sans gouvernement, Ordre et changement dans le monde politique (A governance without government: order and change in the political world). ‘‘Without government’’ does not mean that there are no decision-making or representative bodies, but that the legitimacy of these bodies and the limits of the exercise of power of these organs is redefined as a function of a series of compromises and various uncertain factors. What are these uncertain factors? The expectations of civil society, the transformations of international capitalism and their impact on the economy of the member states, and the constitutional design of a geographical zone. ‘‘The singularity of the European process of decision-making reflects the characteristics generally credited to governance.’’ Upstream, the EC has been obliged to practice concertation by various means: committees of experts whose job it is to take account of interest groups; selecting and introducing decisions examined by committees made up of civil servants from various countries (comitology); concerted long-term objectives proposed to member states by means of green and white papers. For example, the white paper on European governance adopted in July 2001 expresses an unstable conception of the rules of governance dependent on an ill-defined exteriority. In this white paper, governance is defined as ‘‘the rules, processes

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and modes of behavior which influence the exercise of powers at the European level, particularly from the point of view of openness, participation, responsibility, efficiency and coherence’’. Governance thus defined seems, consequently, to be constructed as a governance in search of its mechanisms, searching for its legitimacy in an exterior sphere which is not that of the member states, but which invites a more direct relationship with a civil society composed of stakeholders, or, in this context, of associations working at the European level and European federations and organizations dealing with national interests involving unions and lobby groups. 1.2.2. The rules of corporate governance questioned but consolidated Corporate governance is rarely considered from the point of view of compromise and the instability of rules except, insofar, as the interests of stakeholders and a potential or improbable convergence between the interests of shareholders and stakeholders are concerned. Furthermore, there is a hierarchical difference between stakeholders with direct rights and those with indirect rights. Typologies are drawn up, tracing a dividing line between not only a share value and a partnership value[11] of the firm, but also between organizational performance and the search for stakeholder legitimacy. The process of taking these interests into account is subject to the definition of the term ‘‘stakeholder’’. In this regard, many stakeholder theorists establish a hierarchy between direct and indirect stakeholders. However, in most cases, corporate governance is thought of, ‘‘in a wide sense, as the body of principles and rules which guide and limit the action of directors’’[12]. This clear though restrictive approach has been identified as having been established on the basis of agency theory[13] which defines the firm as a network of contracts, and governance as a way of controlling managers via shareholder-creditors: governance is thus considered to be a question of the equilibrium between management and shareholders. Profits generated on the financial markets play the role of an efficiency indicator, which leads, finally, to governance being seen as the technical result of a process of financial optimization: cost of the agency against profits generated. If this theoretical position seems limited, notably due to the fact that it does not take into account the institutional diversity of the firm (the internationalization of financial markets, the development of the legal framework and of stock exchange rights, shareholder activism), it is nevertheless true that a restricted approach to government continues to predominate even in the theories of those who criticize such an approach. For Pastre´[14], for example, the life of companies is, in a given historical framework, governed by the whole body of operational and control rules. Charreaux (1996) defines ‘‘corporate governance as that which covers all the mechanisms whose effect is to limit powers and influence decisions, or, in other words, which govern the behavior of companies and define their discretionary boundaries’’. Gomez (1996) describes, ‘‘the coherent ensemble of institutional frameworks of the firm and the types of behavior which enable it to function’’. He underlines the fact that governance stands in contrast to management. Other definitions exist in the literature, for example Monks and Minow[15], Scott[16], de Norburn[17]. Generally speaking, the most popular approach to governance studies is ways of increasing the efficiency of its mechanisms. The major variants can be found in contexts which are more or less propitious to the development of corporate governance: the crisis of 1929 in the article by Bearl and Means[18], the recognition of the category of big business following Chandler[19], excessive representation of finance in the firm, and the return of the shareholder in the late 1990s and 2000[20]. We can affirm that, within the terms of these commentaries, a functionalist theory of governance is often deployed, a theory, in other words, used to introduce a code for perfecting the principles of governance. In France, we can say that Karine Le Joly and Bertrand Moingeon are the leading exponents of this approach[21]. But although the approach is a useful one, it nevertheless sidelines two essential problematics: the relationships between types of governance and, consequently, the question of the equilibrium between sovereignty and legitimacy, and the link between governance and civil society considered as a stakeholder in that governance.

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2. The dominant functionalist approach to corporate governance Company governance and its related theories are generally characterize by a managerial (auditing, finance, strategic management) and juridical (company law) approach. In order to achieve greater efficiency in terms of operational performance (improving corporate governance), a specialization has been developed in the field. In management science, the new areas opened up by corporate governance are immense (because they lead to an interdisciplinary approach within the discipline). Stakeholder theory provides a further opening of which corporate governance, in its orthodox manifestation, cannot entirely take the measure: Le´pineux[22], Mercier[23], and Laurie[24].

2.1. What is meant by functionalism? In the case of corporate governance, functionalism means that analysis is limited to the description of functions. These functions can be a number of different kinds: functions of the representative powers on the board of governors in regard to the Cadbury Report of 1992, the Vieńot I Report of 1995 and the Vieńot II Report of 1999; functions of rules and principles indicated in these various reports, and guided by usage and by the function of information: ‘‘administrators must keep each other informed and the chairman of the board of directors must provide administrators with any significant information that they may need’’; and the functions of the actors internal to the process of governance, in which case the analysis focuses more particularly on the strategies of shareholders and stakeholders and on the motives underlying their actions and commitments.

Bearing in mind the degree to which organization theory has attempted to move away from a representation of organization based on functions, it is somewhat surprising that an analysis, which not only limits its perspective to relations between powers of governance and the effects of the principles of governance due to changes in the rules or the construction of convergent interests shared by the actors of corporate governance, enjoys such a high degree of popularity. The functionalist approach does not generate a third party point of view and is essentially analytical, limiting itself to the observation of the functions and dysfunctions of governance, which itself forms a coherent whole, each part of which fulfils an indispensable function.

2.2. Limits of the orthodox functionalist approach as a description of the instances of authority of corporate governance The primary objective of the functionalist approach is to rule on the relationships between the convergent and divergent interests of, on the one hand, parties who have rights over the firm, and, on the other, social representatives, since in order to contribute to the improvement of the principles of governance, those practicing the approach need to know which parties are included in and which excluded from the governance of the firm. Thus, according to Samuel Mercier[25], when a shareholder-type vision of the firm is emphasized, so too are the optimization of shareholder value and its organizational performance (Friedman, 1962, 1970, positive agency theory, Jensen and Meckling, 1976), the legal ownership of the firm (Sternberg, 2001), and ethical egoism (Friedman, 1970); stakeholders are thus reduced to their simplest expression (the shareholder). When emphasis is placed on the social grounding of shareholder value, a partnership-based vision of the firm is revealed, a partially ethical vision based on the concept of expanded ownership rights vis-a`-vis the firm (the Kantian capitalism of Evan and Freeman[26], Freeman’s principles of justice[27], Phillips[28-29] and Etzioni 1998; and the social contract of Donaldson and Preston[30], and Dunfee 1999). These last-mentioned theories are located at the crossroads between a strategic and an ethical conception of the firm.

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I shall distinguish two different functionalist theories, the first orthodox, and the second heterodox. The orthodox theory limits itself to analyzing the application of rules and the current legislation in the countries concerned by corporate governance. It examines the instances of authority within the firm in order to define who does what and in view of which objectives, and does the same thing insofar as the separation of powers between governors and directors is concerned. In France, this type of theoretical method leads to an inventory of the composition and missions of the board of governors, the way in which administrators are selected, the number of mandates exercised by the administrators, the duration of those mandates, the remuneration of the administrators, the formalization of the projects of the board, and the relationship between administrators and information following the Vieńot reports of, respectively, 1995 and 1999, and the Cadbury Report of 1992. This orthodox point of view gives rise to the elaboration of two models of corporate governance: the so-called Anglo-American model, and the model belonging to the Germanic and Latin countries, and Japan. The first model is referred to as ‘‘market-oriented’’, or ‘‘external’’; while the second is referred to as ‘‘bank-’’ or ‘‘networkoriented’’, or ‘‘internal’’. The second, or heterodox, functionalist approach is less concerned with the description of instances of authority than with expanding the number of actors affected by corporate governance: the concept of the ‘‘stakeholder’’ (‘‘non-shareholder’’)[31] as opposed to that of ‘‘shareholder’’, corresponds to this approach, be it empirical or normative. In this respect, Yvon Pesqueux[32] draws attention to the essential presuppositions of stakeholder theory: ‘‘[T]he organization stands in relation to several groups which affect and are affected by its decisions (Freeman), [while] the theory is concerned with the nature of these relations in terms of processes and results vis-a`-vis the firm and the stakeholders; the interests of the stakeholders have an intrinsic value and no one interest should be allowed to dominate the others (Clarkson, Donaldson, Preston)’’. Despite the view expressed by Jones and Wicks (1999), that the heterodox functionalist approach constitutes, ‘‘an attempt to reformulate the nature of the firm’’, the method concentrates on the identification of stakeholders (inclusion/exclusion), on their recognition in terms of interest in and to the organization, and on the extension of the limits of their actions. In effect, even if we accept the broad definition of Caroll and Buchlotz[33] according to whom a, ‘‘stakeholder is an individual or group of individuals who can affect or be affected by the realization of organizational objectives’’, the approach develops an essentially functionalist viewpoint by attempting to promote the influence of or even to introduce yet more interests, rights and stakeholders into the sphere of corporate governance. Most of the theories on corporate social responsibility and receptivity which are closely linked to stakeholder theory can, to my mind, be categorized as heterodox functionalist approaches. 2.3. The limits of the heterodox functionalist approach as a stakeholder typology The approach entails an inherent risk, the risk, in other words, that it produces nothing more than a list of various categories of direct and indirect, and effective and virtual stakeholders. In effect, it not only conceptualizes the question of governance in terms of functions, but also in terms of actors, and the roles, objectives and interests of those actors. Generally speaking, there are three major types of actors: shareholders, directors and stakeholders. The functionalist approach describes the behavior of these three categories, the combination of their interests as a function of a number of rules: those that they impose on themselves, and, more particularly, those imposed by shareholders on directors; those elaborated by management corporations (in France, the CNPF-MEDEF via the Vieńot I and Vieńot II reports); and those that indirect stakeholders attempt to assert (via a defense of the idea of corporate social responsibility based on social and environmental criteria). The description is also carried out in terms of legal obligations.[34] The most effective functionalist approach may be the one that highlights the probabilities of combinations between shareholders and stakeholders: the director is a shareholder; the shareholder is a director; the shareholder is a direct stakeholder (as a shareholder) and an indirect stakeholder (as a consumer and a citizen), etc. As well as the production of these probabilities, the functionalist approach may have to develop not only a

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convergent theory of the interests of stakeholders, but also a convergent theory of the interests of shareholders and stakeholders. It is evident that this virtuous circle cannot be completed without a convergence of the interests of all the parties involved. However, with the multitude of norms emanating from public institutions (the UN, the ILO, the EU, the World Bank) and, indeed, from private ones, the possibility of any real convergence of interests is remote. But, for the moment, stakeholders are – because they are parties who are indirectly affected by the share value of a company – assumed to play an oppositional role in respect of that value. In fact, they are oppositional powers who are or who can be directly (and indirectly) affected by share value and, consequently, who participate in its development. A militant stakeholder in an NGO can, in certain circumstances, become a shareholder demanding the profits generated by his shares; a shareholder in Exxon Mobil might belong to an ornithological association fighting to save endangered birds, in the same way as a salaried director of Exxon Mobil can be both a shareholder in the company for which he works and the chairman of the above-mentioned association. The separation of shareholder and stakeholder interests and roles does not exactly correspond to the range of possible situations and roles in the world of shareholder capital; that is why it is hard to see how a convergent theory of stakeholders would be sufficient. A convergent theory that covered both shareholders and stakeholders would surely be more appropriate. From an operational point of view, the importance of an accurate, typologized list of categories cannot be minimized: such a list would certainly help to measure the influence of a given category on corporate government. Nevertheless, such a perspective probably fails to encapsulate the macro-strategic problems of corporate governance, problems which incorporate both socio-political questions and questions pertaining to political philosophy which touch on areas outside the firm, but which are nevertheless very much relevant to it. In fact, the dominant approach to corporate governance avoids what it contains, for it would certainly be true to say that the various types of governance cover basically one and the same thing: a search for rules and compromises in a context in which institutional sovereignties and legitimacies are being recomposed. And it would also no doubt be true to say that the multiple forms of governance, by their very existence, in fact render it necessary to reconsider the relationship between the spheres of politics and the economy. This relationship, by posing questions about the nature of the duality of the political and the economic – their sacrosanct separateness – also calls into question recent compromise-based models in that the bottom line in corporate governance is that, after all, effective decision-making powers fall to those who hold capital.

Corporate governance leads to the edification of one (or more) forms of governance which struggle to define the principles of their power because, in the long run, those principles only exist thanks to the acceptance of rules based on something more than profit derived from shares. Hence the importance of stakeholder theory! It is nevertheless true that in corporate governance, at least in the short-term, power remains in the hands of the shareholders. However, in the medium-term, corporate governance’s actors will not be able to behave as if shareholder profit were an absolute power untroubled in its use of the newly ratified principles. This sovereign power needs a legitimacy not to be found in the board of governors. In order to locate this legitimacy, its strategy of choice is to expand share ownership or, in other words, gradually to integrate stakeholders into the board of governors. Basically, corporate governance creates a shareholder right similar to a kind of right that might be enjoyed by effective and virtual owners (these last destined to become shareholders). The ‘‘natural’’ and intrinsic justification of corporate governance is share performance and, all in all, corporate governance is, with the aid of stakeholders, able to see that, if the complementary forms of governance are deployed within an unstable framework of rules characterized by an incessant reconfiguration based on compromise, it is more than likely that share performance will be the only thing to regulate. That is the reason why new actors are being invited to exert an influence on corporate governance rather than to submit to its dictates. But to influence corporate governance is to blur the frontiers between corporate governance and stakeholders, between sovereignty and legitimacy. In other words, bearing in mind the immense powers

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of arbitrage of those actors fully integrated into the structures of corporate governance, how can a style of governance largely based on a scattered empire of stakeholders representing any number of divergent interests in a market be made to function? From this point of view, the production of a convergent theory of stakeholders reinforces the idea of a functionalist ambition on the part of stakeholder theory and the regional ethics of the corporate social responsibility becomes an internal arbitrage within the problematic of corporate governance.

3. The proprietorialist roots of corporate governance In management science, corporate governance is assimilated to the principles which govern relations between shareholders and stakeholders. Now, it is by no means self-evident that the relationship between shareholders and stakeholders will be based on either harmonious or conflictual grounds. In other words, while the principles governing the relationship between shareholders and directors were of interest only to management scientists, the relationship between shareholders and stakeholders encompasses the very nature of capitalism and the doctrine and practices of liberalism. In fact, corporate governance brings to the surface two essential terms of the classical liberal doctrine; on the one hand, ‘‘property’’, and on the other, ‘‘contract’’. This article deals only with the question of property. The term ‘‘contract’’ was treated in another article. The argument developed here reveals the clearly proprietorialist foundation of stakeholder theory expressed through the paradoxical transformation of stakeholders into potential shareholders. Moreover, if there could be a contract between shareholders and stakeholders in a firm considered as a network of contracts[35], such a contract would not derive from a theory for which it was seen as a form of distributive justice[36] even though the idea of ‘‘stakeholders’’ has led many commentators working on an articulation between stakeholder theory and civil society to entertain such a hypothesis. A critique of heterodox functionalism would attempt to identify the proprietorialist foundations of stakeholder theory. There are three such foundations: property is immaterial, open to everyone and egalitarian. These three characteristics are in perfect accord with the ideas outlined in the canonical texts of moderate liberalism penned by John Locke, who in the Second Treatise on Civil Government maintained that: 1. in the beginning there was property; 2. that property (considered as ownership of oneself and of one’s work) is the condition of freedom; and 3. that both property and freedom are universal and equal rights to be enjoyed by all and to be guaranteed by a civil government. 3.1. Proprietorialism at the roots of stakeholder theory in corporate governance The argument expressed in this article develops a general hypothesis: stakeholder theory in corporate governance corresponds to a proprietiorialist conception for which the virtual future of a stakeholder is to become a shareholder. This means that a certain amount of pressure is exerted on stakeholders to acquire shares in a company quoted on the stock exchange. This form of ideal, which at first seems to be an innovation in 21st century share capital, is in reality a reflection of the theoretical underpinnings of liberalism and, particularly, the liberalism of John Locke. While the justification of the usage of this process of transformation is generally of an economic order (the more shareholders there are, the easier it will be for them to guarantee their own subsistence), there also exists a philosophical justification correlated to it. At the origin of liberalism is property, indeed the access to property is an egalitarian right enjoyed by all. 3.2. The egalitarian proprietorialism inherited from John Locke’s Second Treatise of Civil Government The chapter, ‘‘Of property’’, in John Locke’s Second Treatise on Civil Government begins with two propositions: on the one hand, ‘‘it is very clear, that God, as King David says, Psal. Cxv. 16. has given the earth to the children of men; given it to mankind in common’’, and on the other, ‘‘God [. . .] hath given [men] reason to make use of [the earth] to the best advantage of life, and convenience. The earth, and all that is therein, is given to men for the support and comfort of

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their being.’’ The sources of the theory of property are difficult to grasp without entering into the heart of the debates that divided Locke from Velthuysen[37], Selden[38], Filmer[39], Grotius[40], and Cumberland[41]. But Locke’s theory of property survived contemporary debates on natural laws and natural right. Thus, according to Locke, in the beginning was property, or, to be more precise, in the beginning was freedom and equality. Since every person has been accorded the same faculties, the preservation of freedom depends on subsistence and property, analyzed in chapter 5 of the Second Treatise. Yves Michaud points out that attention must be paid ‘‘to the heteroclite ensemble covered by the term property: actions, possessions and the person are certainly not possessed in the same way’’[42]. In other words, ‘‘by property, we should not understand, as we do today, the mere ownership of material goods, but what Pufendorf and Grotius, theorists of natural right, called the suum, that which properly belongs to someone and from which others must abstain’’[43]. According to James Tully[44], the term ‘‘property’’ signifies that someone has a right over something and that that right cannot be taken away without their consent. Consequently, property is the basis of the expression of liberty and, from this point of view, Locke produces a modern theory of property. Not only does he determine the rights of the individual in terms of the possession of a particular good, he also defines the appropriation by an individual of a common good, or of the earthly goods that we share in common (the sea and its fruits, the earth, the sky, etc.). But perhaps most importantly, he has us understand by ‘‘property’’, the appropriation of goods through work: ‘‘That labour that was mine, removing them out of that common state they were in, hath fixed my property in them’’[45]. What is so original and important in Locke is that property derives from labor[46], or, in other words, from a process of transformation rather than a convention between people. This is the so-called ‘‘turf’’ passage, which constitutes an important moment in the history of liberalism since with the expression ‘‘the labor that was mine’’, Locke defines ownership of the turf cut from the ground in the example he gives precisely through its having been cut, or, in other word, transformed. To paraphrase Tully (1992), an initial interpretation consists in revealing the resolutely modern character of the Lockean theory of property deriving from work, a theory that can be opposed to the traditional conception according to which work and property are incompatible, and in which people who work cannot possess and those who possess cannot work. The ‘‘turf’’ passage therefore represents a combination of the traditional conception according to which both work and the product of work belong to the master (Filmer), and the modern conception according to which work generates the right of ownership of the product of work (Anna Arendt’s position). Whatever the case may be, what is entirely original in Locke is that – if we accept the division of labor – every craftsman and worker carries out a precise and identifiable task, thereby producing a distinct product in such a manner that, for example, bread belongs to the baker and leather to the tanner, and that contracts governing payment can be established in conformity with the natural principle of justice according to which every man defines his right to property via the product of his ‘‘honest industry’’. Indeed, Locke presents us with the mechanisms of the division of labor that will be explored by Adam Smith, but his version of the phenomenon is dependent not on the hiring out of work, but on the expansion of the right to property. This is, from my point of view, an integral part of stakeholder theory. However, in Locke, the capacity for ownership is limited. It is limited, on the one hand, by personal capacities of consumption and, on the other, by the invention of money. First, I can only appropriate goods privately within the limits of my capacities of consumption and on condition that I leave enough for others to live on. Second, things get difficult with the invention of money, which makes it possible to accumulate goods and thereby destroys primitive equality. This raises the question of what we would call the ‘‘regulatory authority’’ and what Locke called ‘‘civil government’’. Either property is a natural right and the task of government is to protect the individualistic and inegalitarian social order (which is Macpherson’s interpretation[47] ), or to maintain, or re-establish the requirements of natural law by protecting all those excluded from the process of accumulating wealth (Tully’s interpretation[48] ). In this case, even if inequality in ownership in the civil state is, to a certain degree, legitimate, the birth of the monetary economy seems to disrupt the natural order. But it is nevertheless true that property, the fruit of work and the transformation of natural goods, is an inalienable right to be enjoyed by all.

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It is clear that the Lockean sources of liberalism outline two theses[49], which at first sight seem very simple. First, the possibility of acceding to property is an inalienable right for all free men. Second, accession to property acts as a guarantee of exercising one’s freedom. These are the two original principles of the liberal tradition formulated by Locke in his Second Treatise on Civil Government[50]: ‘‘Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this nobody has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his.’’ In fact, because Locke understands the division of labor in terms not of the hiring out of work, but of the transformation of a common natural good into a particular good which becomes the object of ownership, it is possible to posit the hypothesis that the idea of the ownership of work links the Lockean problematic of ownership to the problematic of the accession to property of stakeholders in contemporary stakeholder theory. 3.3. Mass proprietorialism In corporate governance, shareholders are, theoretically, the only actors holding shares. Stakeholders do not hold shares, indeed they are only shareholders in a virtual sense, ‘‘virtually’’ meaning in the near future, but also referring to the fact that their behavior is analyzed hypothetically, ‘‘as if’’ they were going to become shareholders. This virtuality implies that the destiny of the stakeholder is to become a shareholder. The relationship between this potential and shareholder capitalism is probably equivalent to that between consumer society and production capitalism. It is a potential which contains the seeds of a shareholder society. Just as the kind of Fordism established in production capitalism and in rapidly expanding consumer society created a virtuous circle, the new form of capitalism that is shareholder capitalism is attempting to create a new capitalist virtuous circle. During the period of rapid economic expansion in France following the end of the Second World War, the regime of Fordist production created a virtuous circle that accorded to each individual sector (employees, business, government) a precisely defined role. Employers were responsible for productivity and efficiency; employees and their representatives for obtaining increases in salary negotiated within a sector-based framework; and the state for providing a juridical and legislative framework for those negotiations. But unlike the Fordist model, which allotted roles to everyone, the shareholder model is based on a flexibility of roles. From the 1980s, the post-Fordist model of production began to blur these definitions: people begin to talk of ‘‘joint regulation’’, of union advances into management terrain, of negotiations that were less sector-based and more local, i.e. limited to a particular company. The virtuous circle disintegrates leaving a certain suspense as to its replacement. What in fact takes its place is corporate governance which creates a virtuous circle of shareholder capitalism based, first, on the supposed equality of access to property; and second, on the dawn of an era of popular mass capitalism or, in other words, the reconciliation of individual interests and of the interests of companies, and of governments now partially relieved of the burden of providing pensions[51]. (Everyone living in Europe or North America is encouraged to buy into a pension fund immediately in order to guarantee their subsistence until they die.) Third, by transforming ‘‘retirement’’ into a kind of life insurance policy, popular capitalism ‘‘affects’’ everyone and is, in turn, affected if it does not manage to measure the positive or negative consequences of its activity. In this sense, it is a ‘‘partner’’ (and it is in its interest to be so) in the elaboration of norms authorizing either the development or otherwise of the consequences that it produces. The prospect of everyone holding share capital in a company becomes a strategic goal in view of the defense of the basic freedoms of all, since it makes it possible to verify the overall performance of an activity and to construct a durable mechanism which not only creates wealth, but also guarantees physical survival. The field of actors interested, in the true sense of the term (to have an interest in and to be of interest to), in the government of capital thus grows exponentially, creating a mass shareholder society. From this point of view, corporate governance and the stakeholder theory associated with it reinforce the underpinnings of liberalism and provide a new kind of representation of property: action as property. Far from being an oddity, this shared and egalitarian transformation of property is, as we have seen, deeply rooted in Lockean political philosophy. We

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will, however, now try to take account of a substantial modification of the way property is represented, or, in other words, in how this representation has changed from a material to an immaterial one. 3.4. Action as property[52] The political philosophy of John Locke expressed in the Two Treatises on Civil Government is based on the concept of material property (personal property and real estate). Moreover, the introduction of money ruins the egalitarian conception of property because it leads people to become almost obsessive in their desire to amass more than is necessary. Xifaras explains in La Proprie´te´ that, for a long time, a genetic and material conception of property held sway, a conception that manifests itself in French law, in the Civil Code of 1804, which stipulates, ‘‘the right to enjoy and dispose of a material good’’. Ordinary language attests to this conception by designating as property the right to possess a thing and to exploit it as one sees fit. In fact, according to Xifaras, the right to property is understood as ‘‘the absolute power of a person over a material thing destined to reduce the burgeoning diversity of legal property relationships to a single conception: a complete and unitary right’’. And, ‘‘the goal of making ordinary language and legal language coincide by raising the latter to the same status now seems beyond reach’’[53]. Certain commentators, such as Grey[54], talk of the ‘‘disintegration of property’’ to describe the progressive abandonment of the idea of an absolute power of a person over a thing in favor of the different, more obscure notion of a ‘‘bundle of rights’’ which does not necessarily have tangible things as its object. This description corresponds exactly to property considered as the holding of shares. ‘‘This disintegration of the traditional form of property’’, says Xifaras, ‘‘may well be the fruit of the internal development of modern capitalism, which has become, so to speak, post-proprietorial with age’’. By losing its capacity to take into account contemporary economic factors such as financial property (shares, bonds, etc.), immaterial goods (brands, patents, intellectual property, etc.), and social rights and environmental considerations, the absolutist and material definition of property has been obliged to orient itself towards a conception of immaterial property. That is why it would be of interest to examine the role of shares as a type of immaterial property.

Conclusion Corporate governance is based on two interpretations of Lockean liberal logic. When this logic is used to address the strict separation of powers between shareholders and managers, its interest is confined to existing shareholders, even when they represent institutional investors represented by pension funds. When it addresses the question of the expansion of the number of stakeholders, it conditions corporate governance to the emergence of potential owners and, therefore, focuses on an extension of the right to property. But the only guarantors in this expansion are the owner-shareholders: there is no regulating civil government and owners play the role of defenders of their own possessions. In a situation in which those owners, also referred to as investors, worked for a single company but were based in a number of different countries, we would be required, were we to respect Lockean logic, to imagine a worldwide civil government. But such a worldwide civil government would imply a kind of return to a state of nature, or in other words, to an unorganized state. From this point of view, the introduction of a functionalist system of corporate governance is justified for two reasons. First, because there exists a permanent state of conflict between the various actors of the firm concerning the question of how any wealth generated should be shared. And second, because it is impossible to predict every conflict likely to arise in the future and to propose ex ante solutions.

Notes 1. Bodin, Jean, Les six livres de la Re´publique, Book I, Chapter 8, Fayard Corpus des uvres de philosophie de langue française, 6 volumes, 1986. 2. ‘‘Sovereignty is the absolute and perpetual power of a republic’’, Bodin, J., 1593, Les Six livres de la Re´publique, Corpus des uvres de philosophie de langue française, 6 volumes, Fayard, 1986.

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3. According to Max Weber, the founding principle of the legitimacy of power is the key to understanding a society. He demonstrates that the link uniting those who govern and those who are governed guarantees the adhesion of these last, and creates the necessary preconditions for acceptable and coherent institutions. 4. Goyard-Fabre, S., 1999, L’Etat, figure moderne de la politique, A. Colin. 5. Berns, T., 2004, Droit, Souverainete´ et gouvernementalite´, lectures du politique moderne a` partir de Bodin, Leó Scheer (forthcoming). 6. Plihon, D., 2003, Le nouveau capitalisme, La Dećouverte, Collection Repe`res. 7. Quermonne, J.-L., 2001, L’Europe en queˆte de le´gitimite´, Presses de Sciences Po; Syste`me politique de l’Union europeénne. 8. Freeman, R.E., 1984, Strategic Management: A Stakeholder Approach, Pitman, Boston; 1994, ‘‘The politics of stakeholder theory: some future directions’’, Business Ethics Quarterly. As Samuel Mercier points out, ‘‘the term ‘stakeholder’ emerged in the 1960s. According to Freeman (1984, p. 31), it appeared for the first time in 1963 during a seminar held at the Stanford Research Institute’’. In ‘‘La theórie des parties prenantes: une synthe`se de la litte´rature’’, paper delivered in February 2004, Stakeholders and Corporate Social Responsibility, Conservatoire national des arts et me´tiers, Chaire DSO, orgainsed by Y. Pesqueux and M. Bonnafous-Boucher with the Research Institute of the CDC. 9. Political Studies, 1996, Vol. 44, Rhodes, R., ‘‘The new governance: governing without government’’. 10. Roseneau, J.N. and Czempiel, E.-O., 1992, Governance without Government, Order and Change in World Politics, Cambridge University Press. 11. Charreaux, G. and Desbrie`res, P., 1998, ‘‘Gouvernance des entreprises: valeur partenariale contre valeur actionnariale’’, Finance Controˆle Strate´gie, Vol. 1 No. 2, pp. 57-88. 12. Mercier, S., 2004, ibidem. 13. Jensen and Mekling, 1976, Fama, 1980. 14. Pastre´, O., 1994, ‘‘Le gouvernement d’entreprise. Questions de me´thodes et enjeux theóriques’’, Revue d’Economie financie`re’’, No. 31, pp. 15-32. 15. Monks and Minow, 2001, talk of a system of relations between various participants whose aim is to define management and performance goals in companies. 16. According to Scott, 1998, corporate governance refers to institutions, and covers the ensemble of rules, incentives and behaviors underpinning the relationship with investors and constitutes the system of government of a given company. 17. According to Norburn, 1992, corporate government is a structural mechanism designed to guarantee in a sustainable fashion the prosperity of the company in the interests of shareholders. 18. Bearls and Means, 1932, The Modern Corporation and Private Property, Macmillan. 19. Chandler, A., 1977, The Visible Hand: The Managerial Revolution in American Business, Harvard University Press, 1988, Economica. 20. Pesqueux, Y., 2000, Le gouvernement d’entreprise comme ideólogie, Ellipses; L’He´lias, 1997, Le Retour de l’actionnaire; Thiveaud, 1994, ‘‘De la gouvernance des grandes socie´te´s’’, Revue ećonomique, No. 31; Aglietta, M., 1997, Re´gulation et crises du capitalisme, Odile Jacob. 21. Le Joly, K. and Moingeon, B., 2001, Gouvernement d’entreprise: de´bats theóriques et pratiques, Ellipses. 22. Le´pineux, F., 2002, L’entreprise a t-elle une responsabilite´ a` l’e´gard de la cohe´sion sociale?, PhD thesis, Cnam. 23. Mercier, S., 2004, ‘‘La theórie des parties prenantes: une synthe`se de la litte´rature’’, covering ‘‘stakeholder theory and shareholder models’’, paper delivered during the seminar: ‘‘Stakeholders and Corporate Social Responsibility’’, Cnam, Chaire DSO, Caisse des De´poˆts et Consignations Research Institute. 24. Laurie, N., 2004, paper delivered during the seminar: ‘‘Stakeholders and Corporate Social Responsibility’’, Cnam, Chair of Organisation Systems Development, Caisse des De´poˆts et Consignations Research Institute.

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25. Mercier, S., 2004, ibidem. 26. Evan, W.M. and Freman, R.E., 1993, ‘‘A stakeholder theory of the modern corporation: Kantian capitalism’’, in Beauchamp, T. and Bowie, N. (Eds), Ethical Theory and Business, Prentice Hall, Englewood Cliffs, pp. 75-84; Bowie, N.E., 1998, ‘‘A Kantian theory of capitalism’’, Business Ethics Quarterly, The Ruffin Series 1, pp. 37-60. 27. Freeman, R.E., 1994, ‘‘The politics of stakeholder theory: some future directions’’, Business Ethics Quarterly, Vol. 4 No. 4. 28. Philipps, R.A., 1997, ‘‘Stakeholder theory and a principle of fairness’’, Business Ethics Quaterly, Vol. 7. 29. Philipps, S., 2003, Stakeholder Theory and Organizational Ethics, Berrett-Koelher Publishers, San Francisco, CA. 30. Donaldson, T. and Preston, L.E., 1995, ‘‘The stakeholder theory of the corporation: concepts, evidence and implications’’, Academy of Management Review, Vol. 20. 31. Mercier, S., 2004, ‘‘La theórie des parties prenantes, une synthe`se de la litte´rature’’: ‘‘[in French, the term ‘stakeholder’ is most frequently translated by ‘partie prenante’, but also by ‘partie inte´resseé’ (‘interested party’) and ‘ayant droit’ [. . .]. [T]he term ‘stakeholder’ emerged in the 1960s. According to Freeman (1984, p. 31), it appeared for the first time in 1963 during a seminar held at the Stanford Research Institute (SRI). The neologism was coined, at the time, due to a deliberate will to play on the term stockholder in order to underline the fact that other parties had an interest, or stake, in the company.’’ 32. Pesqueux, Y., 2004, Introductory text to the seminar ‘‘Stakeholders and Corporate Social Responsibility’’, Cnam, French Academy of Sciences and Techniques, Chair of Organisation Systems Development, Caisse des De´poˆts et Consignations Institute of Research. 33. Caroll and Buchlotz, 2003, Business and Society: Ethics and Stakeholder Management, 5th Edition, South-Western College Publishing, Cincinnati, OH. 34. In France, a law on the new economic regulations, passed on 15 May 2001 (see Frison Roche, M.-A., 2002, ‘‘Le droit des socie´te´s entre corporate governance et culture de marche´’’, in La monteé en puissance des fonds d’investissement. Quels enjeux pour les entreprises edited by Dominique Plihon and Jean-Pierre Ponssard, Documentation française), but also a process of institutional convergence vergence towards IAS norms and the recognition of those norms on the part of the regulatory authorities of the financial markets (see Dick, W. and Zarlowski, P., 2002, ‘‘La diffusion de normes comptables internationales’’, ibidem. 35. I am, of course, referring to the agency theory of Demsetz and Alchian (1972), which has been used by certain authors to justify the conceptual framework underpinning corporate governance. See Bancel, F., La Gouvernance des entreprises, Economica. 36. Herve´ Mesure (2004), highlights a paradox inherent in this situation: in order for property to exist, something must be owned. Shareholders own their shares, they do not own the company. And they are confronted with other types of ownership, including the ownership of labor. 37. Dissertation de principiis justi et decori, 1651. 38. De Dominio maris jurisbusque ad dominium, London, 1636. 39. Patriarchia and Other Political Works, London, 1949. 40. Of the Freedom of the Sea, 1727. 41. A Treatise of The Laws of Nature, 1727. 42. Michaud, Y., 1998, p. 59. 43. Michaud, Y., ibidem. 44. Tully, J., 1980, A Discourse on Property, Cambridge University Press. 45. Locke, J., Second Treatise on Civil Government, Vol. 2, Section 28. 46. Locke, J., ibidem, Chapter 5, Section 40. ‘‘Nor is it so strange, as perhaps before consideration it may appear, that the property of labor should be able to overbalance the community of land: for it is labor indeed that puts the difference of value on every thing; and let anyone consider what the difference is

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between an acre of land planted with tobacco or sugar, sown with wheat or barley, and an acre of the same land lying in common, without any husbandry upon it, and he will find, that the improvement of labor makes the far greater part of the value.’’ 47. Macpherson, C.B., 1962, La theórie politique de l’individualisme possessif de Hobbes et de Locke, Gallimard, 1971. 48. Tully, J., 1980, Locke. Droit naturel et proprie´te´, Paris, PUF, 1992. 49. Locke, J., Second Treatise on Civil Government. 50. Locke, J., 1977, Second Treatise on Governuènt, Chapter 5; Michaud, Y., 1998, Locke, Paris, PUF; 1st Edition, 1986, Bordas. 51. In France, the law on employee savings (Article 21, February 2001); law on the New Economic Regulations (NRE), passed on 15 May 2001; law of July 17, 2001, Section 2, Pension Reserve Funds. 52. This section was written after having read Mikhaı¨l Xifaras’ book La Proprie´te´, Etude de philosophie du droit, Paris, Presses Universitaires de France, 2004. 53. Xifaras, M., 2004, La Proprie´te´, Etude de philosophie du droit, PUF, Fondements de la politique, p. 9. 54. Grey, C.T., 1980, ‘‘The desintegration of property’’, Nomos (Yearbook of the American Society for Political and Legal Philosophy, Vol. 22, J.R Pennock and J.W (Eds), New York University Press.

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Human rights as a normative basis for stakeholder legitimacy Bert van de Ven

Abstract This article discusses the appeal of human rights as a normative basis for stakeholder claims in the context of international business. This appeal to human rights has proven to be an effective way to legitimize (in the sociological sense) the claims of stakeholders due to their proclaimed universal validity and the media interest in stories about human right violations. A problem for corporations that have to deal with claims based on human rights is that there seems to be little room to weigh these claims against the corporation’s interest and other stakeholder claims, since human rights are believed to override self-interest. Furthermore, stakeholder theory as it stands, does not provide for a criterion to weigh human rights claims against the claims of (other) stakeholders. Following recent versions of stakeholder theory, claims based solely on human rights do not even qualify some person or group as a stakeholder. So the position of human rights-based claims within organizational ethics remains unclear in stakeholder theory. The question this article tries to answer, is whether a corporation has a moral obligation to fulfil claims that are based solely on human rights and how this relates to the obligations a firm has to its stakeholders.

Bert van de Ven is a lecturer at the University of Tilburg, Noord-Brabant, The Netherlands. Tel: +31134663091, Fax: +31134662892, E-mail: [email protected]

Keywords Stakeholders, International business, Human rights

Introduction One of the stories embedded in the history of economic globalization is the story about the discovery of the earth and the subsequent exploitation of its peoples and their natural environment. For instance, from the early days of the Dutch United East Indian Company (The VOC) that set out its ships to sail to Asia, these enterprises where meant to give a return on investment. Without these returns these enterprises would not have been able to find enough investment capital. Driven by this economic rationale, these and other enterprises did not care much about the rights of people in the colonies, and they were focused on getting more than enough back on board to keep the moneylenders in the home country satisfied[1]. All of this is well-known and there is no need for detail but to say that the story still continues to some extent in our era. Multinational corporations have been criticized for human rights violations in developing countries all over the world. These human rights violations are almost incomprehensible from the perspective of citizens who are used to the rule of law in a democratic society. The sweating of the workers, the violence used against them, and the blatant disrespect for their rights are outrageous if one considers that the firms that are associated with these practices are often well-known global brands, from which morally correct behavior is expected in their home countries. Yet, as Karl Marx says, it seems true that the first

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DOI 10.1108/14720700510562659

human right that is acknowledged by global capital is the right to be exploited[2]. Was Marx too cynical or does the present state of affairs in a globalized world of business prove him right? Fact is, that the respect for human rights did not spread with the same speed as the activities of the multinationals. Since the latter part of the 1990s, there have been some positive changes in the way some multinationals deal with human rights-based claims. This seems to be especially true for global brands like Heineken, Motorola, Nike, Shell, McDonald’s and the Gap. They have to meet the high expectations of parts of the general public and the consumer because they symbolize the values of globalization. Rightly or wrongly, the public expects a lot from multinational corporations when it comes to respecting the rights of people world-wide and preserving the environment for generations to come. As Naomi Klein has argued, the corporate brands are part of a truly global language of signs that do not only refer to certain products but also to the brand’s identity, that is, the values that are expressed by the brand through marketing (Klein, 2000, p. 175). The meaning of the brand is, however, not restricted to the meaning given to it by the corporation. To some extent, a brand leads a life of its own in different cultural contexts (Van de Ven, 2000). It becomes infused by meanings that are part of the fantasies of the local people. A brand can become the object of projected hope for a better life, for restoring the past or for another way of living, mixing the meaning that is communicated to the public through marketing with cultural meaning[3]. The success of certain human rights-based campaigns like the campaign against doing business in Burma (Myanmar) shows us not only that global brands can successfully be targeted by human rights activists, but that there is a growing expectation among the public that multinational corporations should respect human rights word-wide. A lot of consumers seem to expect and demand that the world of global business is not, or at least should not be, a completely unjust world. The hope for a better and more just world is increasingly projected onto the best known brand names and logos. This new trend is accepted simply because nobody is saying that the consumer and the public are wrong in expecting morally appropriate behavior from firms at home and abroad[4]. Another indication that brands and the corporations behind them are the focus of a projected hope for a better world, is the growing attention for corporate social responsibility by government and businesses themselves. There is growing interest in the question what to expect of firms in an globalized economy, especially in places where the law provides insufficient protection for workers. Fact is, that the public in general seems to expect al lot from multinational corporations. There is, for instance, little or no understanding for the use of child labor and for failing to implement the necessary security procedures in plants that are far from home. But what if playing by the rules means that some stakeholders get in trouble even more? Take for instance the children that have to look for other job opportunities when the plant that supplied the multinational closes down. Will the child be better off? But if on the other hand a multinational firm decides to impose a code of conduct on their suppliers to improve the situation for the children, will this be enough in the eyes of the general public? When is doing good, good enough? Apart from the fact that this question does not seem to allow for a universally valid answer, it is even more difficult to form an idea of what can be expected from a multinational corporation that has also to worry about staying in business. In this article, I will try to give a normative analysis of the question whether a corporation has a moral obligation to fulfil claims that are based solely on human rights and how this relates to the obligations a firm has to its stakeholders. Such normative analyses have been at the center of attention in business ethics. Many articles and books have been written that focus on the duties of multinational corporations in developing or underdeveloped countries[5]. These normative analyses are usually built on a theory of business ethics such as the social contract theory of business (Thomas Donaldson) or a virtueethical approach to business ethics (Robert Solomon, among others). The theory focused on in this paper is stakeholder theory. This does not mean that stakeholder theory is best suited to determine the moral responsibility of multinationals with respect to human rights. On the contrary, it will be argued that stakeholder theory has some important shortcomings when it comes to determining multinational corporate social responsibility. Nevertheless, stakeholder theory remains useful as a theory of organizational ethics when it is supplemented by a theory of moral responsibility.

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The article is set up as follows. Section one[6] discusses recent versions of stakeholder theory and the question whether human rights can serve as a normative basis for stakeholder claims. In section two a philosophical treatment of the moral validity of human rights-based claims is given, based on the work of the French philosopher Emmanuel Levinas. Finally, in section three a framework is presented that integrates the conclusions from sections one and two.

Stakeholder theory and human rights One would be inclined to think, that if anyone is to qualify as a stakeholder of a multinational corporation, it will be those children and exploited workers in poor low-wage countries making the shoes and clothes that are sold with more than 100 percent mark ups, and carrying the logos of multinationals like Nike and the Gap[7]. It is evident that the stakes in these cases are high because they concern the basic goods and facilities to be able to live a life that is worth living. Here we are in the domain of human rights, like the rights to life, liberty and property, as they were formulated in the declaration of the UN of 1948. These human rights are alleged to be universally valid and independent of historical circumstance. To be a person is to have them. This means that every human can make legitimate claims on the basis of human rights, whether or not the rights are legally recognized in a certain society. This alleged validity of human rights independent of the context of a society, is an important reason why human rights can be an inspiration to call for changes. At the same time, however, this context independence also calls forth criticisms like Jeremy Bentham’s, who thought that natural human rights were nonsense exactly because it was claimed that they were valid outside of any established political community. Leaving the question about the moral validity of human rights for further treatment in section two, we will now concentrate on the stakeholder status of those who refer to human rights as a basis for their claims on a firm.

The theoretical core of stakeholder theory At first sight, it seems evident that someone who rightly makes a claim on the basis of her human rights should be granted stakeholder status. As explained above, when human rights are involved the stakes are often high, especially when the most basic rights to liberty and life, and the more specific rights of workers, like the right to join a labor association, are being violated. Thus, we would expect that a person or group that can refer to human rights to base their claim on, will have stakeholder status because of the moral legitimacy of human rights. When one determines the stakeholder status with the help of stakeholder theory, however, a different and ambiguous picture emerges. The answer depends on the version of stakeholder theory that one chooses to adopt. Normative stakeholder theory is any form of stakeholder theory that rests on the moral point of view that a firm’s responsibilities to its various stakeholders should go far beyond what is accepted by contemporary shareholder/stockholder approaches. Normative stakeholder theory has been very influential on management thinking in the past decades, but I agree with John Hendry’s diagnosis that ‘‘attempts to ground stakeholder theory in traditional philosophical ethics have, . . . , run into serious difficulties’’, and that ‘‘normative stakeholder theory itself appears to be in a state of disarray and confusion’’. (Hendry, 2001, p. 159). One indication for this is that R. Edward Freeman[8], who stood at the beginning of stakeholder theory, has cooperated in several attempts to base the theory on different traditions within philosophical ethics such as the Kantian/Rawlsian tradition and feminist ethics, who often oppose the rationalistic ethics of Kant and Rawls. Besides Freeman’s rather loose coupling of stakeholder theory and philosophical ethics, there are still other attempts to ground stakeholder theory like the attempt of Thomas Donaldson and Lee E. Preston who base their version on property rights arguments and D. Reed who uses Habermas’s discourse ethics[9]. Freeman is well aware of his loose coupling of stakeholder theory to philosophical ethics, and he even prefers to speak about stakeholder theory as a number of possible stakeholder theories with different normative cores (Freeman, 2001, p. 62). A normative core of a theory is a set of normative judgments about a certain subject like ‘‘Corporations ought to be governed . . .’’ and ‘‘Managers ought to act to . . .’’. The filling in of the blanks in these judgments are the expression

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of a certain normative core. According to Freeman, one normative core of stakeholder theory might be a feminist standpoint, another might be based on pragmatic liberalism. However, one could oppose that even the stockholder approach contains such a normative core, and that of how we could understand value-creating activity differently (Freeman, 2001, p. 63). Different, of course, from how the shareholder approach understands value-creation (maximization of shareholder value). That is why the stakeholder idea should be understood also as a metaphor to think differently about the value a firm creates and for whom. According to Freeman, stakeholder theory should not prescribe one way of looking at stakeholder relations. But if we were to follow Freeman in his rejection of choosing one normative core as the only possible one, does the stakeholder theory tell us what goes beyond its most basic moral intuition: that a firm’s responsibilities go beyond what is accepted by the stockholder approach? Does it say more than that a corporation is responsible for any group or individual who can affect, or is affected by, the corporation (Freeman’s original wide definition of a stakeholder)[10]? Actually, Freeman and other stakeholder theorists do say a lot more than this. For instance, Freeman proposes six groundrules for fair contracting between stakeholders, but he does so on the basis of Rawls’ theory of justice. That is, he does not need stakeholder theory to come up with an application of Rawls’ model of the original position. Any theorists who tries to build Rawlsian or other moral notions into a theory of organizational ethics, could come up with similar results, simply by elaborating the conditions for fair contracting[11]. In other words, once one assumes that a corporation is a morally responsible actor in the sense that, for instance, Donaldson and Werhane have described[12], one only has to look for those persons and groups that are affected by the actions of the corporation and determine the responsibilities to each of them. So, one does not need stakeholder theory to apply a certain philosophical theory of ethics. But what is the theoretical core of stakeholder theory if it does not coincide with a particular normative core? The disapproval of the stockholder approach is at the heart of the stakeholder approach, but this disapproval itself does not provide for a theory of organizational ethics. Recent developments in normative stakeholder theory point in the direction of a more detailed account of who is really a stakeholder and which stakeholders should be given priority. This angle is used by Mitchell et al. (1997) in their article. This article has influenced many writers on the topic. Among them are some prominent defenders of normative stakeholder theory like Phillips et al. (2003). Below I will concentrate on these authors to see whether according to them, human rights can be a normative ground for stakeholder legitimacy.

Mitchell et al. tries to answer the following normative question: Why should managers consider certain classes of entities as stakeholders? Once one has criteria to identify stakeholders it is easier to explain why certain classes of stakeholder receive more attention from the management of corporations. They come up with three criteria to identify and classify a stakeholder: 1. power; 2. legitimacy of the claim; and 3. urgency of the claim. According to Mitchell et al., stakeholder theory should not only look for the normative core of stakeholders that have a legitimate claim, but should also acknowledge stakeholder power and urgency of a claim: ‘‘because these attributes of entities in a firm’s environment – and their dynamism over periods of time or variation in issues – will make a critical difference in managers’ ability to meet legitimate claims and protect legitimate interests’’ (Mitchell et al., 1997, p. 882). Note that the normative argument to include power and urgency as stakeholder identification criteria is derived from the (moral) norm that legitimate interests of stakeholders should be served. Including powerful stakeholders and urgent claims in the stakeholder management of a firm is instrumental to serving the legitimate interests of stakeholders. Stakeholder legitimacy itself is defined as social legitimacy[13]: ‘‘A generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed systems of norms, values, beliefs and definitions’’ (Mitchell et al., 1997, p. 866).

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In Mitchell et al., this instrumental relationship is not discussed in great detail, nor is a moral foundation given for the claim that a firm should serve the legitimate interests of stakeholders. In a recent article of Phillips (2003) this instrumental relationship is at the center of the distinction between normative and derivative stakeholders, and two types of stakeholder legitimacy. According to Phillips, normative stakeholders are ‘‘those to whom the organization has a moral obligation, an obligation of stakeholder fairness, over and above that due other social actors simply by virtue of them being human’’ (Phillips, 2003, p. 31). Derivative stakeholders ‘‘are those groups whose actions and claims must be accounted for by managers due to their potential effects upon the organization and its normative stakeholders’’ (Phillips, 2003, p. 31). An obligation of stakeholder fairness is created when the organization voluntarily accepts the contributions of some group or individual. This voluntary acceptance is likened to consent, contract, or promise in its capacity for generating obligations. If such a relationship is absent a group or individual should not be qualified as a normative stakeholder. The only other possibility to qualify as a stakeholder is when a claim of a group or individual has an effect upon the organization and its normative stakeholders. Here we recognize the instrumental relationship from Mitchell et al.’s article. The claims of the derivative stakeholders are not worthy of attention from management because of themselves but because they effect the interest of the normative stakeholders[14]. The legitimacy of the claim of a derivative stakeholder is due to its derived character, different from the legitimacy of a claim from a normative stakeholder. In Phillips’ version of stakeholder theory, all depends on the relationship a group or person has with the organization. What are the implications of these different stakeholder theories for the question whether human rights can be a normative ground for stakeholder legitimacy? To answer this question, a distinction must be made between a social concept of legitimacy and a moral concept of legitimacy. Mitchell et al. uses a social concept of legitimacy by referring to the conditions under which a certain entity gains social acceptance within a given social context. Moral legitimacy, however, is not restricted to social legitimacy and should not be reduced to it. Moral norms, for instance, those that are formulated in the declaration of human rights, claim to have universal validity, independent of a certain context. Of course, it is not sure that this claim will be matched by actual consent of all the people on earth, but this does not mean that the claim of a moral norm itself is not of an universal nature. If the social concept of legitimacy, like Mitchell et al. proposes is to be used, the factual acceptance of human rights has to be considered in a certain setting. The context of the international business world immediately confronts us with the problem that multinationals operate in different countries with different sets of shared values and customs. So it could be the case that a certain behavior is considered immoral in one country and morally acceptable in another. This creates a problem with respect to the determination of stakeholder legitimacy. Should a pressure group, that claims that all businesses should leave Burma, be considered a stakeholder because the members of the pressure group live in a country were the human rights are believed to be morally valid? Or are such claims invalid because they relate to a country where the human rights tradition is actually poor? And are the workers in Burma then to be considered stakeholders of a firm because their human rights are violated or because some faraway community believes that this is the case? A shortcoming of the social concept of legitimacy, therefore, is that it cannot deal with the actual cultural diversity with respect to moral legitimacy. It shares the problems of ethical relativism in this respect. As a result, the social concept of legitimacy as proposed by Mitchell et al., does not allow us to say anything conclusive about whether human rights can be a basis for stakeholder legitimacy or not. Contrary to the social concept of legitimacy of Mitchell et al., Phillips’ twofold definition of stakeholder legitimacy enables us to derive a clear answer to our question. According to Phillips, a stakeholder relation exists when the organization voluntarily accepts the contributions of some group or individual. It follows from this definition that a child working directly for a multinational is a stakeholder. But the child is only a stakeholder because the firm voluntarily accepts its contribution and not because it possesses human rights (Phillips, 2003, p. 30). This

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does not mean that Phillips denies the moral validity of human rights. It means that there can be different kinds of moral legitimacy. Obligations based on stakeholder fairness are related to 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’’ (Phillips, 2003, p. 26)[15]. Stakeholder obligations are obligations over and above those due to other social actors simply by virtue of their being human. The human rights of non-stakeholders may not be disregarded, but ‘‘no additional moral consideration is due to these groups in managerial decision making, and the organization has no special obligation to attend to their well-being’’ (Phillips, 2003. p. 30)[16]. That is why a non-stakeholder whose human rights are violated by the firm, and who has no foreseeable effect on the firm or its normative stakeholders – that is, no derivative legitimacy exists – may justifiably be omitted from stakeholder analysis. Phillips intends to avoid too broad a definition of the stakeholder concept in order to secure the managerial usability of the framework. Therefore, stakeholder theory should not be used ‘‘to weave a basket big enough to hold the world’s misery’’[17]. Instead, stakeholder theory focuses on the question ‘‘for whose benefit should the firm be managed?’’. This recent narrowing of the stakeholder concept is shared by Freeman and Wicks: ‘‘Violations of the human rights of a constituency group by commercial organizations and the gratuitous destruction of the natural environment are morally wrong, but such judgments rely on concepts outside of stakeholder theory as herein delimited’’ (Phillips et al., 2003, p. 493). Moreover, stakeholder theory need not address issues of supererogation. These issues lie in the moral free space where organizations may take actions that are not obligatory from a stakeholder perspective (Phillips et al., 2003, p. 494).

So, it can be concluded that if we were to follow Phillips et al., human rights as such cannot be a normative basis for stakeholders’ claims. This version of stakeholder theory may indeed have gained clarity and may be better suited for managerial use in the sense that is easier to use, but it seems to pay a high price for these pragmatic gains. First of all, stakeholder theory loses its contact with morally legitimate claims outside the scope of the mutual beneficial scheme of cooperation. So if you happen to be so unfortunate as to have no mutual beneficial relation with a firm while this firm violates your rights as a human being, you will be considered a nonstakeholder. Phillips et al. emphasizes that this does not mean that your moral claim should be ignored. Nevertheless, if you may justifiably be omitted from stakeholder analysis, how should you address the firm that violates your rights then? You are not included in any stakeholder dialogue, you are not part of any stakeholder management initiative, you are, most probably, out of sight.

Second, stakeholder theory cannot deal with a conflict between human rights-based claims and stakeholder claims. The criterion used by Phillips et al. to decide between conflicting stakeholder claims is that benefits should be distributed based on relative contribution to the organization (meritocracy). This criterion, however, does not function outside the scheme of mutual beneficial co-operation. A claim of person or group based on a violation of their human rights may take precedence over stakeholder-based obligations. Stakeholder theory as it stands does not contain criteria to determine when other moral obligations should take precedence. Hence, a normative theory is needed which specifies how stakeholder-based obligations relate to a variety of non-stakeholder-based obligations. The price of a more narrow definition of the stakeholder concept, therefore, is that stakeholder theory does not suffice as an all encompassing theory of business ethics. From an ethical perspective, stakeholder theory is focused on the continuance of the firm and its stakeholder relations. Enlightened self-interest of management suffices as a moral motive, whereas obligations that are beyond self-interest seem to be less important. Returning to the question whether a firm has a moral obligation to respect human rights, it can be said that stakeholder theory does not deny that such an obligation can exist. But in order to answer this question affirmatively, one needs to go outside the scope of stakeholder theory. In the next section, therefore, the question of the moral validity of human rights will be addressed anew.

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The moral validity of human rights. In the introduction the historical success of appeals to human rights is mentioned. According to Onora O’Neill this success can be explained by the energizing and liberating effect of human rights in the political domain. This is because an approach based on rights emphasizes that one can justifiably claim something: ‘‘The rhetoric of rights disputes established powers and their categories and seeks to empower the powerless; it is the rhetoric of those who lack power but do not accept the status quo’’ (O’Neill, 1989, p. 201). The same can be said of the relative success of action groups and non-governmental organizations that focus on the violation of human rights by international business. Take for instance the campaign for pulling out all business activity from Burma, because of the structural violation of human rights by the military regime. Pepsi, Ericsson, Heineken and Texaco to name just a few, have all disengaged their investments. They did so despite the fact that the link between the activities of these multinationals and the violation of human rights is not straightforward. According to the proponents of withdrawal these multinationals contributed to the legitimacy and economic success of the military regime, and thus they were seen as indirectly responsible for the fate of the Burmese people[18]. Since action groups threatened to boycott firms that stayed in Burma, it was in the interest of most stakeholders (especially the stockholders and the employees in other countries than Burma) that these firms decided to disengage their activities. But were these firms morally obliged to disengage themselves even if this would not be in the interest of most stakeholders? Several problems are connected to the question of the moral validity of human rights. First, human rights are claimed to be universally valid, but actually they are not considered valid all over the world and there is no objective ground to claim that they are nevertheless morally valid (ethical relativism). Second, human rights are primarily meant to protect the individual from the state. It is not clear what the moral responsibilities of a firm are in the area of political rights like the freedom of speech and conscience. Human rights seem more successful as an empowering tool for the emancipation of mankind than as an ethical theory that can claim universal validity. But if this is true, why should we care about the theoretical problems of the approach when it is obvious that it can function as an effective tool against the oppression of the powerless? Does not the goal of improving the living conditions of countless human-beings sanctify the means, even if these means are of a doubtful philosophical quality? This is only possible when one acknowledges the moral priority of improving human wellbeing above the philosophical credibility of a theory. But this would itself be a manifestation of an ethical perspective or ethical theory in use, otherwise, one could not defend that one should give priority to the improvement of human well-being. It is typical for the work of the French philosopher Emmanuel Levinas, that he gives priority to fulfilling the human needs above philosophical foundation. This is possible because his own foundation of morals does not rest on an unshakeable ground of human reason; nor on the contingency of moral sentiments in different cultures. According to Levinas, all human-beings can experience the ethical resistance that becomes manifest in the face of the other. With the expression ‘‘face of the other’’ Levinas refers to the experience that we cannot know another person like we can know an object. The other always absolves him or herself from the relationship with me. This is especially true for the moral meaning of human relationships. Levinas points at the experience that whatever my plans are and no matter how difficult my present situation, I am not able to reduce the meaning of the other to the place he or she gets in my understanding of things. For instance, when the Nazis taught that the Jews were an inferior race that did not deserve the same rights as members of the Aryan race, it did not diminish the actual moral worth of the Jews as human-beings. Another example of how the ethical resistance of the face of the other manifests itself in our experience, is in the prohibition ‘‘thou shall not kill’’ and in the commandment ‘‘thou shall love the stranger’’. These commandments are of course as old as the Bible, and Levinas is convinced that this normative core is not only valid in the context of the Jewish, Christian and Islamic religions, but universally valid from an ethical perspective. It is exactly this ethical perspective on reality that distinguishes between good and evil. The moral insight that I may not enslave the other, is not based on the idea that the other might escape my control, but on the perceived injustice of robbing another human being of his freedom. The ethical resistance is therefore not to be understood as a real objective

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resistance, like a bullet-proof vest, but as a resistance that comes from the transcendence of the other with respect to my desires and objectives (Levinas, 1979, pp. 197-201). For this reason, moral obligations cannot be grounded in a certain philosophical system. The moral validity of these obligations does not depend on theory. On the contrary, ethics as philosophical discipline should acknowledge the moral meaning of human relationships before anything else. According to Levinas, the human rights tradition gives expression to the same moral experience as the biblical commandments that forbid murder and tell us to give shelter to those who need it. Like the biblical commandments, the human rights appeal to the good will: ‘‘Goodness for the first one who happens to come along, a right of man. A right of the other man above all’’ (Levinas, 1998, p. 158). With this formulation Levinas tries to give expression to the asymmetric responsibility of me for the other above the reciprocal responsibility of the other for me. That the other can be the first one who happens to come along, a stranger or a friend, means that we need not to suppose any pre-existing social tie between me and the other, to speak of my responsibility towards his or her well-being. The other concerns me, beyond any social context. This way Levinas comes to interpret the human rights tradition as an expression of the moral obligation ‘‘to spare man the constraints and humiliations of poverty, vagrancy, and even the sorrow and torture which are still inherent in the sequence of natural – physical and psychological – phenomena, and the violence and cruelty of the evil intentions of living beings’’ (Levinas, 1998, pp. 155-6). A interesting consequence of this interpretation of human rights is that the emphasis is not on what someone can justifiably claim, but on everyone’s responsibility to respect these rights before they are violated and before protest is organized. Moral responsibility is not only asymmetrical, but also calls for an active engagement with the faith of others. Active responsibility means that one takes on responsibilities even when it is uncertain what the right thing to do is. According to Levinas, we are never sure whether our actions are just in every aspect and with respect to all those involved. This uncertainty is not a reason to forget about our moral obligations. It is part of human experience that moral responsibility and commitment becomes deeper by every attempt to fulfil moral obligations. This means that there are always new aspects that appeal to our sense of responsibility. It is concluded that according to Levinas the moral validity of human rights, like any moral claim, cannot be based on a philosophical theory. This does not, however, diminish its moral appeal. If one agrees with Levinas, it is clear that the management of a multinational corporation has the moral obligation to refrain from any direct violation of human rights. Furthermore, a firm should determine how it can influence its direct environment of suppliers, competitors and customers to enhance human rights. Finally, a firm should try to contribute to a friendly climate for human rights in a country[19]. This way it can show an active attitude towards its moral responsibility.

Balancing human rights-based claims and stakeholder-based claims After the first two sections, it can be concluded that the management of a firm can be confronted with different moral claims that have different sources of normativity. Human rightsbased claims are based on the moral meaning of being human and of human relationships in general. In contrast, stakeholder-based claims are based on a mutual beneficial scheme of cooperation and are therefore restricted to the circle of stakeholders with which the firm has a mutual beneficial relation. Human rights-based claims are believed to override self-interest, whereas stakeholder-based claims are closely connected to the (enlightened) self-interest of the firm. Because there are different sources of normativity, it becomes difficult to say anything in general about the way these different moral claims can be balanced or prioritized when they conflict. For instance, think of a child whose rights are violated because it has to work too long under hard working conditions for a less than livable wage. The child itself does not perceive that his situation is urgent. Suppose that this child works for a supplier of a multinational corporation. At the same time this multinational corporation is in the midst of a merger with another multinational firm. The stakeholder theory of Phillips et al. would qualify the child as a nonstakeholder and the shareholders as normative stakeholders. Phillips et al. say nothing about

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how to handle a possible conflict of interest between these two groups. The stakeholder theory of Mitchell et al. would probably qualify the child as a discretionary stakeholder, that is, as a stakeholder that has no power and whose claim is not urgent in the sense that it calls for immediate attention. The stockholders would be qualified by Mitchell et al. as highly salient stakeholders, that is, that have power and legitimate interests and whose claims (for example a claim to receive accurate information on time) are urgent in a context of a merger. Mitchell et al. predict that the stockholders will get all the attention of the management as long as the merger has not yet been completed, and most of the management’s attention after the merger is a fact. Furthermore, Mitchell et al. justify this distribution of management’s attention by reference to the interests of all stakeholders (see section one). If a merger is not handled well, there could be less means in the future to improve the working conditions of those who have a relationship of dependency with the corporation. The stakeholder theory of Mitchell et al., therefore, gives more practical guidance than Phillips et al. when it comes to handling the claims of different stakeholders that base their claims on different sources of normativity. The stakeholder theory of Mitchell et al. gives, however, no satisfying answer to the question whether a certain human rights-based claim can be so strong that it should take precedence over other stakeholder claims. Legitimacy is just one attribute of a stakeholder among others. Mitchell et al. would reply that if a claim is not only legitimate, but also perceived as involving a serious moral wrong, it will soon gain rights through power and voice through urgency (Mitchell et al., 1997, p. 870). However, from the ethical perspective of human rights, one does not gain a right through power, but has a right to something by virtue of one’s humanity. Power is not a necessary condition for moral legitimacy, otherwise the least powerful would have nothing to base their claims on. I conclude that stakeholder theory in its recent formulations does not provide for a criterion to weigh human rights claims against the claims of (other) stakeholders. If the Levinasian concept of an active responsibility is applied to the question how a human rights-based claim should be weighed against claims based on stakeholder fairness, the following two principles can be derived:

1. A firm should try to create value for its stakeholders under the condition that no human rights are violated. 2. A firm should take active responsibility in enhancing human rights under the condition that it does not endanger the continuation of the firm[20]. Principle 1 gives priority to the moral obligation to respect human rights above the interest of the firm and its stakeholders. It expresses the more general moral obligation to harm no one intentionally, even if a lot of stakeholders would benefit from it. Principle 1 is deontological in nature because it prioritizes the moral obligation to harm no one intentionally, irrespective of the consequences this may have for the firm. If it means that a firm goes bankrupt, it would be the lesser evil because the firm already lost its license to operate. Principle 2, on the contrary, gives priority to the interests of the stakeholders insofar that it states that efforts to enhance human rights may not endanger the continuation of the firm. If a firm could not enhance human rights without getting into serious trouble, it should refrain from such benevolence. In other words, principle 2 acknowledges that a firm’s primary reason of existence is to create value for its stakeholders, otherwise it would not be a firm but a charitable institution. To avoid misunderstanding of the two principles, I would like to stress that these principles do not imply that the enhancement of human rights is understood never to be beneficial for the interests of stakeholders. There are sound arguments for the proposition that acting responsibly will be beneficial for the firm in the long run, since it can help to avoid boycotts and reduce transaction costs for the firm and its stakeholders (Etzioni, 1988). The two principles can be understood as the boundaries of the moral space for business activities. Principle 1 separates the legitimate pursuit of the interest of the firm from morally illegitimate business behavior. Principle 2 determines the moral free space of a firm to act benevolent. Together,

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these principles offer guidance in cases were human rights-based claims and claims of stakeholder fairness conflict. To illustrate this, let us have another look at the case of the oppressed child and the multinational in the midst of a merger[21]. In this case the multinational firm is indirectly involved in the oppression of the child because the firm benefits from the low labor costs and can influence the situation by demanding changes in working conditions from its suppliers. Since the case has to do with violation of human rights, principle 1 should be applied here. Given the direct influence on the situation the multinational firm’s involvement is high. Therefore, the firm should give priority to changing the working conditions of the workers, before thinking of mergers or acquisitions. Of course, once one is in the midst of a merger, management should deal with all stakeholder interests first, and wait with the new supplier policy until later. Nevertheless, a firm should set its human rights record straight before entering into the next business adventure.

Conclusions This paper examined whether human rights can serve as a normative basis for stakeholder legitimacy. A brief review of recent developments in stakeholder theory allowed us to conclude that the status of human rights-based claims is either unclear or outside of the scope of stakeholder theory. As a consequence, stakeholder theory is not able to give guidance to balance stakeholder claims against human rights-based claims. Given the importance of human rights-related issues for international business, this is an important restriction of the usability of stakeholder theory. The Levinasian concept of an active moral responsibility was used to understand why human rights can be considered to be morally valid. Furthermore, this concept has led to two derived principles to balance human rights-based claims and stakeholder claims in general. Although stakeholder theory has important limitations when used to determine the full scope of moral responsibility of a firm, it can serve as a conceptual means to determine the firm’s positive obligations towards those individuals and groups that have a stake in the firm.

Notes 1 For a historical treatment of the relationship between economic globalization, shipping trade and the cruelty of discoverers, colonists and pirates see: Sloterdijk, P. (1999), Spha¨ren II, Globen, Suhrkamp, Frankfurt am Main, pp. 882, 933-6. 2 Marx, M. (1890), Das Kapital, Kritik der politischen O¨konomie, Erster Band, Internationalen Marx_Engels Stiftung (Ed.), Dietz Verlag Berlin, 1991, p. 263. 3 See, for the relationship between consumption, imagination and lifestyles: Appadurai, A. (1996), Modernity at Large. Cultural Dimensions of Globalization, Minneapolis/London, University of Minnesota Press, pp. 53, 66-85. 4 See, for instance, De George, R.T. (1993), Ethical dilemmas for multinational enterprise: a philosophical overview, in White, T.I. (Ed.), Business Ethics a Philosophical Reader, Prentice Hall, Upper Saddle River, NJ, pp. 784-9; Donaldson, T. (1989), The Ethics of International Business, Oxford University Press, New York/Oxford; Kumar, N. and Steinman, H. (Eds) (1998), Ethics in International Management, Walter de Gruyter, Berlin/New York. 5 For a description of the bad working conditions of workers of firms that supply the fashionable brands see: Klein, N. (2000), No Logo, Flamingo, London. 6 See Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA; Freeman, R.E. and Evan, W.M. (1990), ‘‘Corporate governance: a stakeholder approach’’, Journal of Behavioral Economics, Vol. 19, pp. 337-59; Wicks, A., Gilbert, D. and Freeman, E. (1994), ‘‘A feminist reinterpretation of the stakeholder concept’’, Business Ethics Quarterly, Vol. 4 No. 4, October. 7 Donaldson, T. and Preston, L.E. (1995), ‘‘The stakeholder theory of the corporation: concepts, evidence and implications’’, Academy of Management Review, pp. 65-91; Reed, D. (1999), ‘‘Stakeholder management theory: a critical theory perspective’’, Business Ethics Quarterly, Vol. 9, pp. 453-84. 8 I am aware that such application of Rawls’ theory runs into great difficulties. See Henry (2001) and Child and Marcoux (1999).

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9 Donaldson, T. (1982), Corporations and Morality, Prentice-Hall, Englewood Cliffs, NJ, and Werhane, P. (1985), Persons, Rights and Corporations, Prentince-Hall, Englewood Cliffs, NJ. 10 This definition is taken from Suchman, M.C. (1995), ‘‘Managing legitimacy: strategic and instrumental approaches’’, Academy of Management Review, Vol. 20, pp. 571-610. 11 Emphasis from Phillips (2003). 12 Max Clarkson as quoted in Phillips, 2003, p. 30. 13 Amnesty International and Pax Christi International have proposed similar recommendations with respect to the moral responsibility of multinational corporation for human rights (Amnesty International and Pax Christi International, 1998, pp. 63-4). 14 Wellicht wil de auteur dit toch anders formuleren. Ik ben voor overleg bereikbaar op 06 12 697 698. 15 Geef dan ook aan waar de sections beginnen. 16 Het loopt hiet niet goed, maar ik kan niet uit de context opmaken of mijn aanpassing zo afdoende is. 17 Zijn ze nu wel of geen aandacht waard? Onduidelijk. Bedoelt de schrijver misschien: ‘‘are worthy of attention from management not because of themselves but because of . . .’’? 18 Is dit een juiste quote? Ik ben niet blij met deze zin vanaf hier. 19 Bedoel je lot of geloof? fate = lot. 20 ?? not toegevoegd. 21 Eigenlijk is dit te informeel geformuleerd.

References Amnesty International and Pax Christi International (1998), ‘‘Multinational enterprises and human rights’’, A report by the Dutch sections, Amsterdam/Utrecht, pp. 63-4. Appadurai, A. (1996), Modernity at Large. Cultural Dimensions of Globalization, University of Minnesota Press, Minneapolis/London. Child, J.W. and Marcoux, A.M. (1999), ‘‘Freeman and Evan: stakeholder theory and the original position’’, Business Ethics Quarterly, Vol. 9, pp. 207-24. De George, R.T. (1993), ‘‘Ethical dilemmas for multinational enterprise: a philosophical overview’’, in White, T.I. (Ed.), Business Ethics a Philosophical Reader, Prentice Hall, Upper Saddle River, NJ, pp. 784-9. Donaldson, T. (1982), Corporations and Morality, Prentice-Hall, Englewood Cliffs, NJ. Donaldson, T. (1989), The Ethics of International Business, Oxford University Press, New York/Oxford. Donaldson, T. and Preston, L.E. (1995), ‘‘The stakeholder theory of the corporation: concepts, evidence and implications’’, Academy of Management Review, Vol. 20, pp. 65-91. Etzioni, A. (1988), The Moral Dimension. Toward a New Economics, The Free Press, New York/ London. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston. Freeman, R.E. (2001), ‘‘A stakeholder theory of the modern corporation’’, in Beauchamp, T. and Bowie, N. (Eds), Ethical Theory and Business, Prentice Hall, 6th Edition, Upper Saddle River, NJ, pp. 56-65. Freeman, R.E. and Evan, W.M. (1990), ‘‘Corporate governance: a stakeholder approach’’, Journal of Behavioral Economics, Vol. 19, pp. 337-59. Hendry, J. (2001), ‘‘Missing the target: normative stakeholder theory and the corporate governance debate’’, Business Ethics Quarterly, Vol.11, pp.159-76. Klein, N. (2000), No Logo, Flamingo, London. Kumar, N. and Steinman, H. (Eds) (1998), Ethics in International Management, Walter de Gruyter, Berlin/ New York. Levinas, E. (1979), Totality and Infinity. An Essay on Exteriority, Martinus Nijhoff, the Hague/Boston/ London. Levinas, E. (1998), Entre nous. On Thinking-of-the-Other, The Athlone Press, London. Marx, K. (1890), Das Kapital. Kritik der politischen O¨konomie. Erster Band, Internationalen Marx_Engels Stiftung (Ed.), Berlin, Dietz Verlag, 1991.

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Mitchell, R., Agle, B. and Wood, D. (1997), ‘‘Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts’’, Academy of Management Review, Vol. 22, pp. 853-86. O’Neill, O. (1989), Constructions of Reason. Explorations of Kant’s Practical Philosophy, Cambridge University Press, New York, NY. Phillips, R. (2003), ‘‘Stakeholder legitimacy’’, Business Ethics Quarterly, Vol. 13, pp. 25-41. Phillips, R., Freeman, R.E. and Wicks, A.C. (2003), ‘‘What stakeholder theory is not’’, Business Ethics Quarterly, Vol. 13, pp. 479-502. Reed, D. (1999), ‘‘Stakeholder management theory: a critical theory perspective’’, Business Ethics Quarterly, Vol. 9, pp. 453-84. Sloterdijk, P. (1999), Spha¨ren II, Globen, Suhrkamp, Frankfurt am Main. Suchman, M.C. (1995), ‘‘Managing legitimacy: strategic and instrumental approaches’’, Academy of Management Review, Vol. 20, pp. 571-610. Van de Ven, B. (2000), ‘‘Postmodernism and the advertised life’’, Zeitschrift fu¨r Wirtschafts- und Unternehmensethik, Vol. 1, pp. 155-70. Werhane, P. (1985), Persons, Rights and Corporations, Prentince-Hall, Englewood Cliffs, NJ. Wicks, A., Gilbert, D. and Freeman, E. (1994), ‘‘A feminist reinterpretation of the stakeholder concept’’, Business Ethics Quarterly, Vol. 4, pp. 475-98.

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Towards the relational corporation: from managing stakeholder relationships to building stakeholder relationships (waiting for Copernicus) Josep M. Lozano

Abstract The starting point of this paper is the traditional view of stakeholders (encompassing the binomial affecting – affected by the company), and identifies the analytical, managerial and normative dimensions implicit in this view. It goes on to suggest that all stakeholder approaches should make explicit their models, what we call a company model, a management model, a description model, a values clarification model and a legitimacy model. The next issue raised is how far most stakeholder approaches are constructed from a view of the corporation focused inwards, at the center of a universe with stakeholders revolving round it. The complexity of contemporary society (the network society) may require us to learn how to interpret the company’s economic and social relationships system, so that thinking about the company means thinking about it both within and without the network. This is why we propose the term relational corporation, to refer to a corporation that changes its approach to links with its stakeholders, moving from managing relationships to building relationships.

Josep M. Lozano is a Professor at ESADE Business School, Barcelona, Spain. Tel: 3493 2806162, Fax: 3493 2048105, E-mail: [email protected]

Keywords Stakeholders, Intergroup relations

Still be kind, And eke out our performance with your mind (Shakespeare, Henry V, Act 3, Scene 0)

Talking about stakeholders: a necessarily open question The term stakeholder appeared for the first time in 1963, in a memorandum of Stanford Research Institute[1]. In that first definition stakeholders were conceived in relation to corporate survival: those groups without whose support the organization would cease to exist. Right from the start, then, we have the three elements that have persisted throughout the whole debate around stakeholders: the organization, the other actors who relate there and the nature of this relationship. The whole debate around stakeholders revolved around these three elements. This first definition was followed by others, outstanding among which for its relevance being that of Freeman: ‘‘any individual or group who can affect or is affected by the achievement of the organization’s objectives’’[2]. The apparent simplicity of these definitions has not meant there are no doubts, above all, in as far as we have realized, that diverse approximations have become superimposed over these. These superimpositions have best been expressed by Donaldson and Preston (1995) who

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DOI 10.1108/14720700510562668

have pointed out that talking about stakeholders includes considering three approximations: descriptive, instrumental and normative[3]. From the descriptive viewpoint, talking about stakeholders lets us identify the group of interrelationships that make up an organization. From the instrumental viewpoint, it lets us consider how these interrelationships are managed in relation to the achievement of corporate objectives. From the normative viewpoint, it lets us clarify the quality, hierarchy and value of the interests and needs that emerge in these interrelationships. Consequently we have to assume that when we hear about stakeholders it is not always clear which of these registers we are in, if the issue is not raised explicitly. Mitchell et al. (1997) made a comprehensive summary of the various approaches in current use. Compared to the classification proposed by Donaldson and Preston, the instrumental perspective has a much lower profile, making managing stakeholder relationships the result of an intersection between descriptive and normative processes, seemingly the key elements in classifying any stakeholder approach. The descriptive process includes all approaches alluding mainly to the relationship between stakeholder and firm, specifying who has power over whom. The normative process investigates the legitimacy of the relationship: who has claims and rights therein, and the value and pre-eminence of the interests at stake. However clean-cut these distinctions may seem, they have always been the source of practical and theoretical problems. Since we hold that no stakeholder discourse can be entirely selfsufficient, we summarize below some of the most significant of these problems.

Stockholder - stakeholder tension Although brilliant and expressive in use, the term stakeholder raises problems because of its contrast/relationship with the term stockholder. What is the relationship between the stakeholder approach and the stockholder approach? Are they opposites? Does the first include the second? Or go beyond it? Or simply make it more sophisticated? Right from the start, important voices like that of Freeman were raised to say that from both theoretical and management standpoints, reference to stakeholders means a change in direction for thinking on the organizational life: ‘‘namely, the shift from stockholder to stakeholder’’[4]. It should be remembered here that development of the stakeholder theory is intrinsically linked to the debate on corporate social responsibility. Carroll (1999) and Epstein (1998) have shown the evolution of this inter-relationship, and Clarkson has emphasized the need for a stakeholder framework for analyzing and evaluating corporate social performance (Clarkson, 1995). The problem in the relationship between stockholder and stakeholder approaches lies primarily in the managerial context: what managers have to do, how their actions are to be guided and legitimized. Both in its most combative expression (Friedman: the social responsibility of business is to increase its profits[5] ) and most relative (pre-eminence of stockholder relationships over other stakeholder relationships[6] ) the issue of stockholder priority marks a dividing line in approaches to understanding stakeholders. In other words, whenever we propose a stakeholder approach we must make it clear whether it implies a specific change in perspective, or ‘‘simply indicates that companies may profit maximize in the long term through certain social postures’’[7]. Be this as it may, by assuming that all stockholders have the same perspective and interests, this debate systematically ignores an issue of particular importance today. There is in fact no evidence that investors approach the activity of investment in a single minded way (Cragg, 2002), and this diversity in interests, priorities and time perspectives is increasing. As the growth of socially responsible investments shows, some investors use both social and economic criteria when valuing their investments[8]. However, the fact that stockholder appeal is not straightforward enough to allow a single interpretation must not obscure the basic issue underlying this tension between stockholders and stakeholders: the debate on corporate purpose and criteria for company management. ‘‘Whereas the shareholder approach seems to acknowledge only one interest of one stakeholder group, the shareholders, the stakeholder approach acknowledges the many interests, but gives no principle of justice for the process of mediation between the interests. It remains

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a principle of strategic bargaining[9].’’ In other words, if we merely recognize multiplicity of relationships without clarifying their nature or criteria we are walking blindly into a situation of conflicting interests. This means that any debate on the stakeholder approach is a debate about what company model we want.

Tension passed on to managers We have just established that the stakeholder approach is a debate about the company model. This also implies that in the final analysis, the shareholder-stakeholder tension can be viewed as the tension between two dominant competing frameworks for the orientation of management (Mele´, 2002). In attempting to answer the questions whom does management serve? (Sharplin and Phelps, 1989) and for whose benefit and at whose expense should the firm be managed? (Freeman, 1994), the stakeholder approach inseparably links the debates on company models and management models. Although management theory has always contained a strong prescriptive element, we would be wise to question just how far many strategic management approaches are simply reformulations, in corporate terms, of what Moore has called the ‘‘naturalistic fallacy’’ (Moore, 1988). Starting from the premise that stakeholder relations are important for corporate success, we make the conceptual leap to prescription by saying that all management must take them into account. ‘‘What virtually all management theories assume is that the purpose of a management theory is to provide the foundations for successful management. Successful managers are managers who do well what managers are supposed to do. The role of managers is in turn defined by the nature and purpose of the corporation[10].’’

If we allow that ‘‘a stakeholder theory of the firm must redefine the purpose of the firm’’[11], this redefinition will also affect our comprehension of corporate performance and success, and consequently our understanding of how companies should be managed. Further, if we allow that a stakeholder theory permits the reformulation of the relationship between managerial orientation and corporate performance (Mele´, 2002), this will both create strategic prescriptions and redefine how we see corporate success and ‘‘good’’ management. On this point, Cragg (2003) insists that it does not make sense to separate instrumental or managerial aspects, and descriptive or normative aspects. Once the various stakeholders have been identified, this descriptive material is reconstructed by the various management theories and models in line with their respective guiding assumptions, criteria and values. There is no management model (including instrumental or strategic models) that is not based on normative assumptions, and therefore none that substantiates the assumption that options underlying models do not have to be clarified.

Is it really so easy to identify stakeholders? Now that we have avoided the risk of uncritically turning a sociological statement into a managerial prescription, we might think that the criteria for differentiating stakeholder approaches would be evaluational and normative. However, these diverse approaches would depend on the identification of stakeholders, where the only problem would be accuracy of observation. This has been well expressed by Goodpaster, who distinguishes between stakeholder analysis and stakeholder synthesis, where the former would form only part of the latter: ‘‘stakeholder synthesis offers a pattern or channel by which to move from stakeholder identification to a practical response or resolution’’[12]. Mechanisms for such identification or analysis are not universally agreed. ‘‘Who decides which groups are stakeholders in a given context?’’[13] Freeman and Reed (1983) distinguish between the wide sense and the narrow sense of the term, depending on its importance for company survival. Mitroff (1983) draws a distinction between internal and external stakeholders, using the walls of the company as the cut-off point. Frederick et al. (1988) distinguish between primary and secondary links, and Carroll (1989) shows that analysis can be done from either a production or a management perspective.

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Taking the process of identifying stakeholders to its limits leads to a conceptual and management problem. The conceptual problem: what is a company? Because during the deconstruction involved in stakeholder analysis, the company itself becomes, conceptually, an empty space that only acquires content where the various stakeholders intersect. While stakeholders affect or are affected by the company, they are not strictly speaking the company. The management problem: if managers are the only non-stakeholders (and why is this so?) they become the only occupants of this intersection, and have no choice but to seek a balance between the tensions to which they are subjected by the various groupings. The basic issue is that ‘‘the very idea of a purely descriptive value-free, or value-neutral stakeholder theory is a contradiction in terms’’[14]. This is because of the elements used in its description. For instance, Wood and Jones (1995) depict this description as the result of considering the following: the power of each stakeholder vis-a`-vis the firm; the nature of issues involved in the relationship, the ways in which stakeholders express their expectations and evaluations; the way in which the company responds and interprets these, and how it acts. It is clear, then, that ‘‘stakeholder attributes are socially constructed, not objective reality’’[15], and that stakeholders can only be identified from assumptions (Mitroff, 1983). In other words, that when we describe stakeholders, we are in fact describing and demonstrating our understanding of the nature of business itself, which forms the basis of any description we may make (Kaler, 2003). This may be better explained by saying that when we refer to stakeholders, we are constructing a narrative about the company (Freeman, 1999)[16]. This narrative is shaped by assumptions, descriptions, values and criteria. No models for stakeholder can exist without making explicit models for their comprehension (values) and legitimization (principles and criteria).

A framework for making values explicit We cannot refer to stakeholders without setting out the values, criteria and conceptions that allow them to be recognized and classified as such (Lozano, 2000). All stakeholder theories must recognize from the outset that only a value-dense vision of the company and its relationships can lead to the identification of its constituent elements. The actors, interests and powers to be taken into account, the fields that affect or are affected by the theory, who establishes what is meant by success and corporate results, and how they do this, etc. In sum, the stakeholder approach involves articulating, expressing, analyzing and understanding corporate relationships. Beyond the atomistic approach that sees stakeholders as relationship groups defined by the many co-related forces that each creates, we must have a framework from which to locate, understand and consequently integrate them. Only then can we appreciate how a stakeholder approach recognizes that ‘‘stakeholders define the norms for corporate behavior; they are acted upon by firms; and they make judgments about these experiences’’[17]. However, this implies that the company-stakeholder interrelationship cannot be grasped without understanding how and on what basis actors intervene to structure the relationship. Mele´ (2002) has correctly argued that both shareholder and stakeholder models interpret the relationship almost exclusively in terms of the so-called logic of interest. This is usually referred to as interests at stake. They normally obey the separatist thesis that splits business and ethics into separate logics (Carroll and Na¨si, 1997). When establishing the nexus of relationships between the various stakeholders, not only interests, but many other elements are at stake (emotional, evaluative, moral) that cannot be reduced to a reading based on interests alone. This means that as well as interests, the purpose of the relationship and the value given it by each actor must also be considered. Beyond the atomistic approach of an aggregation of relationships, we must ask whether stakeholders have a framework for understanding that gives meaning to and establishes a shared basis for understanding and regulating these relationships (Zadek, 2003). This framework should first make explicit both the company’s purpose and goals, and not only interests. And second, a clear statement of the values, rights and duties of the stakeholders involved in the context of a global view of society, along with the company’s specific contribution to that society (Argandonã, 1998)[18]. In the final analysis, any discussion of stakeholder theories is an anthropological and social discussion. Both the descriptive identification and the prescriptive proposals relating to stakeholders pre-suppose some kind of anthropological model and vision of the social role of

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companies (Kaler, 2003). There can be no discussion of stakeholders without considering the values that different actors identify as shaping their relationship. In other words, without specifying its intrinsic internal good (MacIntyre, 1984). Any relationship between stakeholders contain interests, but is also dense in values, and so any discussion on the stakeholder concept needs a model for the comprehension of the values round which the relationship is built.

Beyond anything (or any interest) goes Relationships with stakeholders, then, include more than interests, extending to values and claims as well. And this is precisely why any reflection on stakeholders must sooner or later lead us to address the issue of their hierarchical order. ‘‘Identifying someone as stakeholder does not, of itself, say what interest is, or even what type of interest is; and it does not say how seriously or with what weight that interest should be regarded[19].’’ It is not enough to identify what is at stake in each relationship, we must also try to establish the quality of the relationship: verifying that a relationship exists in itself tells us nothing about its meaning. It has been asserted that consideration of interests is not enough, and that ability and power to influence must also be brought into the equation[20]. But as Kaler rightly insists, ‘‘a definition of stakeholders in terms of a power to influence is perfectly compatible with the demands of strategy in that it entails no presuppositions about what the objectives of a business should be’’[21]. The existence of relationships of power and interest necessarily brings the legitimacy of both these concepts into question. To take an extreme example: a terrorist group can undoubtedly be a company stakeholder. But while verifying its interests and power to influence can give it importance in strategic management, this does not mean it has either ethical preeminence or legitimacy. The first step in justifying the necessarily prescriptive dimension of any stakeholder approach is to evaluate its social relationships (Hendry, 2001). Do all the interests at stake have equal legitimacy, for example. Phillips (2003) has systematized normative justifications for stakeholder theory; and Andriof and Waddock (2002) have done likewise with the various rationales for stakeholder theory. But all these cases illustrate the same problem: theorizing about stakeholders means theorizing about the relationships they set up and their content. For stakeholder hierarchy and legitimacy issues cannot be considered without also looking at stakeholder rights[22].

It is in this context that the approach of Donaldson and Dunfee (1999) is so important, with three aspects particularly relevant for our purposes. First, their concept of the hypernorm (a norm by which all others are judged). Hypernorms[23] are universally generally accepted ethical principles linked to human rights. They take precedence over, but do not replace, the specificity of creating a moral free space, the second highlighted aspect. In a moral free space, individuals create and share the moral norms and values that shape their social and consequently their economic relationships (providing these are compatible with hypernorms). Third, these processes require to varying degrees the consent of those involved. What are the consequences of these ideas for a stakeholder approach? We cannot legitimately understand or manage a relationship between stakeholders without asking what rights come into play. In the previous section we stated that in relationships between stakeholders there can be no interests without values. Now we must add that these values cannot be understood without asking whether rights are also involved. In other words, to consider any stakeholder approach we need two things: a model for understanding its values, and a model for legitimizing the relationship.

Talking about stakeholders: why is this always an open issue? Initially, we said that any discussion of stakeholders involves three elements: 1. The organization. 2. The other actors in the relationship. 3. The nature of the relationship.

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Now so far in our short itinerary we have tried to show that these three elements cannot be addressed without having models: J A company model. J A management model. J A description model. J A comprehension model (values at stake). J A legitimacy model (principles and rights at stake). Our apparently simple initial premise is now looking rather complex, but perhaps the problem lies not so much in the complexity as in our reading of the issue itself. Trevinõ and Weaver have pointed out that research on stakeholders involves ‘‘converging theorists, not convergent theory’’[24]. It would perhaps be more reasonable to take the view that the stakeholder approach does not need a single master theory that would resolve all the theoretical and practical challenges presented by every approach. This I feel would be neither possible nor indeed desirable partly because, as we have already seen, in theory all stakeholder discourses involve description, strategy, values and principles. In practice too, the nature of stakeholder relationship is not universally consistent, but rather contingent on the situation facing the organization. So perhaps instead of talking about stakeholder theory we should be talking about developing an ‘‘understanding of stakeholder thinking’’[25]. Stakeholder thinking as a concept is neither an instructions manual nor a tool-box, but a key for interpretation. It ‘‘provides a concept for articulating, expressing, analyzing and understanding managers in their relationship with individuals and groups. . . . At a broader level, stakeholder thinking helps us understand the business and society relationship[26].’’ Instead of one convergent stakeholder theory, then, we have a group of elements that, as we have discovered, are as essential when constructing any stakeholder approach as is the method by which it is articulated and justified. The different elements in the stakeholder approach do not allow for a single all-embracing theory. However, they do allow a narrative of the company[27]. This narrative helps us understand it and take sights for action, and can be used to reconstruct a proposed vision of the company, subjected to dialogue and justification. So key to the stakeholder approach are the actors in the context of the relationship itself, not actors pre-existing the establishment of the relationship. Any stakeholder approach that takes itself seriously is based on a relational vision of the company, which goes beyond the concept of who affects, or is affected by, the company (what the stakeholder approach usually refers to). It sometimes seems that everything can be questioned except the corporate purposes that give rise to the definition of this affect-be affected binomial. We think that if the stakeholder approach is really relational, it must accept that the definition of corporate purposes and goals can also form part of the relationship. This leads us to ask in what sense the company is the subject of the stakeholder approach.

Waiting for Copernicus Those of you who read presentations of stakeholder issues will have been struck how the same diagram in various guises is always appearing. The company sits in the middle, with all the stakeholders around it either at the same level or in concentric circles[28]. As if the company could only see its relationships from the inside out, implying that this is the ideal representation of corporate relationships. It seems we are still working with a Ptolemaic concept of the company, assuming that it is natural for the company to be at the center of the universe: at least its own universe. This could explain why stakeholder relationships are routinely seen as basically a problem of managing relationships. Perhaps we need a Copernicus to help us also see the company from the perspective of the system in which it acts, from its place in the system, and considering how it contributes to the system’s dynamic equilibrium, but this time not as the center of the universe. Kuhn (1962) has warned us that our view and experience of the world will depend on the paradigm in which we find ourselves, and that only from within a paradigm can problems and solutions be defined

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that make sense for the scientific community. Continuing with the analogy, we could ask how far many of the discussions, problems and solutions around the stakeholder approach are dependent on a perspective that is limited to a Ptolemaic (corporate-centric) vision of the corporate universe. While waiting for the Copernicus of management to appear, we might get some support from someone who has helped us understand why there are so many ways of tackling value-based problems and decisions, particularly where these are moral values. I am referring to Kohlberg[29]. His findings are centered on the existence of stages in the development of the moral reasoning that occurs when making decisions. These stages involve qualitative differences in the ways of thinking, understanding and judging situations that required a decision. Each stage is a whole, always structured in the same order in individuals, who usually tackle problems according to the highest stage reached. The opportunities and challenges present in their contexts play a fundamental role in this development, particularly opportunities for dialogue and relationship that include differing perspectives for problems. This is why the role played by corporate structures and the organizational climate in moral development has been raised (Trevino, 1992). The debate covers not only the development of individuals within organizations, but also corporate moral development (Reidenbach and Robin, 1991). As with discussion on the relationship between corporate culture and ethics (Lozano, 1998), corporate moral development is not the development of a body that exists in isolation from the individuals who make it up, but a ‘‘dynamic interactional development for the preservation of the character of the system’’[30]. This is an open focus, which postulates that the integration of individual and organizational moral development depends on how stakeholder orientation is dealt with (Logsdon and Yuthas, 1997). Kohlberg presents his evolutionary sequence of moral development in six successive stages, grouped into three levels: pre-conventional, conventional and post-conventional. The two stages of the pre-conventional level are: heteronomous morality linked to avoid punishment and individualism and instrumental purpose. In heteronomous morality, what counts is avoiding unpleasant consequences for oneself, and submission and obedience to the power of authorities through fear of punishment. When applying individualism and the instrumental purpose, what counts is seeking the accomplishment of one’s own interests and needs, in a world where everyone is recognized to have his or her own interests. The two stages of the conventional level are the adoption, respectively, of an interpersonal perspective, and a social system perspective. The stage involving mutual interpersonal expectations is motivated by deference to the expectations of immediate peers, who take primacy over individual interests. In social perspective stage, we are capable of adopting the perspective of keeping the institution going as a whole, differentiating societal points of view from interpersonal agreement or motives. Finally, the post-conventional level, where the two stages are social contract, and universal ethical principles. At the social contract stage, the individual is capable of a prior-to-society perspective, where recognition of pluralism is accompanied by a sense of obligation to law for the protection of all people’s rights because of the social contract. And at the universal ethical principles stage, individuals act in conformance with the validity of universal moral principles of justice, and a sense of personal commitment to them.

We believe that acknowledging Kohlberg’s findings can help explain why no unified theory has appeared on the development of stakeholder thinking. As we have already said, the stakeholder thinking approach is not self-sufficient since its discourse involves stakeholders, always a contingent discourse that can only work in a specific context. In this context, reference to stakeholder relationships means explicitly or implicitly articulating models for the company, management, identification, evaluation and legitimacy. And we know that even with identical elements, these differ when ordered from pre-conventional, conventional or post-conventional perspectives. Practical discussions around the different stakeholder approaches could probably be better understood if instead of concentrating on their component elements we focused on the

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perspective from which they are ordered. We already know that the different stages are incommensurable: although they talk in the same terms, they do so from different mental universes. The perspectives from which stakeholder relationships are tackled differ. The pre-conventional perspective takes into account the power and interests of those taking part. The conventional perspective considers the intrinsic internal good of the relationship established; and further the conventional perspective includes socially shared values that frame the role of the company in society. The post-conventional perspective may subordinate the understanding of the relationships to human rights and hypernorms. We know that each stage creates its own viewpoint on the world, and its own way of understanding and justifying the links and commitments established. Theoretical content alone does not in practice explain the differences between the distinct approaches to stakeholder relationships. Also important, perhaps decisive, is the development of a moral (intellectual and emotional) capacity that prevents them being viewed as just a way of managing the interests of parties involved. We must recognize the values intrinsic to the relationship and coming from its social context, and be able to assume these without turning our backs on principles of justice and human rights. If all these elements are considered our affirmation, that each stakeholder approach leads to a narrative about a company and its actions. This narrative includes analytical, managerial and normative elements, and since human action and its narration are by nature always open, this explains why the stakeholder approach is always an open issue. It should be noted that in this context, open does not mean arbitrary, as the vital flow from a pre-conventional to a post-conventional perspective makes clear. The difference is, that while the pre-conventional perspective tends to treat the logic of power and interest as an absolute, conventional and postconventional perspectives, while not eliminating it completely, move it to a different horizon of understanding[31]. In each perspective, the reply to the inevitable question[32] implicit in the issue before us of ‘‘how can and do corporations contribute to constructing ‘the good society’?’’ acquires a different meaning. The question is whether we can tolerate companies and managers whose only response to this question is what I have called the heteronomy of results (Lozano, 2000). Companies and managers only capable of responding from a mono-thematic perspective, whose sole concern is the logic of interest and power, and whose vision of stakeholder relationships is a Ptolemaic diagram with the company at the center of the universe with all its (subordinate) stakeholders revolving round it. It must also be possible to base our thinking about companies and their relationships on a more global vision of the economic and social system, and the specific contribution these make to the viability and sustainability of that system. The contribution of the evolutionary process pointed out by Kohlberg is in showing that during the transition from a pre-conventional to a conventional or post-conventional perspective, there is both continuity and breach. Continuity, because during this process, subjects learn how to expand their perspective from their own experience and interaction. Breach, because each level of the process brings a change in world views and ways of orienting actions. I would also add that today, getting beyond this corporate-centric view of stakeholder relationships is both a challenge and a necessity.

From the stakeholder corporation to the relational corporation[33] Our debate has moved on from the relationship between company and society – the problem from our current standpoint being that ‘‘and’’. What we must now address is the role and purpose of the corporation in society (Clarkson, 1998). Corporations do no not stand apart from society as a distinct self-justifying organization (Cragg, 2002). We should therefore be asking whether the perspective from which the stakeholder approach and thinking is developed is firmcentered or system-centered (Mitchell et al., 1997), perhaps a Copernican turn. Our advantage when posing this question in the light of Kohlberg’s findings is the knowledge that moving from the former to the latter is not a choice between two opposing, mutually exclusive perspectives, but the result of a process of personal and corporate development that can be a learning process. The ability to see challenges and opportunities in systematic terms is not incompatible (quite the contrary) with focusing on stakeholder relationships from the company standpoint, which can also embrace the social framework. However, an exclusively self-centered vision of

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stakeholders makes them subservient to a relationship management only equipped to see them as a projection of company interests. This movement from firm-centered to system-centered thinking is not just well-intentioned theory but the result of thinking about our world and the role companies play. A stakeholder approach is not the result of approaching a Platonic idea that tells you how to view the relationships with stakeholders, but that is always contextual. And, by the way, the context has changed radically since 1963 when stakeholders first came on the scene. Today, we are newly asking if the world can become a place for us (Barber, 1998) or if we are living in a runaway world (Giddens, 1999). The need for governance of globalization processes now goes beyond governments and political institutions, it absolutely requires the alliance and co-responsibility of the many actors involved, above all in creating basic joint agreements (Held and McGrew, 2002). This is particularly important if we recall that one of the dark sides of globalization is the emergence of the risk society (Beck, 1986, 1997). In this society, the threat comes not from inescapable natural phenomena but the consequence of human actions, including those taken in the name of economic necessity. Such human actions raise the uncomfortable question of whether or not they originate in a kind of organized irresponsibility (Beck, 2000). It is well known that in many forms of social and environmental damage there are many factors but no single cause, and so no-one feels responsible. We are increasingly aware that this new society, built on inter-dependencies, cannot be viable if its actors, including companies, do not all act from the principle of responsibility (Jonas, 1979)[34]. It is natural, then, that there should be talk of ‘‘the new roles and responsibilities of business within a new operating paradigm that has shifted from a ‘do no harm’ approach to a ‘demonstrate positive benefit’ imperative’’[35]. One of the underlying elements in all these new social and business processes is the movement towards the so-called network society. ‘‘As an historical trend, dominant functions and processes in the information age are increasingly organized around networks. Networks constitute the new social morphology of our societies, and the diffusion of networking logic substantially modifies the operation and outcomes in processes of production, experience, power and culture[36].’’ As well as affecting our understanding of management and the role of companies, it underpins the plausibility of a stakeholder approach evolving from firm-centered to system-centered.

The key to understanding the organization is the network concept. The organization is at the node of the networks it occupies, but not at the center, partly because a network is not defined from its center. This means that stakeholder relationships cannot be viewed as segregated or dyadic (one to one) relationships, an assumption that used to form the basis of many stakeholders theories. ‘‘The organization is not necessarily the center of the network; therefore, treating its position as a variable in its complex social system provides one with an opportunity to understand more fully how patterns of stakeholder interactions impact the organization[37].’’ This means seeing the organization as a network of stakeholders, each with its own set of stakeholders. It also implies that the content of a particular stakeholder approach comes from a particular context (Gao and Zhang, 2001), and that instead of ready-made clear, distinctive stakeholder theories we need the capability to develop a stakeholder narrative from each company’s itinerary. In the words of Sandra Waddock: ‘‘No longer can we consider that a company operates independently of its impacts on stakeholders, even if those impacts are emotional, aesthetic, or otherwise not really quantifiable. No longer can we say business and society; we must recognize that business is a holon of the larger holon society, thus the correct terminology is business in society[38].’’ This means changing our assumptions. Relationships with stakeholders can no longer be seen through the lens of the consequentialist binomial ‘‘affect – be affected’’. Talk of dependency must be replaced by interdependency and responsibility by co-responsibility. In a complex social system, each stakeholder partly depends on other stakeholders ( just as the company is also a stakeholder of other organizations). ‘‘In a complex social system, each stakeholder is tied

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to, or dependent upon, at least one other important social system stakeholder for its existence and/or functioning[39].’’ This, to be sure, is one of the bases of our proposal to move on from referring to corporate social responsibility to organizational corporate responsibility (Lozano, 2003). When the company stops seeing itself as the center of the universe, and can be seen engaging in relationships of inter-dependency within its relationship network, we can begin to talk about shared responsibilities and the need for a responsible stakeholder approach by all – private, public and social sector – organizations. Consideration of the network society has led us to the relational corporation, not as a fact, but an option. True, an option based on analyzing the processes of social change that we are experiencing, but this evidence falls short of fact. The relational corporation is both a business and a social option, addressing: How and with what aims must a company take its place in the network society? What type of company do we need and want so the emergent society can be viable? Hence the need to develop capabilities to take us beyond the pre-conventional view of problems and challenges that we hold today. The development of companies that are sustainable, economically, socially and environmentally (Elkington, 1998) is impossible if we only learn how to manage interests. As we have already seen, the capability to adopt a post-conventional and more systemic (or social) perspective does not negate or annul the recognition of interests. But it sets them in a wider framework, and so not only negotiates but learns to engage in dialogue about them. ‘‘Stakeholder linkages are relational, not merely transactional[40].’’ To define a stakeholder is not to define an actor but rather to interpret and to understand a relationship. If the stakeholder approach starts by recognizing a system of learning relationships, it can take the relationships as an opportunity for learning, not in a vacuum, but from the relationship itself, and making the relationship itself the object of learning. This learning includes work on the interests and conflicts common to all relationships, but also increasingly on the beliefs and assumptions that comprise a corporate identity (and the identity of other stakeholders) and those underlying how to understand and find one’s place in relationships. In this sense, a relational corporation is an organization capable of changing from managing relationships to building relationships.

From managing relationships to building relationships Halal (2001) maintains that there are many elements that make up the relationship between stakeholders and the corporation: J Conflict resolution. J Equitable treatment. J Market competition. J Political bargaining. J Collaborative problem-solving. Our assumption is that the network and information society particularly requires the capacity to develop the latter element, leading to a post-conventional perspective with its component of dialogue. ‘‘A perspective of dialogue that goes beyond mere discussion to a powerful form of mutual understanding and creative action. Rather than attempt to influence or coerce others, dialogue focuses on deep listening with empathy, expressing hidden assumptions, focusing on common interests, and searching for conceptual breakthroughs. . . . And organizational learning, knowledge and dialogue explain how stakeholder collaboration can produce creative strategies that benefit all parties.[41]’’ This is why I hold it makes sense to see stakeholders as more than a group of diadic relationships to be managed. We need a stakeholder vision that is much more network-based and process oriented. This must cause changes. ‘‘One important shift is the movement from reactive postures, to proactive but unilateral boundary-spanning functions, to interactive engagement with stakeholders. A second feature of this shift of definition is the recognition of power relationships and interdependence; that is, a movement towards a more systemic understanding of the relationships that exist among organizations and their stakeholders in societies, particularly important in any kind of relationship or engagement process[42].’’

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It is within this process that we will build trust and commitment. It is within this process that we confront the inevitable differences and conflicts that in practice always affect stakeholder relationships. Building such complex relationships means narrating, explaining, drafting, understanding and giving them meaning, taking into account the interests, values and principles that are at stake. But above all, in the knowledge that we must build – with great care – a space where dialogue, confidence and, in a sense, collaboration will be possible[43]. In our increasingly network and information society, building relationships with stakeholders means developing multi-stakeholders learning dialogues (Payne and Calton, 2002)[44], which is the way to keep ethical responsibility in networks (Daboub and Calton, 2002). ‘‘Building an interactive, dialoguebased relationship is not a state of being, a one-time thing, but rather a long-term evolving process. This process requires commitment, energy, a willingness to admit mistakes, and capacity to change when problems arise, as well as attention to the softer, more subjective aspects of relationship building; it requires attention to operational practices that impact these stakeholders day-to-day. It requires organizational as well as individual learning.[45]’’ Let us examine two facets of this learning.

Building relationships: rethinking values Too often the question of corporate values has been posed as an exclusively internal matter, especially when it is reduced to the creation of documents basically for show. Often talking about corporate values results in nothing more than an attempt to create new forms of control adapted to post-modern times, more focused on seduction and emotional involvement than on submission to standard processes (Lipovetsky, 1992). Any vision of corporate values whose aim is the creation of documents is usually stultified by a static and uniform vision of the corporate identity. Some managers claim that by value-based management they can make people change from ‘‘doing what we want’’ to ‘‘wanting what we want’’. However, I feel that talking of corporate values still makes sense, particularly if we consider it as an opportunity to create understanding and, above all, if what we want is for values not to be accepted but to be shared (Pruzan, 1998; Lozano and Sauquet, 1999). In this sense, the process of work with values, based on and returning to corporate practices, requires reflective practitioners (Scho¨n, 1987). But it also requires an organization that will make it possible, what we might consider a reflective organization (Lozano, 2003). Corporate values are relational values. They only express what an organization is in as far as they express, among other concepts, how it expects to relate to stakeholders. Values do not express a fixed, de-contextualized identity. Working with values always describes what the company does and what the company wants to do, partly because corporations are what they do (Post et al., 2002). But this doing is not possible without giving value, horizon and sense to practices[46]. Values allow the reframing of meaningful practices, and this is particularly decisive today, in a world of accelerated change and with increasingly multicultural companies that are subject to the most diverse demands of society. Dialogue about corporate values, then, deals with day-to day practices, not voluntary actions (often seen as socially important, but in reality supplementary and complementary to its core business). ‘‘An organization’s values are not just an aggregation of each stakeholder group’s values, even thought it is a condition for organizational success that the organization’s values respect and reflect its stakeholders’ values. The organization’s shared values are those values which emerge from the organization’s on-going self-reflexive constitutive dialogue as to its identity, purpose and relationships to its stakeholders[47].’’ In a sense, we are seeing the emergence of what has been called a conversational corporation (Zadek, 2001). Every organizational network is made up of conversations and actions, which have to create value for all parties involved. Value creation is linked to obtaining results, but also to reaching joint agreement on what is valuable (Austin, 2000), so requiring each organization to redefine its idea of business success (Lozano, 2004). ‘‘Values-based management presupposes that the organization and its stakeholders develop a shared language and tools which can help the organization to observe itself, to measure the extent to which it contributes to its stakeholders’ values, and to make choices which promote the interests of the organization as a whole[48].’’ This highlights the fact that dialogue about values is not just talk, and that talk about values in an organization embraces more than values. When we talk about values we are talking

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about everything we do, how we do it and how we wish to do it. We must therefore include research on methods of accountability that are consistent with this vision of relationships between corporation and stakeholder[49].

Building relationships: rethinking accountability Accountability is today an open process, starting from the time the triple bottom line (Elkington, 1998) was first raised and including the gradual consolidation of other proposals that are being increasingly recognized[50]. The creation of indicators for management and accountability is one of the major challenges of the relational corporation, not just to bring in floods of data, but to act as mediators for management, dialogue and relationship building. The question after all is ‘‘not merely about what measures, but who created them and for what purpose’’[51]. A relational corporation does not make sense in the absence of any consistent forms of accountability. This affirmation is not based on any kind of moralizing voluntarism. If we wish to respond to the complex issues raised by our current economic and social circumstances, it would be illusory to think that we can do so via the narrow language of efficiency, control and profit (Pruzan, 1998). A one-note, simple language will not help us cultivate conversations in the essential debate on innovation, commitment, confidence and partnership. The language of efficiency, control and profit does not cover all that people value, including what they value in companies. We do not just need to ‘‘pep up’’ this narrow language, whether called reputation management or risk management. What we need is an adequate vision of management in the network society that gives as much attention to decision-making as to the decision-receivers. In this sense, ‘‘managers become listeners rather than speakers’’[52]. The accountability of the relational corporation should be not only a reflective accountability (Lozano, 2004), but also a listening accountability. An accountability oriented to gradually building relationships with stakeholders and so communicating what is important for the relationship, not drowning it in an exhibitionist flood of information. Accountability, then, is not simply a process of data creation. It must be one of the learning processes in developing relationships with stakeholders (Pruzan and Zadek, 1997). Clearly, not all stakeholders demand or need the same forms of accountability. Accountability forms part of the building of the stakeholder relationship, contextualizing the process under which importance is measured by its end purpose. Walzer (1983) said that there are spheres of justice in which criteria for distribution vary with the good and the relationship in question. Similary, a reflective organization should also be able to talk about spheres of accountability that vary according to the relationship and dialogue with each stakeholder. Accountability does not only require informing people of what is going on, but also knowing what is important to people (Lozano, 2004). Taking this line, corporate reflection, context and itinerary will begin to establish the best technical and operational procedures for each circumstance. Procedures that Gao and Zhang (2001) have shown can be made to match the level of engagement of stakeholder relationships: passive, listening, two-way process, proactive[53]. In short, what we want to indicate here is that the Copernican turns towards a relational corporation, when based on a change of paradigm, leads to a rethinking of the whole cycle of corporate learning and development, from values to accountability.

Conclusions The stakeholder approach is today indispensable in any consideration of companies and organizations. But we would be deceiving ourselves if we thought that any corporate discourse on stakeholders can stand alone. Such discourse is always set up on the assumption (implicit or explicit) of a set of models: of company, management, stakeholder identification, value clarification and legitimization. Not being conscious of this means that any discussion about stakeholders obscures more than it reveals, burying a business project under a barrage of sociological analysis and managerial instrumentalism. If we recognize that stakeholders are always discussed from a basis of set assumptions, we will understand that a stakeholder approach is more a vision and a narrative about a company than a real theory. It is a way of understanding the company’s three constituent elements: the organization, the actors who

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relate therein and the nature of the relationship. A full realization of this requires the development of the personal and corporate capability to design a discourse that includes the interests, goods, values, principles and rights involved in the relationship. Today, we cannot question the content only of this discourse, but also the point of view from which it was constructed. My view is that today we can no longer talk about stakeholders from the self-centered perspective of an organization only able to see the world from the inside out. The emergent society is a network society, created from interdependencies, in which the various actors see themselves and their practices from the perspective of this very system of interdependencies. This means that every stakeholder approach must refer to the way corporations position themselves and act within their network of relations as a process. This is why we propose here, that today we should be moving towards a relational corporation. A relational corporation that is aware of its purpose, and that can see itself not just as a manager of stakeholder relations, but as a builder of stakeholder relations.

Acknowledgments This paper forms part of one of research projects of ESADE’s Institute for the Individual, Corporations and Society (IPES), which is sponsored by the Caixa Sabadell Foundation. I would like to thank D. Arenas, A`. Castin˜eira, M. Vilanova and T. Ysa for their comments. Above all for the pleasure of the discussions held with them.

Notes 1. For a systematic presentation of the evolution of the term and its implications, see Mitchell et al. (1997). 2. Freeman, 1984, p. 46. 3. Freeman and Reed (1983) made an apparently similar but much more management-oriented division when they considered that the concept had implications at three levels: as management theory, as a process for practitioners and as an analytical framework. The normative dimension then becomes much more tacit and implicit. 4. Freeman and Reed, 1983, p. 88. 5. Friedman, 1970. 6. Goodpaster, 1991. 7. Pruzan and Zadek, 1997, p. 60. 8. www.eurosif.org 9. Koslowski, 2000, p. 142. 10. Cragg, 2002, p. 120. 11. Freeman, 1994, p. 132. 12. Goodpaster, 1991, p. 57. 13. Pruzan, 1998, p. 1385. 14. Freeman, 1999, p. 234. 15. Mtchell et al., 1997, p. 292. 16. Not in vain does a recent classification of stakeholder theories (Andriof and Waddock, 2002) divide them into the analytical approach (descriptions, instrumental) and the narrative approach (normative, metaphorical). 17. Wood and Jones, 1995, p. 318. 18. Argandonã’s proposal is that this basis can be found in the concept of the common good. 19. Cohen, 1997, p. 14. 20. Mitchell et al. (1997) have made a systematic presentation of this issue. 21. Kaler, 2002, p. 95.

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22. ‘‘In short, the fact that groups may make claims does not automatically make them legitimate, and the basis of the claim will determine whether the firm has an obligation to meet that claim’’ (Gibson, 2000, p. 250). 23. This approach resembles another that Cortina (1986) has described as a ‘‘minimum ethic’’, although the philosophic basis of Donaldson, Dunfee and Cortina is different. 24. Trevinõ and Weaver, 1999, p. 222. 25. Carroll and Na¨si, 1997, p. 71. 26. Carroll, 1995, p. 139. 27. ‘‘I want to insist that the normative, descriptive, instrumental and metaphorical uses of ‘stakeholder’ are tied together in particular political constructions to yield a number of possible ‘stakeholder theories’. ‘Stakeholder theory’ is thus a genre of stories about how we could live’’ (Freeman, 1994, p. 413). 28. Without claiming to be exhaustive, you can find this image in Mitroff (1983), Evan and Freeman (1988), Freeman (1994), Donaldson and Preston (1995), Wheleer and Sillanpaa¨ (1997), Svendsen (1998), Burke (1999), Androf and Waddock (2002), Post et al. (2002a), Phillips, (2003). 29. See: Kohlberg et al. (1983); Kohlberg and Candee (1984). We do not think it necessary at this point to consider the literature on moral reasoning of managers nor the debate on Kohlberg’s theory. 30. Guerrette, 1994, p. 54. Guerrette has possibly made the most practical and detailed proposal on how to integrate Kohlberg’s approach into the various fields of corporate management in his article ‘‘Management by ethics. A new paradigm end model for corporate ethics’’. 31. Bearing in mind that people cannot consider problems in moral terms beyond the moral level they have attained. 32. Wood, 1991, p. 66. 33. I use this wording with reference to the theory of Xavier Mendoza (1995), which maintains that the demands of the current political and social situation as regards development of public policies means we must forsake the welfare state and think in terms of what he himself calls the relational state. 34 "But responsibility must be must be the principle which informs and organizes the post-capitalist society. The society of organizations, the knowledge society, demands a responsibility-based organization" (Drucker, 1993, p. 88). 35. Warhurst, 2001, p. 57. 36. Castells, 1996, p. 500. 37. Rowley, 1997, p. 892. 38. Waddock, 2001, p. 241. 39. Mittroff, 1983, p. 43. 40. Post et al., 2002, p. 25. 41. Halal, 2001, p. 30. 42. Andriof and Waddock, 2002, p. 23. 43. See Svendsen (1998) a detailed presentation of the differences between stakeholder management and stakeholder collaboration. 44. In their article they set out in detail the critiques, advantages and disadvantages of multi-stakeholder learning dialogues. 45. Waddock, 2001b, p. 243. 46. "Positive stakeholder relationships allow companies and stakeholders to share common meaning and purpose, to understand the system and their places in that system. They encourage development of a meaning and purpose in the relationship and value stakeholders as ends rather than means. The processes in such relationships emphasize mutual engagement in dialogue, acceptance of (and ability to see) others’ perspectives, transparency of information and processes. Finally, positive stakeholder relationships provide for an appropriate responsiveness in return to the investment each stakeholder makes’’ (Waddock and Smith, 2000, p. 50)

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47. Pruzan, 2001, p. 278. 48. Pruzan, 1998, p. 1387. 49. Pruzan and Zadek (1997) have documented a concrete example where stakeholders are involved in the whole process, from value identification to accountability. 50. www.globalreporting.org/, www.accountability.org.uk/, www.projectsigma.com/ 51. Zadek, 2001, p. 189. 52. Hummels, 1998, p. 1413. 53. Gao and Zhang, 2001, p. 243. Here you will also find a systematic presentation on how to deal with the processes in practice.

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Kohlberg, L. and Candee, D. (1984), ‘‘The relationship of moral judgement to moral action’’, in Kurtines, W.M. and Gewirtz, J.L. (Eds), Morality, Moral Behavior and Moral Development, John Wiley and Sons, New York, NY, pp. 52-73. Kohlberg, L., Levine, C. and Hower, A. (1983), Moral Stages: A Current Formulation and a Response to Critics, Karger, New York, NY. Koslowski, P. (2000), ‘‘The limits of sharehoder value’’, Journal of Business Ethics, Vol. 27, pp. 137-48. Kuhn, T.S. (1962), The Structure of Scientific Revolution, University of Chicago Press, Chicago, IL. Lipovetsky, G. (1992), Le cre´puscle du devoir. L’e´thique indolore des nouveaux temps de´mocratiques, Gallimard, Paris. Logsdon, J.M. and Yuthas, K. (1997), ‘‘Corporate social perfomance, stakeholder orientation, and organizational moral development’’, Journal of Business Ethics, Vol. 16, pp. 1213-26. Lozano, J.M. (1998), ‘‘Ethics and corporate culture: a critical relationship’’, Ethical Perspectives, Vol. 5 No. 1, pp. 53-70. Lozano, J.M. (2000), Ethics and Organizations. Understanding Business Ethics as a Learning Process, Kluwer, Dordrecht. Lozano, J.M. (2003), ‘‘An approach to organizational ethics’’, Ethical Perspectives, Vol. 10 No. 1, pp. 46-65. Lozano, J.M. (2004), ‘‘What is a successful company? A path to understanding accountability’’, Corporate Integrity and Accountability, Sage (forthcoming). Lozano, J.M. and Sauquet, A. (1999), ‘‘Integrating business and ethical values through practitioner dialogue’’, Journal of Business Ethics, Vol. 22, pp. 203-17. MacIntyre, A. (1984), After Virtue, University of Notre Dame Press, Notre Dame. Mele´, D. (2002), ‘‘Not only stakeholder interests’’, in Cortright, S.A. and Naughton, M.J. (Eds), Rethinking the Purpose of Business, University of Notre Dame Press, Notre Dame, pp. 190-214. Mendoza, X. (1995), Las transformaciones del sector pu´blico en las democracias avanzadas: del Estado del Bienestar al Estado Relacional, UIMP, Barcelona. Mitchell, R.K., Agle, B.R. and Wood, D. (1997), ‘‘Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts’’, Academy of Management Review, Vol. 22 No. 4, pp. 853-86. Mitroff, I.I. (1983), Stakeholders of the Organizational Mind, Jossey-Bass, San Francisco, CA. Moore, G.E. (1988), Principia Ethica, Cambridge University Press. Payne, S.L. and Calton, J.M. (2002), ‘‘Towards a managerial practice of stakeholder engagement’’, in Andriof, J., Waddock, S., Husted, B. and Sutherland, S. (Eds), Unfolding Stakeholder Thinking, Greenleaf, Sheffield, pp. 121-35. Phillips, R. (2003), Stakeholder Theory and Organizational Ethics, Berrett-Kohler, San Francisco, CA. Post, J.E., Preston, L.E. and Sachs, S. (2002), ‘‘Managing the extended enterprise: the new stakeholder view’’, California Management Review, Vol. 5 No. 1, pp. 6-28. Preston, L.E. and Donaldson, T. (1999), ‘‘Stakeholder management and organizational wealth’’, Academy of Management Review, Vol. 24 No. 4, pp. 619-25. Pruzan, P. (1998), ‘‘From control to values-based management and accountability’’, Journal of Business Ethics, Vol. 17, pp. 1379-94. Pruzan, P. (2001), ‘‘Corporate reputation: image and identity’’, Corporate Reputation Review, Vol. 4 No. 1, pp. 50-64. Robin, D.P. and Reidenbach, R.E. (1991), ‘‘A conceptual model of corporate moral development’’, Journal of Business Ethics, Vol. 10, pp. 273-84. Rowley, T.J. (1997), ‘‘Moving beyond dyadic ties: a network theory of stakeholders influences’’, Academy of Management Review, Vol. 22 No. 4, pp. 887-910. Scho¨n, D.A. (1987), Educating the Reflective Practitioner, Jossey-Bass, San Francisco, CA.

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Sharplin, A. and Phelps, L.D. (1989), ‘‘A stakeholder apologetic for management’’, Business and Professional Ethics Journal, Vol. 8 No. 2, pp. 41-53. Svendsen, A. (1998), The Stakeholder Strategy, Berrett-Koehler, San Francisco, CA. Trevinõ, L.K. (1992), ‘‘Moral reasoning and business ethics: implications for research, education, and management’’, Journal of Business Ethics, Vol. 11, pp. 445-59. Trevinõ. L.K. and Weaver, G.R. (1999), ‘‘The stakeholder reserach tradition: converging theorists – not convergent theory’’, Academy of Management Review, Vol. 24 No. 2, pp. 222-7. Waddock, S. (2001a), ‘‘Integrity and mindfulness. Foundations of corporate citizenship’’, Journal of Corporate Citizenship, Vol. 1, pp. 25-37. Waddock, S. (2001b), ‘‘Corporate citizenship enacted as operating practice’’, International Journal of Value-Based Management, Vol. 14, pp. 237-46. Waddock, S. and Smith, N. (2000), ‘‘Relationships: the real challenge of corporate global citizenship’’, Business and Society Review, Vol. 105 No. 1, pp. 47-62. Walzer, M. (1983), Spheres of Justice, Basil Blackwell, Oxford. Warhurst, A. (2001), ‘‘Corporate citizenship and corporate social investment’’, Journal of Corporate Citizenship, Spring, pp. 57-73. Wood, D.J. (1991), ‘‘Toward improving corporate social performance’’, Business Horizons, July-August, pp. 66-73. Wood, D.J. and Jones, R.E. (1995), ‘‘Stakeholder mismatching: a theoretical problem in empirical research on corporate social performance’’, The International Journal of Organizational Analysis, Vol. 3 No. 3, pp. 229-67 [Donaldson, T. and Preston, L.E. (1998), The Corporation and its Stakeholders, University of Toronto Press, Toronto, pp. 315-63]. Zadek, S. (2003), The Civil Corporation, Earthscan, London. Zadek, S., Pruzan, P. and Evans, R. (1997), Building Corporate Accountability. Emerging Practices in Social and Ethical Accounting, Auditing and Reporting, Earthscan, London.

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In search of new organizational values: the irruption of beauty in an entrepreneurial creation Herve´ Colas

Abstract The general aim of this paper is to shift the interest in two particular stakeholders, the entrepreneur and the company itself, from a vision based on a company perceived as a stock package towards an aesthetic perception of its creation. It intends to link creative entrepreneurship and creativity in the arts. Emanating from the phenomenological thought of Maurice Merleau-Ponty on artistic vision, this research intends to read the motivations of a creator by a calling, that amounts to a counter-gift to the beauty of the world. This motivation to create can be articulated in two non-financial impulses: to dis-cover and to correct. A sketch portrait of a French entrepreneur is depicted to illustrate the urge to create a small business. A stakeholder understanding is suggested, taking into account schutzian multiple orders of reality.

Herve´ Colas has been a Professor in entrepreneurship at the Reims Management School since 1997, after having been a management controller in Germany for the Thomson Multimedia group from 1988-1991, and both a consultant and CEO of CHD Consultants. His research concentrates on symbols and aesthetics in management and managerial representations, trying to find similar roots in his previous experience as an entrepreneur and his present hobby as a painter. Tel: 00 33 3 26 77 47 47, Fax: 00 33 3 26 04 69 63, E-mail: [email protected]

Keywords Entrepreneurs, Creative thinking, Values, Small to medium-sized enterprises, Motivation (psychology)

Introduction Theorists of the stakeholder vision define several typologies of the stakeholder. In his typology, Freeman (1984) includes stockholders, suppliers, clients, employees, various members of the financial community, the public sector, consumer lobbies, and professional trade unions. As a managerial strategy, this theory has the merit of stressing that in practice managers do not just consider shareholder dividends, but also pay attention to key individuals within the organization and to groups essential for the survival or the growth of the organization. In other words, in a utilitarian vision of these stakeholders, the manager has to take the social dimension of some stakeholders into account in order to favor long term good working practices within the firm. The stakeholder theory builds a model that considers the connections between a management giving preferential treatment to stockholders and the designation of various objectives within the same organization. This stakeholder theory can also be interpreted as a normative and ethical vision requiring management to consider the individual or the group not just as a means, but as an end in itself. Connected with the famous Kantian behest, this ethical vision asserts that stakeholders deserve more consideration in management. This concept can be viewed as an answer to the position of Friedman, according to which a management objective is unique and consists simply in creating value for stockholders. Socially oriented goals would be considered to be outside the sphere of management.

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DOI 10.1108/14720700510562677

This debate between the stockholder-stakeholder vision highlights the question of the essence of an organization perceived as a simple stock package, or as a coalition of stakeholders. Furthermore, it raises the question of what are the objectives of an organization and of the men that form it? This paper aims to explore the managerial or rather the entrepreneurial motivations between the stake and stockholder vision, by trying to describe a hierarchy of values and finalities in a particular organization; in this case an SME in its creative phase. Basically, this paper will try to answer the question: do we create to earn money (stockholder perspective) or for other stakes (stakeholder vision)?

An approach to entrepreneurial motivation Value maximization versus a calling, a vocation In a neoclassical approach, firms aim to maximize profit, i.e. to create a profitability surplus compared with other firms belonging to the same economic sector. This profit will be used as an operand in the calculation of the value of a stockholder portfolio, through the price earning’s ratio (PER). The equation is rather simple: with a constant PER, excess profit generates a valorization of the organization, perceived as a stock package. When creating his organization, an entrepreneur is just seeking to become rich: it is his main objective. This concept is widely supported by entrepreneurial success stories, collected in ‘‘station’’ management literature, often revealing the accumulated wealth of the entrepreneur.

This conception of an organization as a stock package brings the financial dimension to the fore, while consigning the human dimension of the team, defined according to the same rules as ‘‘human capital’’, to the background. This quantification (instead of a qualification) of the organization, however, cannot deal with understanding the concept of enthusiasm and team motivation that differ from one organization to another and that cannot be easily explained by the human capital theory. For this reason, and for the sake of this paper, a strictly quantitative vision does not seem to explain why entrepreneurs do what they do when they know very well that often they will earn less money than when they were salaried workers within a large company. Such a fact is well recognized, indeed, an entrepreneur who in his business plan, sets his salary at the same level as that in his previous company is considered a fool. The stockholder theory would maintain that the creator has to ‘‘tighten his belt’’ initially in order to obtain a capitalized profit surplus later in the selling out phase. Thus, entrepreneurship would be simply a matter of investment choice. Investment for an entrepreneur would be perceived only as the money for the constitution of capital and the actualized opportunity cost of his wages if he were to stay in a large company. The problem is that when entrepreneurs are questioned, the monetary factor appears strangely secondary to other notions put forward, such as freedom, the search for sensations, that gives rise to an aesthetic exploration of the motivation driving entrepreneurship, as the term ‘‘aisthanestai’’ means to ‘‘feel’’.

This paper seeks to explore this quest for sensations in the creation of an organization and to go beyond the simple financial dimension, and furthermore to suggest that an organization need not be considered a simple stock package, but rather as an artistic artifact, in the same way as Marcel Duchamp gave birth to what is called ‘‘conceptual art’’. That is the reason why I will focus on two particular stakeholders: the organization in itself, whose objective is first to survive and to grow, and the entrepreneur himself, in his calling to create. The organization itself as a primary stakeholder whose survival and development can be considered as an end in itself has been suggested by Clarkson (1995). To consider a new business and its survival as an end in itself comes down to asking the question of a non financial motivation in SME creation. In other words why do we create? We would like to explore this SME creation as an ‘‘acte gratuit’’, or rather as a call from the market, a call that amounts to a ‘‘counter gift’’ (a gift that comes back, in a Maussian sense (Mauss, 1923). This call of the

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market reflects a vocation, a Lutheran ‘‘beruf ’’ (trade, occupation, skill). This beruf, this vocation, grounds the theory of labor division as a means of collective enrichment through an invisible hand. The monetary reward is just a sign sent by God that the entrepreneur has heard this call. An illustration: a sketch portrait of Bernard This is a portrait of a business creator. A portrait is a text aiming to represent a reality, or most often a person, that favors a representation of concrete examples in action, compared with a more traditional approach of the presentation of precepts. This portrait approach is situated between description and prescription, as Ricoeur (1985) has stressed in relation to narration. The portrait amounts to an artifact of the informal, aiming to recount in an intelligible way real situations for the scientific reader. This narrative approach of management actors is inspired by works of the so called Chicago School (Shaw, 1950; Coulon, 1994) (symbolic interactionism), and Garfinkel’s (1967) ethnomethodology, stating that actors as well as professional sociologists can give a meaning to their actions. Bernard has been an entrepreneur for over ten years. He worked previously for a large professional training firm, after having been a commercial manager in a computer hardware construction company. He was tired of large company environments and was looking for independence. He decided to create his own company whose vocation would be to manage timeshare for sales teams working in SME. Its creation was typical of the majority of companies created in France, three out of four creations in France being one-man businesses. His sales management activity for SME gave him a comfortable income and he had become specialized in the re-launching of products offered by small pharmaceutical laboratories unable to afford to employ a competent full time sales manager. Later, he took on another partner to cope with a regular growth in demand. In order to satisfy one of his oldest client’s growing needs, his partner suggested dropping regular face to face sales in favor of direct sales promotions over the phone with a team of telephone salesmen. They consequently recruited three telephone assistants who were trained by the product laboratories themselves. Bernard designed the promotion leaflet, which was something in which he excelled. Within one term, the three of them had achieved as many sales as they would have done with a full team of 20 pharmaceutical salesmen. Bernard explained that a pharmaceutical salesman could not see more than six to seven clients a day in view of the time spent travelling. He decided to pursue his ideas further by using his own money to buy specialized telesales software for 100 KE and relocating his company to larger offices in the town center next to the railway station. ‘‘I couldn’t find a single bank to raise the 100 KE without giving my house and even my children as security . . . No banks or financial institutions participated in the creation of the investment project’’. That strategy appeared successful: he collected substantial commissions. At the same time, he knew the exact growth of his client’s turnover. That was why he decided to take over a laboratory. This time, as soon as his intentions to expand externally were known, and taking into account the remarkable performances of his company (turnover doubling each year) the banks besieged him with offers to finance his laboratory and one of his clients took a share in his company. Towards a stakeholder approach in this company creation The primary stakeholders in an SME creation are: J The entrepreneur himself and his associates (especially Bernard, who took the risk of changing his job through his discovery), both stakeholder and stockholder. J The client (the first client, the laboratory who supported the commercial risk and financed it with its orders, and by taking a very active part in the telesales operator training). J The software supplier (who played a very important role in the software programming). J The employees, all women, Bernard judging them to be more ‘‘pushy’’; more than half of them second generation immigrants.

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J The organization itself, whose survival and development is considered essential as a value in itself. The stockholder and stakeholder entrepreneur manager merger does not allow for an agency type approach. Nevertheless, Bernard is not looking for surplus profit maximization, for the organization is not making enough profits to pay dividends. Above all, Bernard wants his business to grow. J An ethical and aesthetic vision of the organization. Bernard does not earn as much money as before, but as he himself declares, ‘‘I don’t care, I’m having a whale of time’’. He speaks of strong sensations, a` la Nietzsche, even if he has not read him, especially when he sees his team of 15 people, who seem to be happy to have a job. One of his comments, however, intrigued me: You should see how beautiful it is to see my team. And I’m even happier knowing they have north African roots and are from deprived backgrounds, it makes them even more pushy. And with the commission game, they can earn more than the telesales operators in other less quality-based call centers. I had to set up my company in the town center, even if I had been offered bigger offices in the suburbs. I wanted my employees to be able to have lunch easily at noon and to walk from the station without wasting too much time. It’s because I took these considerations into account that I have been able to create and keep a well trained, efficient team, contrary to the other call centers, known for their strict control management policy (big brother syndrome).

J The vision of the organization has to be taken as a global perception that is not exclusively financial. Bernard created his company with a multilateral vision of his activities, taking into account the different stakeholders’ points of view. Yet none of those stakeholders are financial institutions (banks or stockholders). Indeed, Bernard and his partner’s objective is not so much to make money, but to ‘‘earn’’ the rewarding feeling that their project has given life to an active company, creating employment. The model is therefore more like the stakeholder rather than the stockholder version. This value frequently appears as a subject of pride for entrepreneurs in France. The absence of strong financial constraints or the stockholder reinforces the stakeholder approach.

Beauty as a value in the stakeholder approach Bernard chooses not to put all his efforts into maximizing his income. So what is his motivation? I would like to suggest a reading of this portrait through the philosophy of art, which tries to understand what pushes an artist to create (beyond the explanation – to sell his work – an unsatisfactory explanation because many artists create works without selling any of them – and putting aside the simple occupation of the ‘‘Sunday painter’’). First, in order to allow the intrusion of aesthetics and beauty into the field of managerial values, I will describe some of Merleau-Ponty’s concepts (Huneman and Kulich, 1997), before assessing two quasi mystical radical motivations in the artistic approach: discovery and the correction of the world. Human behavior as a gestalt, and the creator’s vision within this general structure Human behavior works as a formal gestalt and cannot be reduced to a simple sum of basic reflexes. In la structure du comportement (the structure of behavior), Merleau-Ponty (1942), in opposition to Pavlov, criticized the idea that one can explain the behavior of an organism by breaking it up into a sum of reflexes responding to the stimuli of the world. An organism answers globally to a request, its response does not take into account an isolated stimulus, but responds to a total change in the state of its environment, a change which means something to it (risk, satisfaction . . .). So, it is appropriate to favor totality, because, as in a piece of music, ‘‘it is the precise distribution of the sounds in time, their melodic pattern, the relationship of the size of the objects in general: the specific situational structure which creates stimulus’’.

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Thus the perceived world is revealed to us only by form, which is not a material reality but an ideality, that the subject detects there. This form that we understand, only manifests itself by the way our desires and needs make sense of the world. The states of things we perceive are always polarized positively or negatively for us, and it is in that way they affect us. The gestaltist vision of an object is given to us by the ‘‘I can turn around it’’ and our perception according to all its perspectives. The creator’s vision is first the vision of a totality in an object-horizon structure, in this case, in a stakeholder organization structure. The form targeted by behavior is therefore the ideal and the totality: its space is not only the real space but also includes a virtual space of possible moves, because our vision holds this ability to turn around the object. This object, that can be seen from different perspectives brings the cubist painter’s approach to mind, where an object in the same plane is shown with all its facets as though the observer had walked around it. To see means to seize a Gestalt, it is to enter a universe of beings who show themselves and who are in relation with each other. ‘‘Gestalt is not the idea of significance but of structure, the indistinguishable junction of an idea and an existence, the contingent arrangement by which the materials in front of us acquire a sense, it is an intelligibility in a nascent state.’’ Gestalt builds a form of communication and is ‘‘like a mixture of the objective and the subjective’’. Perspective: entering the object and ‘‘putting its environment in abeyance’’: the object horizon structure (Merleau-Ponty, 1945, 1965). According to Merleau-Ponty, to see an object means to have it on the border or the margin of the visual field and to be able to fix our attention on it; and/or to consider that this object solicits us to fix on it. By fixing on it, I focus my attention on it, and so, I shut off the landscape behind and I open the object. This is not related to specialist knowledge of the retina (for example a medical knowledge of cones and sticks). This particular knowledge is contingent. Seeing is putting the environment to sleep in order to see the object better and to enter the object. The objects build a system in which they cannot be seen without hiding the others. When I want to see an object in a structure of objects, the other objects of the system must become a ‘‘horizon’’. In this object-horizon structure, perspective is simultaneously the means by which the objects reveal themselves, and the way by which they dissimulate their presence. The entrepreneurial vision, while innovating (or dis-covering) also works by privileging certain segments of the activity perceived within a background called the ‘‘market’’.

To see is to enter into a universe of beings which show themselves, and they would not be shown if they could not be hidden behind one another or behind me. In other words: to look at an object is to enter into it and from there to seize all the things its facets reveal when turned towards it. (Merleau-Ponty, 1945)

I can therefore consider that an organization, namely its stakeholders, forms a system or a world, and that everyone puts the others around it, like spectators of the hidden aspects of the organization. Thus, the stakeholder model is a model that aims at entering the black box of the organization, and refers to a higher level of transparency (translucidity). I can see an object in the way objects form a system or a world, each one becomes a spectator of it and what is around it. A house that is ‘seen’ is not a house that is seen from nowhere or a particular position, it is a house seen from everywhere. It’s like a three-dimensional exploration on the screen of a computer. The completed object as a gestalt is translucent, it is penetrated from all sides by a current infinity of looks which meet each other in its depth, while nothing remains hidden. (Merleau-Ponty, 1945)

Husserl (1929) invites us to return to ‘‘things’’ in themselves. That is to say to a world of pre-knowledge to which knowledge always refers and in which all scientific determination is abstract, signitive and dependent, exactly like geography with landscape where we first learned what a forest, a river or a field was. For us, in an entrepreneurial sense, the world of the creator

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is a direct relationship with a perceived totality; creation is looked at from all aspects since the creator uses the vision of his organization. Vision implies a mobility of both body and perspectives. Indeed vision and mobility are closely linked because vision enables us to know an object according to one of its facets, and mobility enables us ‘‘to turn around it’’. The entrepreneur like the artist answers a call, an invective, this call is a counter gift. With Ce´zanne in mind, Merleau-Ponty (1969) states that a painting is a vision before being a conception. The creator sees the market and the creation within the foreground of the market, before conceiving it, without prejudgments or application of theoretical knowledge. The painter, whoever he is, while he is painting, uses a magical theory of vision (Merleau-Ponty, 1969). In the eyes of the painter, the ‘‘same thing is there at the heart of the world and here in the heart of the vision’’. His knowledge of reality is a real co-naissance (from French ‘‘connaissance’’ ‘‘knowledge’’, and ‘‘co-naissance’’, neologism that means simultaneous or common birth) since, once he is painting, the painter joins the world, plunges into a pre-human silence in which it becomes impossible, even for him, to say ‘‘what comes from him and what comes from things’’. ‘‘The painter brings his body’’, says the French writer Vale´ry. It is like an offering in which the pictorial gesture is a restitution to the substance of the world, giving back what passed from it to us, using perception, a counter gift (a gift that comes back), a gift to ‘‘nature’’, which is a way for it to continue in the work of art itself. ‘‘Painting renders to the visible the advance (in the financial sense) that the visible gave us’’: and it is by lending its body to the world that the painter changes the world into a painting. It is the mountain itself which, from there, allows itself to be seen by the painter, it is the mountain which the painter questions by the look. What exactly does he ask the mountain? To reveal the means, only the visible means, by which the mountain gives itself to be seen as a mountain in our eyes. Light, lighting, shadows, reflections, color, all these objects of research are not completely real beings: they do not have, like phantoms, an existence that is visual. The look of the painter requests the things to reveal how they suddenly become visible. (Merleau-Ponty, 1965)

Merleau-Ponty was fascinated by Ce´zanne and said about him (Merleau-Ponty, 1966): He does not want to separate the fixed things which appear right in front of him and the way things show themselves, he wants to paint the matter giving form to itself, the nascent order . . . It is the primordial world which Ce´zanne wanted to paint, and for this reason his paintings give the impression of nature at its origin. (Merleau-Ponty, 1966)

Following this metaphor of the visionary entrepreneur-painter, the creator will try to see a primeval world, still inhabited by a human conscience (not yet seen by others), like Ce´zanne about whom Merleau-Ponty says ‘‘He reveals the background of ‘inhuman nature’, on which the human will set itself up’’. Ce´zanne lets the things think themselves through his creative gesture. Ce´zanne said about this subject: ‘‘the landscape designs itself in me and I am its conscience’’. Its generating force of nature penetrates into the artist who becomes the vector: as if the painting was an emanation of the world and as if the creative behavior of the painter was just answering its call: The painter lives in fascination. It seems to him that his gestures, drawings, emanate from the things themselves . . . The roles between the visible and him, are inevitably reversed. This is why so many painters say that things look at each other.

Andre Marchand following Klee: In a forest, I felt on several occasions that it was not me who was looking at the forest. I felt, some days, that the trees were looking at me, were speaking to me . . . Me, I was there, listening . . . I believe that the painter must be pierced through the universe and not to want to pierce it through . . . I wait to be internally submerged, sunk. What is called inspiration should be understood to the letter: there really is inspiration and expiration of the being, respiration in the being, action and passion . . . The distinction between who sees and who is seen disappears, so that one does not know who/what paints and whom/what is being painted. (Merleau-Ponty, 1966)

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We could also comment that the creator is called by a world that is not yet inhabited by other consciences, because he ‘‘is being looked at’’ by the world at the same time as he is looking at the world. The creative impulse articulated in two non-financial urges: to dis-cover and to correct The roots of creativity is a delicate question for management science: Amabile (1997) stressed the importance of intrinsic motivations: it is necessary ‘‘to do what one likes, and to like what one does’’. My contribution tries now to supplement this concept of motivation through the perspectives opened by the philosophy of art. I mean that I do not want to question the ‘‘love of doing’’, but to pose two quasi mystical radical motivations in the artistic approach: dis-covery and correction. Dis-covery is a perception, a ‘‘saper vedere’’ in a perspective object-horizon. The first motivation of an artist, would be to reveal the beauty of the world, because this beauty reflects a divine presence. Why reveal the beauty of the world? Because this beauty is hidden (covered and not yet revealed) and asks, calls to be discovered. The construction of the term ‘‘discovered’’ is instructive, because it means that the discoverer, in particular a scientific discoverer, bearer of revolutions through whole sections of economics, like an artist, takes off the veil, a veil which represents a kind of chaos, hiding until now from human sight, the order that God had established when creating the world. We find here, what Luther proposed, quoted by Arendt (1958): ‘‘human work according to Luther is just a way to find the treasures that God put in the ground’’. If we want to find them, it is necessary to know how to see: ‘‘Saper Vedere’’ is the greatest gift of an artist, said Leonardo de Vinci. With the same meaning, Albrecht Du¨rer said that the true gift of the artist is to extract (to pull out) the beauty within nature: ‘‘art is planted firmly in nature and only he who tears it out, will own it’’. In the world of ideas, Boileau (1660) criticized the naive vision according to which an extraordinary thought would be a thought that nobody had ever thought of before. On the contrary, it is a thought which has been had by everybody, but that somebody expresses before the others. Indeed, we are all full of an infinite number of confused ideas of truth and nothing is more pleasant for the human spirit ‘‘than when one offers us one of these ideas clearly and accessibly’’. This dis-covery or revelation rests on the notion of mimesis, imitation, because basically, an artist imitates nature in order to un-veil the beauty of the world, celebrating in this way the work of God. Mimesis is a concept that can be defined in the history of art, whether as an imitation of reality or as an imitation of an ideal, aiming to show, or for a closer interpretation of our aim, to manifest the beauty of the world or of this ideal. Correction of nature: the baroque or a look at reality as a particular case of the possible. To create, in theology, consists in drawing from nothing and in making something from nothing. In the human order, it is a question of producing something starting from pre-existing data. This production takes the form of a new and original assembly. Such a concept is clearly expressed in modern art movements, in what we call the ‘‘installation’’. Correcting nature was a theological revolution, because it implied that ‘‘God had failed his creation’’. Creation can relate to an exploration of the ‘‘probable’’ and the possible. The baroque style tried to make probable chimerical creatures. The term ‘‘baroque’’ was initially used in connection with the imperfect roundness of pearls. The word took on the meaning of irregular, odd or unequal. Baroque is therefore the strange, the irrational, an excess of inelegancy, even research on a monster. Correcting nature, amounts to favoring ‘‘becoming’’ before ‘‘being’’. It is stating a relativity of the visible. Furthermore it is stating reality as a simple example of the possible. The accident gets a status of essence. The modern world perceives contingency as essence, instead of

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seeking to get rid of the accident, by an increasing abstraction, ‘‘a la Aristotle’’. An accident is what falls (an innuendo ‘‘from heaven’’), it means what can or could occur. We talk in management about opportunity. The entrepreneur seizes this baroque, this accident. He is fully conscious of the contingency of the things that happen to him. His role is to seize opportunities because he perceives the world as a becoming. Art is not just showing a form, a static perspective, it is also a process of formation, seeking to reveal the form as a process of genesis. The work of art, like the creation of a company is a result of a critical judgment and a dissatisfaction regarding the world (one could say dissatisfaction regarding the market in management). The model of a painter like the painter is mortal, whereas the work of art wants to be imperishable or perennial. Mintzberg (1989) talks about formulation and formation in strategy. Formulation means to declare the strategy, to represent it for its implementation. But Mintzberg stresses that this ‘‘traditional’’ vision of management is incomplete since the strategy can also emerge from opportunities. Strategy is also formed as a result of the modifications desired by customers, for example. This correction of the world privileges thus an approach in the form of a becoming, integrating the accident and the transformation of the vision into a creation, transformations compared to the already pre-established scheme. Reality is not perfect, the market does not function well, our product is unsuited to our customers, it must be corrected. Creation then becomes this transformation, not just of the world, but a transformation of our view on the world. If mimetic tradition poses a link of similarity between the natural model (or ideal model) and the created product, the correction of the world poses a radical separation: on the one hand there is the natural world, and on the other, the artificial object or artifact. The correction of the world is not a representation of a primordial nature, but a denatured nature, which is shown in the form of an independent reality: the famous Ce´zanne blue shade then appears possible. Art has this formidable power to create a new world, a second nature, in such a way that we will see the original nature as a representation of art. This power has been described by Oscar Wilde who says ‘‘nature imitates art’’. This correction, instituted in a representation, acquires an ontological independence and art becomes the model through which we perceive, we judge, we see nature.

The creator of a company (when it is successful) modifies the perception the market has of itself. A major innovation (in art one would say ‘‘of genius’’) makes the actors unable to look at the market as they did before. It is a true rupture, in the full sense, i.e. a ‘‘rupture with the past, a crack up, a` la Scott Fitzgerald (1936)’’. We cannot relive the past, it is irremediable, because the past no longer exists. Bernard’s company revisited The integration of aesthetics within organizations. J This creation of a company reflects two particular urges in creation: 1. The dis-covery of a particular commercial process and the revelation of a new area of margin. 2. A correction of the initial process in order to maximize the business: i.e. to integrate a laboratory in the company. 3. We can point out at this stage that the integration of this ‘‘correction’’ may ease in the stockholder approach since financing the acquisition will only be possible through investors or bankers, which implies a more financial foreground. J The hierarchy (or the play) of values.

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This creation of a company may also be understood in a play of what is put forward, in particular the values carried by the various stakeholders of the organization, following this example of Gellner (1951) and Perelman: The same process can be described, indeed, like the fact of tightening a bolt, of assembling a vehicle, of earning one’s living, of supporting the flow of exports . . . It (an act) can also be interpreted as a symbol, a means, a precedent, as a reference point in a direction.

These various perspectives are not always incompatible, but often the setting in the foreground of a way to consider the organization casts the others into the background, in a game of organization-stakeholder perspective. Of course, the creator could be accused of lying about his real intentions and of wanting to earn money. I do not believe this, it is more a quest for ‘‘joy’’ a` la Bergson (1919), a desire to give his life meaning, which brings the thoughts of Ricoeur (1995) to the fore: A life, it is the history of this life, in search of narration. To understand oneself, is to be able to tell both understandable and acceptable stories about oneself, especially acceptable.

Creation and to be project causa sui: the position of Sartre. According to Sartre (1943), the fact of the creative act reveals a wrenching from reality, a way for consciousness to act out its freedom. It is thus the transformation of the world into nothingness (from French ‘‘neántisation’’), the transformation of the market in this case. This nothingness makes it possible for a man to prove to himself that he is not an object or a being like the others. Creation is a human attitude which can be reduced neither to its productive intention nor to the object resulting from this intention as a material incorporation of the latter. The artistic phenomenon is a way of acting, making, a ‘‘poiesis’’ which implies inseparably conception and realization, for oneself and in itself: Creation can only be conceived and sustained as a continuous passage from one object to another. The object suddenly emerging has to be completely me and completely independent of me (Sartre, 1943).

The artistic object, as with a newly created company, is a hybrid being because if it is material, almost similar to a natural thing, it holds a share of the creative act from which it stems. It is a ‘‘phantom object’’, haunted by the freedom which slipped there and which more or less discreetly continues to animate it, like the mobiles of Calder, manufactured by the hand of a man, but ‘‘which have a life of their own’’. The autonomy of creation can be read in several ways; either from the more ‘‘Ricoeurian’’ point of view, where works are more autonomous in the way they will be read or looked at, there is an autonomy in the way they lend themselves to be viewed by the public. Or, from a Sartrian point of view, where the project of the creator is to exert his freedom, or even to get rid of his master. If a work of art is to some extent the deposit of creative freedom, if the pour-soi (the thing that is in or for my reflexive consciousness) exists in the element of the en-soi (the per se or thing in itself), the desire which lies deep within artistic consciousness is better understood: let the world not be a constraint or an obstacle to my freedom but rather the result of this freedom. In the creative act, being is not given, it is no longer a precondition, it is on the contrary, me who forms its basis. Freedom is no longer in the world, it makes the world. Man is both the subject and object of his acts. He thinks he can produce a synthesis between the vacuum of his consciousness and the fullness of a being, by embodying his consciousness in an object made by himself and reflecting back his image like a negative. This outlandish project of a fusion of the ‘‘en-soi’’ and the ‘‘pour-soi’’ is nothing other than the one stigmatized at the end of being and nothingness, the to be project, the causa sui, i.e. God, taken to his extremes in the creative conduct.

Conclusion To conclude, the stakeholder-stockholder debate hangs on two concepts of the organization: either as a stock package, or as a coalition of interests. The stock package gives an opaque, limited vision of the organization. This vision appears to be anti-managerial precisely because

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the management objective is simply to open the economic black box to see what is happening inside. The stakeholder theory seeks to transcend the opaqueness of an organization to look inside. It, therefore, not only tries to make the organization more transparent, but equally to place it within a perspective, entrepreneurship appearing like a privileged field of this, putting into perspective an organization. The entrepreneurial act of creation gives form but also by placing this form at the heart of a depth. This form is a way of becoming aware of the plurality of the world, while maintaining the cohesion essential to the life of the organization. In this sense, it favors unity by holding constituents and varying logics together. And what is an SME, if not a form that can be perceived at a glance by the entrepreneur, compared with a multinational company, in which the diversity of locations has to be reduced to monetary reporting. The stakeholder theory invites us to participate in the same mental revolution as impressionism did with the frame of a picture. Before impressionism, the canvas was set in a frame, whose function was to separate the painting from the wall. At the end of the 19th century, the edge of the stretcher had been painted, especially with painters like Seurat or Signac. The painting no longer needed to be separated from the wall but had to compose with it. The organization, like a painting, cannot be perceived simply as an object facing its market, but rather as a window opening on multiple realities. Morgan (1988) says about it: The point is that our understanding of organization is based on the use of metaphors which generate important insights that have always clearly defined limitations. Different metaphors grasp and highlight different aspects of organization but, in the process, tend to hide or distort others. A full understanding of organization thus requires that we find ways of integrating the many and often paradoxical insights that our theories and explanations create. My own solution to the problem is to argue that this can be achieved by explicitly recognizing that organizations are many things at once. (Morgan, 1988)

We can consider this position of Morgan as an invitation to highlight the schutzian multiple orders of reality. Management becomes, therefore, a game of articulating these multiple orders of reality and giving a sense of this articulation to the different stakeholders. In a sense, this stakeholder vision seems to reflect the emergence of a post modernist deconstruction, or rather a suspicion of the ideology which states that the world could be mastered by the promethean concept, that tends to limit human situations. The idea of horizon, promoted by phenomenological philosophy allows this co-existence of existing multiple realities. Therefore, this openness of the organization takes into account the indefinite aspect, the complexity of intertwined human significations, that cannot be reduced to a simple causal explanation, such as the concept of the organization as a simple stock package. In other words, I would like to unveil the emergence of a post modernist attitude in creative entrepreneurship, in which the entrepreneur acts beyond a unique conceptual attitude, that succeeds in ‘‘epiphanizing’’ or highlighting reality.

References Amabile, T. (1997), ‘‘Motivating creativity in organizations – on doing what you love and loving what you do’’, California Management Review, Vol. 40 No. 1. Arendt, H. (1958), La condition de l’homme moderne, Calmann-Levy, 1983, The Human Condition, University of Chicago Press. Bergson, H. (1919), L’eńergie spirituelle, PUF. Boileau, N. (1660). Pre´face aux satires, 1st Edition, Gallimard, 1985. Clarkson, M.E. (1995), ‘‘A stakeholder framework for analysing and evaluating corporate social performance’’, Academy of Management Review, Vol. 20 No. 1. Coulon, A. (1994), L’ećole de Chicago, Presses Universitaires de France. Fitzgerald, S. (1936), ‘‘The crack up’’, Esquire, French translation La feˆlure, Folio. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA. Garfinkel, H. (1967), Studies in Ethnomethodology, Prentice Hall, Englewood Cliffs, NJ.

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Gellner, E. (1951), ‘‘Maxims’’, Mind, July. Perelman, O.-T. (1988), Traite´ d’argumentation, Editions de l’ Universite´ libre de Bruxelles, 5th Edition, 2000. Huneman, P. and Kulich, E. (1997), Introduction a` la pheńomeńologie, Armand Colin. Husserl, E. (1929), Me´ditations carte´siennes, trad. Pfeiffer et Le´vinas, Vrin, Paris, 1969. L’Atelier d’esthe´tique (2002), Esthe´tique et philosophie de l’art, De Boeck, Brussels. Maffesoli, M. (1996), Eloge de la raison sensible, Grasset. Mauss, M. (1923), ‘‘Essai sur le don, forme et raison de l’ećhange dans les socie´te´s archaı¨ques’’, in l’anneé sociologique, seconde se´rie, T.1, in Sociologie et anthropologie, PUF, Paris, 1950. Merleau-Ponty, M. (1942), La structure du comportement, Presses Universitaires de France. Merleau-Ponty, M. (1945), Pheńomeńologie de la perception, Gallimard. Merleau-Ponty, M. (1965), L’oeil et l’esprit, Gallimard. Merleau-Ponty, M. (1966), Sens et non sens, Nagel. Merleau-Ponty, M. (1969), La prose du monde, Gallimard. Mintzberg, H. (1989), Mintzberg on Management. Inside Our Strange World of Organizations, The Free Press, New York, NY. Mongin, O. (1988). Paul Ricoeur, Seuil. Morgan, G. (1988), ‘‘Accounting as a reality construction: towards a new epistemology for accounting practice’’, Accounting, Organizations and Society, Vol. 13 No. 5, pp. 477-85. Ricoeur, P. (1995), Extrait d’un texte sur la souffrance, Actes du colloque de psychiatrie, Lille, Ricoeur, P. (1985), Temps et rećit, Seuil. Sartre, J.P. (1943), L’eˆtre et le neánt, Gallimard. Schu¨tz, A. (1967), Collected Papers, Nijhoff, The Hague. Shaw, C.R. (1930), The Jack Roller a Delinquant Boy’s Own Story, University of Chicago Press.

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Changing managers’ values towards a broader stakeholder orientation Sybille Sachs and Edwin Ru¨hli

Sybille Sachs was Associate Professor for Business Administration at the University of Zurich from 1994 to 2003. Since Spring 2003, she is Professor at the University of Applied Sciences in Business and Administration Zurich and is head of the research center for management studies. Edwin Ru¨hli in 1933 studied in Switzerland and the USA, and also held a Doctorate and habilitation at the University of Zurich. He was employed at Nestle´ and in the Swiss Federal Administration. In 1968 he was Professor of Business Administration at the University of Zurich. Since 1970 he has been founder and Director of the Institute for Research in Business Administration. Also from 1984 to 1990 Vice President of the University of Zurich. In the spring of 1994 he was the first Visiting Professor at the Chazen Institute for International Management at Columbia Business School, New York. He is a member of public advisory commissions and board member of several Swiss companies.

DOI 10.1108/14720700510562686

Abstract Challenged by recent incidents as they occurred at Enron, WorldCom, Disney and Xerox, management has to rethink its values and to consider the expectations of their stakeholders. In reality, it can be observed that some firms are already on a learning path to adopt a broader stakeholder-oriented view than before. In order to implement the stakeholder view better into strategic thinking of management, top managers have to change their values which are challenged by stakeholder-oriented incentives. Based on three comparative case studies some first propositions are developed. Keywords Stakeholders, Values, Case studies, Incentive schemes

he learning process for a broader stakeholder orientation has been on its way for quite some time, i.e. since companies realized that their one-sided orientation towards shareholder value is too narrow, especially because the firms’ strategically relevant resources are not only of financial nature, but most importantly knowledge oriented.

T

Based on this insight, some firms founded new organizational units labeled ‘‘sustainability group’’, ‘‘public affairs department’’, ‘‘corporate communication department’’ or ‘‘corporate social responsibility committee’’. However, as we could observe in our case studies (Sachs et al., 2002; Post et al., 2002a), these departments often do not have a strong influence on top management decisions. We therefore emphasize that companies are still in a primary state of implementing a broader stakeholder orientation. In order to implement the stakeholder view better in the strategic thinking of management, top managers have to change their values. Three options exist to achieve this goal: First, top managers’ incentives must be changed (see Cote, 2000; Garvare and Isaksson, 2001), second, the assessment process for top management selection must be changed (see Leigh et al., 2000), third, management development programs must be changed as well. In this paper, we aim to pursue the first point, the question of how managers’ values can be challenged by stakeholder-oriented incentives. So far, managers’ incentives have been mostly oriented towards investors’ policies based on financial data such as shareholder values or stock prices. These incentive systems do not consider the expectations of a broader range of strategically relevant constituencies, i.e. a stakeholder orientation. A stakeholder-oriented incentive system has to take into account the basic logic of a stakeholder perspective. In order to contribute to this question, we therefore refer to the strategic management approach called ‘‘stakeholder view’’ (Post et al., 2002b). The ‘‘stakeholder view’’ places the firm – and its management – at the center of a network of stakeholder relations, and demonstrates that sustainable organizational wealth can be enhanced


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by a purposeful management of favorable relations (and reduced by unfavorable relations) between the corporation and its strategic stakeholders. The stakeholder view has both strategic and operational implications for the firm. The ‘‘stakeholder view’’ (SHV; Post et al., 2002a, b, c; Freeman, 1984; Wartick and Cochran, 1985; Frederick et al., 1992; Carroll, 1996; Harrison and Freeman, 1999; Post et al., 2002; Waddock and Bodwell, 2002; Philips, 2003) supplements and integrates the sources of organizational wealth which are focused in the ‘‘resource-based view’’ (RVB; Prahalad and Hamel, 1990; Grant, 1996; Teece et al., 1997) and the ‘‘industrystructure view’’ (ISV; Porter, 1985, 1991, 1996). It emphasizes stakeholder relationships, and involves on the one hand actors and interests in the social and political environment, and on the other hand those providing resources and market-level contacts. The resource-based view stresses the importance of resources and considers stakeholders such as employees or share owners. The relationships to these stakeholders are vital because they have access to tangible (e.g. finance, technology) or intangible (e.g. core values, knowledge) resources to build unique and inimitable core competencies. In the industrystructure view, the relations between the corporation and its constituencies within the industry, including stakeholders such as competitors, suppliers and customers, are focused. But apart from these stakeholders, other interest groups emphasize the importance of the relations of firms to the social and political environments – as we have seen in powerful demonstrations in connection with the world trade conference in Seattle, Prague and at the World Economic Forum in Davos. All these economic, social and political relations are often highly interactive. The stakeholder view, therefore, claims not only to take into account the resource-based view, the industry-structure view and the social and political environment, but also the interactions between these different environments in a network perspective. The stakeholder view utilizes Sveiby’s (1997) concept of organizational wealth to advocate a qualitative accounting approach. This approach takes into consideration all stakeholder relationships embedded within the firm’s network in order to determine the firm’s viability and success in the long run. Organizational wealth, therefore, is the capacity of an organization to create value in the long run. It is enhanced whenever the desired outputs of the firm are increased without any concurrent increase in the amount of real resources used and risks generated, or when resource use and/or risks are reduced without any parallel decrease in desired output.

To make use of this value creation process, managers’ incentives have to be adapted. Only if the incentives are compatible to this more comprehensive view of stakeholder expectation and contribution will managers’ values change and firms will be able to create more sustainable organizational wealth. Stakeholder-oriented managerial incentives should challenge managers to pay more attention to the process of stakeholder-oriented organizational wealth creation in order to reach a higher level of success, as firms with primarily shareholder-oriented incentives do. In our paper, we will develop three kinds of proposition sets based on this logic of the stakeholder view. 1. Firms accepting a broad stakeholder view in their incentive systems can initiate a change in the managers’ values. 2. Firms with managerial incentives considering stakeholder relations are able to exploit additional sources to build core competencies which in turn contribute to the firms’ superior competitive position. 3. Firms with managerial incentives that require management to consider stakeholder relations reduce their risks. The concept of ‘‘stakeholder view’’ and its implementation in practice is still quite unexplored, both in the stakeholder theory as well as in the strategic management literature. The lack of theoretical understanding and empirical results might be caused by the fact that these stakeholder relations are a very complex social phenomenon with no clearly evident boundaries

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to their context. Taking account of this high degree of complexity of the real life situations, a qualitative approach seems to be appropriate to investigate the propositions. Case studies are the required qualitative approach that also considers a comprehensive perspective (see e.g. Yin, 1993, 1994; Eisenhardt, 1995; Harrison and Freeman, 1999; Miles and Huberman, 1994; Creswell, 1998). In this perspective, a multiple case study was conducted to investigate our propositions. We selected three cases with different conditions due to the size, field of activity, global reach and the corporate governance constellation. We assume that these conditions also influence development and implementation of the incentive systems. Table I gives an overview over the specificity of the criteria. 1. The Swiss Re Group is one of the world’s leading and financially strongest reinsurers with roughly 9,000 employees. From the point of view of its business, Swiss Re is a knowledgebased company and therefore sustainable employee relations are a key strategic factor. Swiss Re heavily invests into the firm-specific knowledge of their insurance specialists – some of their specialists are educated and trained for five years – and aims at a longterm commitment of these employees to enhance benefits from this specific investment. Furthermore, the managers are also stimulated by their own participation in these programs. Swiss Re offers two specific incentive programs for its employees: an employee participation plan and a Swiss Re stock option plan. The fist program, the all-employee global plan, is a share saving plan with an option and a phantom element. It was introduced in May 2001. A total of 70 percent of the employees participated. This program is matched to local conditions as tax and legal requirements. With this program Swiss Re aims to encourage more ownership of Swiss Re shares among the employees so that they can participate in organizational wealth. Thereby, they hope to foster entrepreneurship and more awareness of Swiss Re key business factors. The employees commit themselves to save a part of their salary each month for a two-year period. Most of them can save up to 10 percent of their basic salary. Thereby, the basic salary is also an expression of the employees’ individual performance. The better they perform, the more they earn and the more they can save with this program. Employees that have to leave the company during this period because of misbehavior (e.g. behavior that is in contradiction with the code of conduct) cannot profit anymore from this program and receive just their own saved amount. In this plan, the firm supports the employees’ investment by a 50 percent contribution. With this saved amount, the employees buy a certain amount of options which can be converted to shares after two years. These shares are not blocked in any way and the employees can sell them. To launch this program, the company made strong efforts in an information campaign to introduce and explain the program to the employees. Swiss Re expects that many employees will sell their shares after the first two years but will participate again on the next saving period because of the high firm contribution (50 percent). This program was awarded the GEO prize (www.geoawards.org) in 2002.

Table I Swiss Re

Sunrise

Trisa AG

Criterion 1 Size

Large firm

Medium firm

Small firm

Criterion 2 Industry

Financial/insurance industry (service sector)

Telecommunication industry (service sector)

Consumer goods

Criterion 3 Geographical focus

Multinational

National (Switzerland)

International

Criterion 4 Corporate governance

Quoted on the stock exchange

Subsidiary of a firm that is about to be quoted on the stock exchange

Family-owned firm

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The main aim of the second program, the stock option plan is to motivate the key people of Swiss Re to deliver their full potential and also to contribute to the ongoing development of Swiss Re. ‘‘The Swiss Re stock option plan . . . is a long-term incentive program that allows [the participant] as one of the people who play a critical and influential role in our business, to participate in the future of Swiss Re’’ (Swiss Re, 2002, p. 4). The stock option plan offers Swiss Re several benefits as for example the reinforcement of the entrepreneurialism, which enables Swiss Re to maintain a leading market position; Swiss Re can also enhance their reputation as an attractive employer of choice and motivate key employees to become tomorrow’s leaders. Furthermore, Swiss Re wants to demonstrate to the financial investors that their key executives have a direct stake in the future of Swiss Re. ‘‘The option plan is a formal agreement between [the key employee] and Swiss Re which gives the employee the right to purchase a specified amount for Swiss Re stock in the future at a price per share that is fixed now’’ (Swiss Re, 2002, p. 5). The agreement includes an investing period of four years. Only after this period the employee is able to exercise his options during a period of total six years. The option plan forfeit as soon as an employee leaves Swiss Re (see Figure 1). Some of the employees try to optimize the benefit of these two programs. The plans not only influence the incentives of the employees but also of the managers. The employees are now part of the shareholder group that asks for a long-term view. This converts the top managers’ perspectives and values from a mainly short-term into a longterm view (e.g. investing time of four years in the case of the stock option plan). As the employees are now committed not only by their specific knowledge but also to a certain extent to the financial risk as shareholders, managers have to adopt a broader view in their strategic thinking. They have to consider the employees as two stakeholder categories, i.e. as co-workers and as co-owners. If they did not, they would discourage the employees which could lead to a lower performance. Furthermore, the managers are also stimulated by their own participation in these programs. 2. Sunrise is a telecommunication firm in Switzerland that originated out of a merger between diAx and the old Sunrise in 2001. It offers a broad range of telecommunication services (fixed net, mobile phone, Internet access). From the point of view of stakeholder orientation, the two merger candidates had made different experiences and therefore different path dependencies. The old Sunrise applied unsuccessfully for a mobile telephony license. After this failure, it tried to change the regulator’s decision by a legal fight which old Sunrise finally lost. Therefore, old Sunrise had quite some conflicts with the public authorities and the telephony market regulators.

Figure 1 Linking leadership competencies with reward through the option plan (see Swiss Re, 2002, p. 3) Swiss Re Stock option plan Motivate our key people to deliver their full potential and contribute to the ongoing development of Swiss Re

Leadership roles Creating strategic decision

Building the firm

Building client relationships

Ensuring operational excellence

Positive impact on stock price

Expected behaviour

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Enhancing organisational image

diAx on the other side won the mobile telephony license competition but was confronted with a tricky situation: on the one hand, it had successfully entered the wireless telephone market as the first alternative provider to the former state owned monopolist Swisscom. On the other hand, it was confronted with increasing resistance from neighboring communities against its efforts to build up the necessary installations (antennas). To overcome these difficulties, it had – before the merger – already developed a highly sophisticated stakeholder management. Following the merger, it was not only necessary to combine these two very different attitudes towards stakeholders, but it turned out that the new owners of the merged companies, Tele Danmark, also brought in a strongly shareholder-oriented management with almost no experience in the local Swiss business and social context. Among other problems after the merger, the incentive systems for the different management levels had also to be integrated. Both the former Sunrise and diAx had a bonus system considering the managers’ performance, primarily based on financial criteria with additional personal goals for each manager. Sunrise’s management was immediately, after the merger, primarily occupied with all the integration activities and the short-term strategy, so it was not committed to an active stakeholder management. In the company’s vision and performance appraisal system, put in place after the merger, the stakeholder and the corporate citizenship aspects are not fully developed. Compared to Sunrise, its main competitor Swisscom asserts its social responsibilities and – as a former state owned, monopolistic company – had longlasting and highly developed relationships to strategic stakeholders such as regulators. The new Sunrise is now in a post-merger phase and also at the initial stage of purposefully implementing the stakeholder view. In order to support this process, Sunrise now takes into account the fosterage of stakeholder relationships in its incentive system relying on management by objectives: Sunrise’s CEO first enters into a core value and goal agreement phase with the heads of the divisions (fixed net/Internet; mobile, finance; legal department, business development; human resource, corporate communication). In this process, besides the dominant financial objectives and the personal objectives, goals for the handling of strategically relevant stakeholders are also agreed upon. Strategically relevant stakeholders are either so-called direct stakeholders such as investors, customers, employees or multipliers such as regulators, interest groups or the media. In a second phase, the heads of the divisions enter into an interactive goal agreement process with their employees. Again, the goals for handling relationships with the strategically relevant stakeholders, mostly customers and resource providers, can be determined. If these goals are reached, the managers receive a bonus which sums up to about 5-10 percent of their basic salary. In order to additionally assess the achievement of the goals an annual employee survey is made. This informs the management of the expectations of the employees as an important category of stakeholders. Thus, an interactive process, covering different levels, allows the emergence of objectives and values from lower to top organizational levels. They challenge the incentive base and the core values of the management. Following the merger, there was no specific incentive system supporting exclusively the merger and its implementation. But the financial and personal goals of the different managers reflected the overall objective to successfully implement the merger. The merger also led to a concentration of the ownership structure: Tele Danmark became the dominant owner and its investment in Sunrise was strongly profit driven. The CEO came from Denmark and had no experience in the Swiss telecommunications industry environment. After the merger, the new Sunrise became the strong number two in the Swiss telecommunication market. This led to a higher exposure in the media and in the markets. Therefore, the need for a systematic stakeholder management became evident. Approximately a year after the merger, the effort was made to systematically evaluate the expectations of the different stakeholders and the needs for responsiveness. This was also important because the number one competitor, Swisscom, had long lasting excellent relationships to politicians, media and regulators. Sunrise had to catch up. Therefore, the project ‘‘corporate citizenship’’ was launched. The aim of the project was:

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J to review the positioning of Sunrise in the Swiss society; J to compare its corporate citizenship activities with its competitors and with firms of similar size; J to clarify the needs for activities in the stakeholder context; and J to evaluate the benefits of a more systematic stakeholder management and the risks of insufficient actions in their fields. Five people from inside Sunrise conducted a series of interviews with customers, investors, journalists, politicians, professional associations, NGOs and social institutions. The main objective was to better know their expectations towards Sunrise, and later on to take these expectations into account in the processes of the merger integration and strategic change. The five interviewers submitted a comprehensive report to the top managers. As a result of the corporate citizenship study, Sunrise became aware of the need to fight for a better acceptance in the community, and also the need to improve its reputation and its image as a Swiss company. The management decided that the members of the management team should improve its public appearance, that specific persons should be responsible for stakeholder related activities, and that clear concepts and policies should be formulated for the positioning in the stakeholder network. The top manager also became aware of the necessity to change some managerial values and behaviors in order to improve the contribution of different stakeholders to the value creation process, and to eliminate the risk of a negative judgment of Sunrise as compared to Swisscom. In spring 2003, a kick-off meeting was held to initiate a first set of concrete managerial activities in the following areas: the CEO’s stakeholder contacts, corporate governance, attractiveness in the labor market, ecological behavior and external relations concerning specific issues (e.g. last mile discussion). These initiatives provide new dimensions to formulate personal goals for the different managers as part of the incentive system. Therefore, a new drive for systematic stakeholder management influences the managers’ values and their way of thinking of Sunrise. 3. Trisa AG was founded in 1887 and is today the leading brush producer in Europe. Apart from tooth brushes, the product range also includes brushes for hair care and cleaning. Besides its economic success, Trisa AG is regarded as a role model to illustrate societal and social responsibility. When, in 1961 at the age of 22, today’s CEO assumed the leadership of Trisa AG from his father, he introduced the ‘‘Trisa social and management system (Trisa model)’’. The ‘‘Trisa model’’ is the result of the CEO’s conviction that people and employees are unique, and that each one is a genius in her/his own way if she or he is given the opportunity to develop at work. It is, therefore, the entrepreneur’s duty to mediate pleasure and meaning. This conviction is still alive at Trisa. In the firm’s brochure it says: ‘‘The foremost interest is the welfare of the employees, the customers’ wishes come second’’ or ‘‘Control is good, trust is better’’. Therefore, in 1964 the CEO introduced profit participation for employees, in 1968 the social equality of treatment of all employees ensued. Since 1972 all employees have possessed at least one share of Trisa. In 1973 a board based on parity (owners and employees) was introduced. This means that the employees have direct voting rights in all basic decisions at the corporate governance level. The employees at Trisa are thus stakeholders at three levels: as co-workers, as owners, and as delegates to the board of the company. Managers are challenged by this extraordinary position of the employees. At the moment, the employees own approximately 30 percent of the shares. However, the voting power of the employees is 50 percent. These core values are today still part of the general attitude as well as of the mission statement of Trisa, e.g.: TRISA acts innovatively, quality conscious, social and environment-friendly. TRISA employees participate in the capital and the financial success.

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The goal of the co-ownership of the employees and the profit participation, is not merely financial participation, but also social and societal. Based on the participation of the firm and its profit, the information and communication flows had to be redesigned. There are three levels of communication: sector, department, and group. Moreover, the topics of communication are predefined by participation in success (EB information), development and informatics. This ensures that the employees’ rights to participate are actually seized. The employees are not only entitled to information but also to the appropriate decision competencies. Trisa AG quickly realized that profit and firm participation can only be apprehended by well-educated and critical employees. The continuous education of all employees is therefore given high priority. Apart from the hierarchical structure of the information flows (sector, department, and group) and the structure according to the topics participation in success, development and informatics, communication also takes place in three functional communication circles (marketing and sales, production and technology, as well as employees). All three communication circles are coordinated by common discussion such as the general assembly or project management meetings. Trisa regards this democratic decision making by systematic information, communication and development as ‘‘the basis of our success because it creates decisive competitive advantages’’ (www.trisa.ch). This decisive competitive advantage is expressed in the financial and strategic success of Trisa. Apart from an increasing turnover, Trisa was also able to massively expand its competitive position, and today it distributes its products in 70 countries. The economical success of Trisa is determined on a monthly basis. The allocation to the employees is done according to a key (market reserve, annual reserve, company and employees). At the end of the year, the annual profit is distributed among the employees and Trisa (company). A substantial part is used as so-called market reserve. Thanks to this allocation, Trisa can dispose of sufficient capital in economically difficult times and can, therefore, also embrace its role and its responsibility as an employer and corporate citizen. On the regional labor market, Trisa is the most important employer, and thus Trisa was able to continually increase the number of its employees within the last years. Right now, Trisa employs 532 people. In its home town Trisa is the most important tax payer.

According to Trisa’s CEO, the success is based on the focusing on ‘‘economic, social and ecological’’ views. ‘‘Humanity, sustainability and social responsibility have nothing in common with a romantic illusion; they are a realistic evaluation of the role of humans within the firm’’ (Adrian Pfenninger, CEO, 2003).

Conclusions Looking at the three cases from the point of view of the propositions formulated above, one can draw some preliminary conclusions: Proposition 1: The cases discussed in this paper confirm our claim that firms accepting a broad stakeholder view in their incentive systems can initiate a change in the managers’ values. In the Swiss Re case, the acceptance of employees, not only as co-workers but also as owners, supports the change of management values from a short-term to a long-term perspective, and therefore to sustainable organizational wealth. The long-term perspective of the incentive system can be illustrated by the quite long investing period of the stock option program for key performers of four years, respectively by the saving period of two years in the case of the employee participation plan. The multilevel goal-setting process at Sunrise after the merger, stimulated emergent contributions of a wide range of constituencies to the primary goal of the managers, which is to

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successfully implement the merger of the two firms. This and the corporate citizenship initiative now enlarge the dimensions of the incentive system and enhance a comprehensive value system at the management level. The Trisa case demonstrates how the employees, based on the CEO’s conviction, can be activated in three different stakeholder roles. Based on this, the incentive and value system of the management has not only developed along financial, but also along social and ecological dimensions. Proposition 2: The three cases confirm that stakeholder-oriented managerial incentives strengthen the firm’s competitive position In the Swiss Re case, the firm specific investments of the employees create a competitive potential which can be used as a unique core competency. ‘‘In summary, the option plan provides a long-term financial incentive to make [the employees’] everyday actions and behavior count towards our corporate performance. If our corporate performance is maximized through this sustained effort, we believe this will help to increase the external stock market value of Swiss Re’’ (Swiss Re, 2002, p. 4). Besides the increase in stock market value, Swiss Re also focuses on achieving a leading market position and on maintaining this leading market position in the future (see Swiss Re, 2002, p. 4). In the Sunrise case, the MbO process, including stakeholder aspects in the personal goals of the managers at all levels in the organization, contributed to a highly developed network of stakeholder interactions, which is also an advantage that is difficult to imitate and therefore a core competence. The corporate citizenship project is particularly important in the post-merger phase of the company as it avoids not only survivor sickness, but introduces stakeholder expectations in the strategic thinking of the managers, and therefore enhances the chances for a successful merger and a strong competitive position. The Trisa case shows an even broader involvement of the employees in the firm’s activities and also in the corporate governance. The broad information and participation creates the basis for a higher level of identification and trust, which can be seen as a core competency difficult to imitate and, therefore, as a superior competitive position. Proposition 3: The risk reducing effect of stakeholder-oriented management can also be observed in these three cases: 1. In the Swiss Re case, the management incentive system reduces the risk of neglecting the potential of employees’ knowledge and, therefore, the risk of a loss of organizational wealth based on firm-specific investments of the employees. Therefore, it is obvious that employees which are leaving Swiss Re lose all their stakes in the option plan and, respectively, are losing further benefits in the employee participation plan. Through these plans the fluctuation of the employees can be reduced, with reduced risk and costs. 2. In the Sunrise case, there was a specific risk that the merger will fail. As we know from the literature on merger failures, the human factor is decisive for merger success or failure. The incentive system for managers of Sunrise, that leads to a cooperative goal-setting process, can reduce this risk of merger failure due to bad employee motivation. In addition to these well developed relations to a broader set of stakeholders, the result of the corporate citizenship program also contributes to risk reduction as to the market and non-market relations. In fact, already in 2002 Sunrise could present better financial results than the two merger candidates had in the years before. In the media, it was even called the pearl of Tele Danmark. 3. In the Trisa case, the common interests of managers (owners) and the employees lead to a specific accumulation of financial reserves, which reduces the risk of failure in a period of recession or fundamental structural change. Financial reserves are also a precondition to future successful strategic moves for survival. If we compare the three cases, we can see basic correspondences and dissimilarities.

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The most salient correspondence among the three firms is that the employees and, particularly their knowledge, are considered to be the most important resource to enhance benefit and to avoid risk. Based on this insight, the three firms include the employees at the different organizational levels into the strategy formulation and the decision-making processes to a large extent. In the three firms, the incentive systems take care of the preservation of the knowledge contribution of these key stakeholders. As to the dissimilarities between the three firms, in the first place we can observe that the core values and the managerial attention to the key stakeholders is strongly determined by the particular situation. In the Swiss Re case, the firm specific knowledge of the employees and the firms corresponding investments are of crucial importance for success. The incentive systems support the development and maintenance of this knowledge. As it is good practice for large international firms, the principles of an employee-oriented management and the incentive plans are part of written documents and development seminars for quite a long time. Sunrise, acting as a start-up firm in the very dynamic telematic industry, and being in a post-merger situation where two firms with entirely different stakeholder experiences are in an integration process, and where a new foreign owner brings in unfamiliar values, is challenged to find a new position in the stakeholder network including the newly engaged employees. In this particular new situation, the MbO process and the corporate citizenship project were used to find this new position. Trisa, a small firm with a history of family ownership over several generations, has long-lasting, truthful relationships with its employees. They are strongly involved in the corporate governance (voting rights) and participate also as partners in the value distribution.

References Carroll, A.B. (1996), Business and Society – Ethics and Stakeholder Management, 3rd Edition, SouthWestern Publishing, Cinncinati, OH. Cote, J. (2000), ‘‘Analyst credibility: the investor’s perspective’’, Journal of Managerial Issues, Vol. 12 No. 3, Fall, pp. 352-62. Creswell, J.W. (1998), Qualitative Inquiry and Research Design. Choosing Among Five Traditions, Sage, Thousand Oaks, London, New Delhi. Eisenhardt, K.M. (1995), ‘‘Building theories from case study research’’, in Huber, G.P. and Van de Ven, A.H. (Eds), Longitudinal Field Research Methods – Studying Processes of Organizational Change, Sage, Thousand Oaks, CA, pp. 65-90. Frederick, W.C., Post, J.E. and Davis, K. (1992), Business and Society: Corporate Strategy, Public Policy, Ethics, 7th Edition, McGraw-Hill, New York, NY. Freeman, R.E. (1984), Strategic Management – A Stakeholder Approach, Pitman, Boston, MA. Garvare, R. and Isaksson, R. (2001), ‘‘Sustainable development, extending the scope of business excellence models’’, Measuring Business Excellence, Vol. 5 No. 83, pp. 11-15. Grant, R.M. (1996), ‘‘Toward a knowledge-based theory of the firm’’, Strategic Management Journal, Vol. 17 (Special issue, Winter 1996), pp.109-22. Harrison, J.S. and Freeman, R.E. (1999), ‘‘Stakeholders, social responsibility, and performance: empirical evidence and theoretical perspectives’’, Academy of Management Journal, Vol. 4 No. 5, pp. 479-85. Leigh, D., Watkins, R., Platt, W.A. and Kaufman, R. (2000), ‘‘Alternate models of needs assessment, selecting the right one for your organization’’, Human Resource Development Quarterly, Vol. 11 No. 1, Spring, pp. 87-93. Miles, M.B. and Huberman, A.M. (1994), Qualitative Data Analysis: An Expanded Sourcebook, Sage, Thousand Oaks, CA. Philips, R. (2003), Stakeholder Theory and Organizational Ethics, Berrett-Koehler, San Francisco, CA. Porter, M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, The Free Press, New York, NY.

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Porter, M.E. (1991), ‘‘Towards a dynamic theory of strategy’’, Strategic Management Journal, Special issue, Winter, pp. 95-117. Porter, M.E. (1996), ‘‘What is strategy?’’, Harvard Business Review, Vol. 74 No. 6, pp. 61-78. Post, J.E., Lawrence, A.T. and Weber, J. (2002), Business and Society: Corporate Strategy, Public Policy, Ethics 10th Edition, McGraw-Hill. Post, J.E., Preston, L.E. and Sachs, S. (2002a), Redefining the Corporation, Stakeholder Management and Organizational Wealth, Stanford University Press, Stanford. Post, J.E., Preston, L.E. and Sachs, S. (2002b), ‘‘Managing the extended enterprise, the new stakeholder view’’, California Management Review, Fall, pp. 6-28. Prahalad, C.K. and Hamel, G. (1990), ‘‘The core competence of the corporation’’, Harvard Business Review, May-June, pp. 79-91. Sachs, S., Ru¨hli, E. and Preston, L.E. (2002), ‘‘Implementing the stakeholder view – an empirical investigation’’, paper presented at the Academy of Management, Denver. Sveiby, K.E. (1997), The New Organizational Wealth, Managing and Measuring Knowledge-Based Assets, Berrett- Koehler, San Francisco, CA. Swiss Re (2002), Guide to the Swiss Re Stock Option Plan, Zurich. Teece, D.J., Pisano, G. and Shuen, A. (1997), ‘‘Dynamic capabilities and strategic management’’, Strategic Management Journal, Vol. 18 No. 7, pp. 509-33. Waddock, S. and Bodwell, C. (2002), ‘‘From TQM to TRM: emerging responsibility management approaches’’, Journal of Corporate Citizenship, Autumn, No. 7, pp. 113-26. Wartick, S.L. and Cochran, P.L. (1985), ‘‘The evolution of the corporate social performance model’’, Academy of Management Review, Vol. 10 No. 4, pp. 758-69. Yin, R.K. (1993), Applications of Case Study Research, Sage, Newbury Park, CA. Yin, R.K. (1994), Case Study Research – Design and Methods, Sage, Beverly Hills, CA. The diAx case (parts A, B, C), European Case Clearing House Collection (ECCH), UK (www.ecch.cranfield.ac.uk) (case numbers: 301-053-1, 301-054-1, 301-055-1).

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Stakeholder theory, society and social cohesion François Le´pineux

François Le´pineuxis is a Visiting Research Fellow at CMER, INSEAD, Fontainebleau, France. Tel: +33(0)160724128, Fax: +33(0)160724168, E-mail: [email protected]

Abstract Stakeholder theory is a ‘‘weak’’ theory, which suffers from a number of flaws. This article is based on the intuition that many of these problems are linked together, and that they are fundamentally due to the fact that stakeholder theory fails to appreciate the place of civil society as a stakeholder. It starts with an examination of the confusing status of society in stakeholder theory, and suggests that civil society should be on top of the stakeholder list. It then underlines the emergence of a global society, distinct from national societies. An extended classification system is presented, which comprises a binary categorization, an intermediate taxonomy, and a developed typology; this system is illustrated in the form of a mapping. The article then addresses the issue of the theory’s normative underpinnings: the concept of social cohesion is proposed as an alternative justification. The meaning of this concept is specified, and its relevance as a normative foundation is justified. Eventually, this reinterpretation of stakeholder theory, which emphasizes the importance of civil society and social cohesion, provides some rationales for the connection of its empirical and normative streams – thus rendering it more consistent and more robust. Keywords Stakeholders, Management theory

Introduction Stakeholder theory is affected by numerous shortcomings and imperfections. Among these, the following may be mentioned: J the definition of its object is controversial; J accordingly, the spectrum of stakeholders and their classification are variable; J the question of the balancing of interests between them is a problematic one; J the theory lacks a solid normative foundation; and J its normative and empirical streams are, to a large extent, separate. Therefore, some authors doubt that stakeholder theory really has the status of a theory; it has been argued that it was merely a research tradition (Trevinõ and Weaver, 1999). Stakeholder theory is considered in this article as a genuine theory – though a perfectible one, which may be labeled a ‘‘weak’’ theory. Besides, it is hypothesized that several flaws of this theory stem from the fact that it misjudges the prominence of civil society among all the stakeholders; a reexamination of the place of society is thus a prerequisite for the strengthening of the theory.

DOI 10.1108/14720700510562640


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The confusing status of society in stakeholder theory In his landmark book published 20 years ago, Freeman (1984) recounted the origins of the stakeholder concept, which was used for the first time at the Stanford Research Institute in 1963; stakeholders were first defined as: those groups without whose support the organization would cease to exist.

The SRI researchers included shareowners, employees, customers, suppliers, lenders and society in the list of stakeholders. Their argument was that in order to survive, a company needs that its stakeholder groups give their support to its corporate objectives; and in order to formulate suitable objectives, executives need to take the concerns of these stakeholder groups into account. Freeman (1984, p. 46) then proposed a broader, now classic definition of the stakeholder concept: any group or individual who can affect, or is affected by, the achievement of the organization’s objectives.

Some 20 years after this founding contribution, the stakeholder literature is now well developed and quite voluminous, fraught with many attempts to define the stakeholder concept and to lay down the stakeholder list. One of the salient features of this field of research lies in the extraordinary diversity of the viewpoints that have been expressed, and accordingly in the narrowness of the areas of agreement among academics. The level of theoretical integration is low, not only between the three sides – normative, descriptive/empirical and instrumental – of the theory, but even within each of them. For instance, there is no agreement over the frontiers of the stakeholder set, and the spectrum is variable according to the authors, as well as the classification. It is not surprising, thus, to notice that the place of civil society in stakeholder theory is unclear, ill defined. Depending on the various theorists, the status given to society is imprecise, indeed non-existent. For instance, Clarkson (1995), presenting the results of an extended empirical research program based on field studies, established a distinction between primary stakeholders, such as owners, employees, customers, suppliers, and the ‘‘public stakeholder group’’ composed of governments and communities; and secondary stakeholders, namely the media and a wide range of interest groups. Normative approaches, although they insist on firms’ responsibility to act morally towards social groups and communities, are not much more satisfying with respect to the status of society: for example Carroll (1991) includes ‘‘the public at large’’ within the stakeholder list – but the public at large is a vague expression: does it mean nationwide society or something else? In the stakeholder literature, community is more often quoted than society as one of the numerous groups to which a company is supposed to act responsibly: however, the meaning of this notion is hardly more clear than that of society. This term is generally used to indicate the local community surrounding a company’s location, in other words its geographical neighborhood. But some immediate problems arise with this definition: what is the range of this so-called community? Does the term refer to the area around the firm’s headquarters, or to all the areas around all its facilities? In the case of a multinational company, does it apply only in its home country or also in all the other countries where it operates? In their study of corporate community relations, Waddock and Boyle (1995) analyzed the difficulties inherent in the change from managing relations with a single community – namely the headquarters community – to managing relations with multiple communities in the global business environment; the relevant expression then would be ‘‘communities as stakeholders’’, instead of ‘‘community’’ in the singular. Other researchers (Tichy et al., 1997; Altman, 2000) confirm that community issues are becoming more complex for companies – and executives – confronted with them. However, the meaning of community in the stakeholder literature is still not fixed, all the more as this term may be used as a synonym for society in English (and in some other languages as well). In their review of existing definitions of community groups, Burton and Dunn (1996a) pointed out that it

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was often associated with other notions, such as ‘‘general public’’ or ‘‘natural environment’’. It may also broaden out to the whole world, thus resulting in a complete muddle. It would be too long to make an exhaustive inventory of all the existing definitions and approaches of community and society that may be found in this profuse literature. Suffice it to say that an overview of stakeholder theory gives the impression that these concepts are referred to in a confusing way, and that civil society appears as an optional stakeholder. All the typologies or categorization schemes which have been advanced could themselves be split into two groups: those that include society (or a related term), and those that ignore it. In their review of stakeholder definitions, Mitchell et al. (1997) highlighted the existence of two types of narrow views: those which identify stakeholders in terms of their moral claims, and those which envision them according to their relevance to the firm’s economic interests. While the former generally permit the inclusion of community and society in the stakeholder list, the latter generally do not. Alternative binary classifications of stakeholders include the direct/indirect, contractor/non-contractor and voluntary relationship/involuntary relationship splits, among others, but the treatment of civil society in these reflections remains rather uncertain. This leads to the conclusion that stakeholder theory fails to recognize the importance of civil society and grants it a subordinate, incidental place. But without society, stakeholder theory is incomplete. Civil society is not an optional stakeholder, it is a fundamental stakeholder, indeed, the most important of all. Besides, some clarification is needed, in order to differentiate between the level of communities (businesses’ neighborhoods), the level of nationwide civil society, and the level of global society.

Civil society should be on top of the stakeholder list Civil society is a stakeholder per se, distinct from communities and other specific groups. The only way to get out of the lexical entanglement is to postulate that communities are local, neighboring social groups, within a limited geographic area around a given facility or establishment; in that perspective, other uses of the term are deemed inappropriate. It then becomes possible to define civil society as nationwide society, namely the nation itself, which is the primordial meaning of this term. And this distinction between communities and society echoes the classic, sociological separation between two levels of sociability: while generic sociability expresses life in society as such, specific sociability permits the constitution of limited social groups.

It may certainly be argued that civil society represents a number of ‘‘stakes’’ with respect to businesses; its demands or concerns are not the same as those held by other particular categories of stakeholders, since they are of a more general nature. Public expectations regarding firms’ responsibility are rising, and companies must now confront generalized societal pressures with respect to a number of issues. For instance, environmental awareness has been growing in developed countries for the last three decades; beyond the fact that environmental issues are consistently brought to the fore by specialized activist groups or NGOs, which constitute another category of stakeholders, the will to safeguard the planet is now widespread throughout civil society. Another essential concern in developed countries is the rise of social inequalities, which have advanced relentlessly since the 1980s. Most OECD countries have experienced a significant rise in income disparities during the last 20 years. In the USA, despite the low rate of unemployment, about 40 million people live below the threshold of poverty; a new social group has appeared, the so-called ‘‘working poor’’, who have several jobs but can hardly make a living out of it. In the European context, the social divide is nothing less than striking: the EU counts 50 to 70 million poor according to various estimations, and the poverty phenomenon has become structural. The number of people living with less than half of the medium income has tripled in the UK in less than 20 years, and represents now nearly a quarter of the population, while during the same period, the higher incomes have doubled. Similarly, almost half of the French population is exposed to a risk of professional precariousness, and five million people undergo unemployment or social exclusion.

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During the first three decades after the Second World War, a consensus has existed over the sense of economic growth, which resulted in an increase of public facilities, material comfort, individual and general welfare. But nowadays, this sense has vanished: the economic system produces more and more inequalities between those who are included and those who are excluded, those who benefit from it and those who do not. The salaries and other remunerations (stock options, etc.) of top executives in large multinational companies have reached astounding levels, whereas workers and employees with a precarious status are more and more numerous. Growth beneficial to all has been replaced by an increasingly unequal sharing out of wealth, social positions and means of access to citizenship. How can the pursuit of economic development be justified if it leads to a society which rejects in large numbers those who do not have the required skills to be part of it? Businesses are now confronted with this question which stems from the whole civil society. Companies are the main economic and social actors, and their aggregate activities have a tremendous impact on national societies. Being social institutions, they fulfill essential functions: they provide jobs to the greatest part of the labor force; they represent a decisive factor for the creation and the preservation of social ties; their innovations, their strategic choices influence the fate of societies in which they operate. Consequently, they bear a part of the responsibility for the rise of social inequalities described above; to a large extent indeed, these inequalities can be attributed to the development of an employment model based on more and more flexibility, which continuously adds to precariousness. For that reason, and also because large companies have a great social power, civil society expects them to act responsibly in this regard, and to help reduce the social divide. Social responsibility follows from social power: although this argument has already been put forward 30 years ago by Davis (1975) or Bowie (1979), it has gained special relevance in the current context of globalization. From a normative standpoint, it is not possible for stakeholder theory to ignore the phenomena of social inequalities, poverty or social exclusion, and to fail to recognize the expectations of civil society in this regard. Hence, civil society deserves a prominent place in the stakeholder list. Besides, other stakeholder groups bear societal stakes as well, which means that beyond their differential claims, they also put forward a vision of how companies should act towards society at large. In other words, stakeholder groups such as employees, owners, customers, NGOs, etc., are expecting companies to take into account not only their own claims, but also those of the whole society. In a recent article, Waddock et al. (2002) advocate that businesses are experiencing strong pressures from several stakeholder groups for accepting greater social responsibility, and that many multinational corporations respond to these pressures by developing total responsibility management systems. For instance, employees are becoming more sensitive to the social responsiveness of companies, and their decisions about where to work, as well as their motivations, rely in part on firms’ ability to acknowledge and manage their responsibility in this regard. Similarly, a growing number of consumers assert that they are ready to pay more for products made in a socially and ecologically responsible manner; they are willing to give sense to their consuming practices, and include ethical value added in their decision criteria. Besides, as far as investors are concerned, the socially responsible investment trend is gathering momentum: the financial community is increasingly aware of the potential benefits – or at least of the absence of extra risk – inherent in socially screened equities, and shareholder activists push companies to adopt more responsible practices. All these elements are convergent and suggest that minds are changing: stakeholder groups and civil society exert intense pressures on businesses for a greater integration of the societal dimension – especially the problem of social exclusion – in their decision processes. In Europe and the USA, this evolution has come to the point where the societal concern is spreading throughout the whole economic system: investors, consumers, employees, and all the other types of economic actors are becoming increasingly aware of this dimension. Public perception of the role of businesses in society has changed: more and more people understand that they are at the same time employees, consumers and citizens, which results in a search for coherence between these three roles. The new emerging values are placing societal issues higher on the business agenda. Therefore, civil society is a prominent stakeholder not only in itself, but also because it is in the background of other stakeholders’ claims.

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The emergence of global society Furthermore, it is necessary to differentiate between national societies and global society. The globalization phenomenon currently in progress may be considered from several standpoints, the most usual being the historical, economic, financial, and technological ones; yet the sociological standpoint is interesting too, since this process leads to the constitution of global civic actors. Of course this global society, which is now emerging, does not express itself through institutional devices such as governments, and there is no such thing yet as a parliament for all the citizens of the world (even though this could happen in the future); but transnational networks and organizations are developing. Two significant examples can be mentioned to exemplify this trend towards the structuring of global actors: the global compact launched by Kofi Annan, and the alter-globalization movement. These two examples are quite different by nature, but in both cases, economic or social organizations from all over the planet have freely decided to join a common, self-organized initiative, to share their experiences and to unite their efforts. Many other networks or movements could be quoted, be they willing to change the course of events or not, which plead for the constitution of a worldwide civil society. Besides, the already noted problem of social inequalities can be transposed on a global scale: today the whole world is affected by a social divide between developed countries (OECD members and some others) and developing countries, between the north and the south. With a few exceptions, the gap is widening between rich nations and poor nations, and within each nation, be it rich or poor, between the small minority of those who hoard power and wealth and the large minority of the have-nots: this is one of the major issues entailed by the globalization process, and represents one of the main stakes of the coming decades. What is currently being established is a new kind of apartheid on a worldwide scale. This global apartheid does not follow from the existence of inequalities among countries and individuals, since these have always existed and are to some extent unavoidable; it follows from the almost incredible, historically unprecedented magnitude of these inequalities, from their relentless growth, and from the trapping effect that they induce for all the outsiders. If it is true that companies bear a part of the responsibility for the deepening of social inequalities on a nationwide scale in countries where they operate, then it does not seem unreasonable to argue that multinational companies (MNCs) are at least partly responsible for the emergence of this global apartheid. MNCs’ activities affect a great number of countries: those of the headquarters and research centers, those where the production takes place, those where the goods or services are marketed, those where subcontractors are located . . . When these large, indeed global companies decide to relocate their plants, facilities or offices in countries with lower labor costs, they necessarily impact on society in both the home and host countries; insofar as many MNCs act likewise and move for example to Mexico or China, the aggregate impact is high. But in their decision process, a large number of MNCs tend to target the countries that present the weakest social laws and requirements; as a result, this kind of competition is pulling all social legislations down, thereby worsening the situation of the poorest and aggravating the social divide. This is not the least concern of the emerging global civic actors, and that is the reason why global society is an important stakeholder for MNCs.

An extended classification system Thus, stakeholder theory ought to be extended, and it seems appropriate to suggest a new, systematic classification of stakeholders, which encompasses global society and distinguishes it from national societies. This classification system is itself declined in three ways: a binary categorization, an intermediate taxonomy, and a developed typology. As regards the stage of binary categorization, the separation stated earlier between stakeholders as economic interests and stakeholders as moral interests may seem somewhat arbitrary, as it can be argued that all categories of stakeholders represent a combination of economic and moral interests. Besides, they also represent a social interest, because the way a firm responds

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(or does not respond) to their concerns and demands yields social repercussions, and their behavior may affect the company’s ability to preserve its license to operate. Consequently, it can be said that all kinds of stakeholders represent a combination of three sorts of interests: economic, social and moral, the proportions of which vary according to each category of stakeholder. The economic interest/moral interest split is not fully satisfying with respect to stakeholder classification, and an alternative scheme is needed. The binary categorization proposed here differentiates between societal stakeholders on the one hand, and business stakeholders on the other. Stakeholders of the first general category are termed societal rather than social for two reasons: first, because they are not limited to social groups or institutions, but extend to national and global civil societies; and second, because many of the social groups that are part of this category have stakes which concern the whole society – for instance, environmental activists or the media. Not surprisingly, the other general category is termed business stakeholders because all of its constituents have business relations or interests relating to the concerned organization. Such a clear-cut distinction seems more convincing than many others that have been advanced in the stakeholder literature, since there can be no hesitation: a given stakeholder is either of the societal type, or of the business type, without any ambiguity. The next stage of this systematic classification is that of intermediate taxonomy: each of the two general categories may in turn be split into three components. Thus, societal stakeholders comprise three intermediate categories: global society, national societies, and social groups or institutions. Similarly, business stakeholders include three kinds of actors: shareholders, internal stakeholders, and external business stakeholders. Drawing on these two first steps, the last stage of classification consists in a developed typology of the stakeholder spectrum. The main societal stakeholders are: global society, civil societies of the countries where a company is located and/or operates, local communities surrounding its establishments (and those neighboring the establishments of its subcontractors, especially in developing countries), international institutions, governments, activist groups, NGOs, civic associations, and the media. The main business stakeholders are: shareholders, executives and managers, employees and workers, trade unions, customers, suppliers, subcontractors, banks, investors, competitors, and business organizations.

The whole classification system is illustrated in the form of a mapping in Figure 1, which represents the complex interplay between the organization and its stakeholders, and between stakeholders themselves. In this regard, the large arrows connecting the two general categories (the ‘‘arms’’ of the chart) suggest that these two universes influence one another, whereas the arrows within each part of the chart illustrate the reciprocal links between the organization and its stakeholders, and between the stakeholders themselves, as it is clear that stakeholder relations go beyond dyadic ties modeled like a bicycle wheel (Rowley, 1997). Consequently, every category of stakeholders is connected with the others, and this mapping tends to confirm that stakeholder theory is related to systems theory – a point already made by Freeman (1984) in his historical overview of the stakeholder concept, after the investigations conducted by Ackoff (1974).

Social cohesion as a normative core for stakeholder theory An overview of the normative stream of stakeholder theory suggests that there is little agreement among scholars over its normative foundation. Several approaches have been advanced in the literature, focusing either on property rights (Donaldson and Preston, 1995) or on the rise of a Kantian capitalism (Evan and Freeman, 1993), developing a feminist interpretation (Wicks et al., 1994; Burton and Dunn, 1996b), concentrating on the principle of fairness (Phillips, 1997), or on the common good (Argandonã, 1998). This mere statement of existing approaches obviously demonstrates the wide diversity of standpoints and schools of thought that have expressed themselves in this regard, and therefore normative stakeholder theory is somewhat disconcerting.

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Figure 1 The organization and its stakeholders: a mapping

Organization Societal stakeholders

Global society National societies

Host countries Home country

Intl. Institutions, Governments Local communities Activist groups Social groups or institutions Civic associations NGOs, Media, etc.

Shareholders Executives Employees Trade unions

Internal stakeholders

Customers Suppliers Banks, Investors Competitors, Business organizations, etc.

External business stakeholders

Business stakeholders

However, all these interpretations are subject to criticism, mainly because they are not connected to the reality of corporate behavior and stakeholder expectations. The relationship between normative and empirical business ethics is certainly problematic and again researchers are divided over this subject (Weaver and Trevinõ, 1994; Donaldson, 1994; Werhane, 1994); but to a large extent, it is undeniable that the normative stream of stakeholder theory has developed independently from the descriptive/empirical stream. The criticism relating to the lack of realism could be rejected by moral philosophers, alleging that the normative dimension of the theory should not interfere with the realm of experience; but this

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argument is itself highly questionable, as it leads to an unreal philosophy (Victor and Stephens, 1994). The same observation can be made on this position as the French writer Pe´guy has already made about Kant: Kant has pure hands, but he has no hands.

Put differently, the lack of realism is a classic pitfall in theory elaboration; this does not mean that normative ethical conclusions can be deduced from empirical data; it means, rather, that empirical findings can be incorporated in normative theory building – a path followed by Donaldson and Dunfee (1994) for the elaboration of their integrative social contracts theory. As far as stakeholder theory is concerned, the lack of realism in the definition of its normative core seriously undermines the whole theory and hinders its integration. Existing normative foundations of this theory are not fully satisfying, because they are not rooted in reality; hence, the question of the ultimate moral justification of the theory remains open. As a matter of fact, companies that are striving to manage stakeholder relations, or those engaged in a sustainable development process, do not respond to their stakeholders’ claims because they assume the latter have property rights, or because they seek fairness or the common good. From a European point of view, the choice of social cohesion as a normative foundation for stakeholder theory is more satisfying because it corresponds to the objectives pursued by companies. Rather surprisingly, the term social cohesion does not appear in the corporate social responsibility literature, although it is fraught with varied characterizations of corporate actions: whereas many authors deal with corporate community involvement (for example Burke et al., 1986), others focus on corporate philanthropy (Smith, 1994) or community development (Somaya, 1996); others still place emphasis on corporate social initiatives (Hess et al., 2002) or corporate citizenship (Altman, 1998) – but social cohesion is not mentioned. This may probably be ascribed to the Anglo-Saxon origin of the greatest part of this literature and of the companies it refers to; however, in Europe many companies strive to be more socially responsible, and develop stakeholder relations, with a view to strengthening social cohesion. European countries at the cutting edge of corporate societal involvement include: France, UK, Belgium, Denmark, the Netherlands, Germany, Sweden, Spain and Italy, but significant actions exist throughout the whole EU. Most of these initiatives in favor of social cohesion started in the mid-1990s, when the social divide began to widen seriously. In 1995 was launched the European Business Network for Social Cohesion, now renamed CSR Europe, a businessdriven network whose mission originally was to encourage and help companies to prosper in ways that stimulate job creation, increase employability and prevent social exclusion, thereby contributing to a sustainable economy and a more just society. Marsden and Mohan (1999) have conducted a research on 500 business best practices in Europe, based on the information collected by the network regarding different activities undertaken by 340 companies to promote some aspect of social cohesion. The results show that 74 percent of these companies concentrate on employability issues, while 26 percent are involved in other aspects, such as urban regeneration, ethnic diversity, or educational issues. The driving forces behind their engagement are linked to business considerations in almost all cases, and equally split between internal and external motives; these initiatives are generally led in partnership with at least one category of stakeholders, and bring about both business benefits and economic/social integration (of disadvantaged groups, long-term unemployed, young people, etc.) – thereby helping strengthen social cohesion. According to this European view of businesses’ engagement, it seems appropriate to suggest that social cohesion be a normative justification for stakeholder theory. The concept of social cohesion is not easy to define. This expression primarily refers to society at large within the national framework, and points out the principle which unites its members against all the dislocating forces that may threaten it: precisely, what makes it possible for a given society to exist. Society is more than a mere conglomeration of individuals; this implies the existence of an

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organic bond between them, of a unifying principle that goes beyond each individual. Society as a whole exists as a distinct reality, not reducible to the sum of its constituents, and differing in its essence from all the peculiar communities that are formed within it. Besides, the concept of social cohesion also applies at a lower level, that of the community. Historically, the distinction between community and society goes back to the famous book by Ferdinand To¨nnies, one of the founding fathers of modern sociology: in Gemeinschaft und Gesellschaft (1887), he explored the clash between small-scale communities, based on kinship and neighborhood, and large-scale societies. This theme was also studied by Max Weber a few decades later in his posthumous book Wirtschaft und Gesellchaft (1921): in a more analytical way, he underlined that the societal relationship and the community relationship are opposed to one another – since in the first kind of relationship, individuals are linked only by personal and often antagonistic interests, which induces a loss of awareness of everyone’s common belonging to a whole. More recently, Etzioni (1992) argued that society nowadays is neither a ‘‘gemeinschaft’’ nor a ‘‘gesellschaft’’, but a combination of the two; his ‘‘new gemeinschaft’’ paradigm is intended to balance the need for unity and diversity. However, this view will not be endorsed here: small-scale communities and nationwide civil society exist at the same time, but they remain clearly distinct from one another; communities are included in society, but the former and the latter cannot be mixed or melted into an intermediate concept. Social cohesion is all the more difficult to define as its interpretation depends on the sociological and cultural context under consideration. At this point, it is useful to compare two countries with truly different conceptions in this regard, for instance France and the USA.

The French society is characterized by a long-standing republican tradition and an ideal of equality and fraternity. Social cohesion ‘‘a` la française’’ is ultimately grounded in the philosophical principles which have inspired the French Revolution and the advent of the republic; it goes hand in hand with solidarity. This idea of solidarity, which arose during the French Revolution, was the underpinning principle of public policies after the Second World War. The conception of social cohesion which prevails in France entails a high degree of social mixing, through an integration process spurred on by the state, which results in a strong national consciousness. The French model of society is typically republican; it involves living together, not side by side, and therefore seeks the integration of all within the same group, namely the nation.

In the USA, by contrast, the concept of social cohesion rather points out the ties that may exist within such and such community, and seldom the cohesion of nationwide society: this sense does not correspond to the US socio-cultural environment. The constitution is the only strongly unifying element of a nation which does not think of itself very much in terms of a united society. The social role of churches should also be emphasized: long-established in the life of their communities, the numerous religious institutions assume missions that the state is not willing to bear. Besides, the US society is also characterized by a strong philanthropic tradition which dates back to the early stages of the US’s economic history, and has been maintained ever since by the business world, which gives back to society part of the wealth it has accumulated through its activities. But these sociological features, in spite of their cohesive effects, have not been able to prevent the phenomenon of social dislocation. As a matter of fact, the US society increasingly looks like a cluster of various communities constituted on the basis of ethnic criteria, social status, age, and other factors; these multiple social groups live separately from each other. The retired people, the wealthy citizens often live in enclosed, protected residential areas, whereas the Blacks, the Asians, the Latinos and all the minorities are confined to urban ghettos, in Los Angeles, New York or elsewhere . . . This kind of segregation has become widespread in the USA, and this country offers now the most striking example of the disuniting of a democratic and developed nation, with the simultaneous development of vast areas of endemic poverty in the center of the great cities, and of small islets of abundance on the outskirts.

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The US model of society used to be referred to as a melting pot, but this metaphor is certainly challenged by the facts now, since it generates a juxtaposition of numerous, contrasting – sometimes antagonistic – communities. More generally, in the English-speaking countries, the meaning of social cohesion at the national level is not very different from mere social peace, although this generalization is somewhat abusive. It is more accurate to assert that every nation has its own interpretation of social cohesion, and accordingly its own model of society; in this regard there seems to be nothing but exceptions. However, it is no exaggeration to say that the issue of social cohesion – at the national level – is important in all European countries, whatever the way they tackle it; the instruments of integration policies may differ, but living together is the purpose that is sought after in all cases. The phrase ‘‘social cohesion’’ is sometimes replaced by other expressions, that are so to speak functional equivalents; but what is meant beyond the words always implies a true sense of how a nation holds itself together. In addition to these two meanings, the societal meaning and the community-related meaning, the phrase ‘‘social cohesion’’ may also be used in a third, even broader sense: namely, social cohesion on a worldwide scale, between the north and the south, between the developed countries and the developing countries, between the center of the system and its periphery. Thus, social cohesion applies at three different levels: the local level (communities), the national level (countries), and the global level (the whole world). This distinction between the three levels of social cohesion perfectly fits in with the intermediate taxonomy of societal stakeholders presented above, which differentiates between social groups or institutions, national societies, and global society; furthermore, it also corresponds to the three types of belonging experienced by all individuals: being part of a social group, of a nation and of mankind. Eventually, it is necessary to try and define social cohesion. This notion is easier to grasp in a negative manner, just like health: when it is firm and solid, one does not notice its presence, but when it starts to deteriorate, one begins to pay attention to it. To some extent, the comparison may be exploited further by considering the social body in the image of the physical body: the fragmentation of the former corresponds to the ruin of the latter . . . Thus in a negative way, social cohesion could be characterized by the absence of social exclusion. However, this purely negative approach remains rather vague; a positive approach of the concept is needed, bearing in mind the definitional problems. Social cohesion is the cement of a country’s national unity; it is what holds nations together. It may be characterized as follows: a state of civil concord, which does not boil down to the absence of violent conflicts or exclusion phenomena, but implies concern for others, an active will to maintain social inequalities at a reasonable level, the implementation of solidarity mechanisms, and provides everyone with the opportunity to blossom.

This definition is an ambitious one, in particular because concern for others goes beyond mere respect of others, and solidarity and blossoming exceed by far the sheer will to live together; nevertheless, far from being definitive, it could serve as a basis for discussion and for national adaptations.

Conclusion The thrust of this article is that without civil society, stakeholder theory is incomplete. Therefore, it has endeavored to propose a reinterpretation of the theory, which underlines the importance of civil society and social cohesion. Instead of being considered as an optional, subordinate stakeholder, civil society ought to hold a prominent position in the stakeholder list. Moreover, it is necessary to differentiate between national societies and global society, which is now emerging. Indeed, stakeholder theory cannot ignore the issue of social inequalities and the deepening of the social divide, within and between national societies. An extended classification system has been presented, comprising a binary categorization – with the distinction between societal stakeholders and business stakeholders – an intermediate taxonomy, and a developed typology. The article then turned to the normative side of the theory, and advanced the concept of social cohesion as an alternative justification. The meaning of this concept has been discussed; the

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three levels of social cohesion correspond to the three categories of societal stakeholders presented in the taxonomy. Its relevance as a normative foundation has been justified, especially from a European perspective; indeed, in so far as many European companies act in favor of social cohesion, this interpretation provides some rationales for the connection of the empirical and normative streams of the theory, thus rendering it more coherent and strengthening its very status as a theory. Besides, social cohesion as a normative core may help universalize stakeholder theory, which stems from a peculiar socio-cultural context, namely that of the Anglo-Saxon countries.

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Phillips, R.A. (1997), ‘‘Stakeholder theory and a principle of fairness’’, Business Ethics Quarterly, Vol. 7 No. 1, pp. 51-66. Rowley, T.J. (1997), ‘‘Moving beyond dyadic ties: a network theory of stakeholder influences’’, Academy of Management Review, Vol. 22, pp. 887-910. Smith, C. (1994), ‘‘The new corporate philanthropy’’, Harvard Business Review, Vol. 72 No. 3, pp. 105-16. Somaya, S. (1996), ‘‘Non-philanthropic corporate involvement in community development’’, Business and Society Review, Vol. 97, pp. 32-8. Tichy, N.M., McGill, A.R. and St Clair, L. (1997), Corporate Global Citizenship, The New Lexington Press, San Francisco, CA. To¨nnies, F. (2001), Community and Civil Society, Cambridge University Press (Gemeinschaft und Gesellschaft, 1st Edition, 1887). Trevinõ, L.K. and Weaver, G.R. (1999), ‘‘The stakeholder research tradition: converging theorists – not convergent theory’’, Academy of Management Review, Vol. 24 No. 2, pp. 222-7. Victor, B. and Stephens, C.U. (1994), ‘‘Business ethics: a synthesis of normative philosophy and empirical social science’’, Business Ethics Quarterly, Vol. 4 No. 2, pp. 145-55. Waddock, S.A. and Boyle, M.E. (1995), ‘‘The dynamics of change in corporate community relations’’, California Management Review, Vol. 37 No. 4, pp. 125-40. Waddock, S.A., Bodwell, C. and Graves, S.B. (2002), ‘‘Responsibility: the new business imperative’’, Academy of Management Executive, Vol. 16 No. 2, pp. 132-48. Weaver, G.R. and Trevinõ, L.K. (1994), ‘‘Normative and empirical business ethics: separation, marriage of convenience, or marriage of necessity?’’, Business Ethics Quarterly, Vol. 4 No. 2, pp. 129-43. Weber, M. (1986), Economy and Society. An Outline of Interpretive Sociology, University of California Press (Wirtschaft und Gesellschaft, 1st Edition, 1921). Werhane, P. (1994), ‘‘The normative/descriptive distinction in methodologies of business ethics’’, Business Ethics Quarterly, Vol. 4 No. 2, pp. 175-80. Wicks, A.C., Gilbert, D.R. and Freeman, R.E. (1994), ‘‘A feminist reinterpretation of the stakeholder concept’’, Business Ethics Quarterly, Vol. 4 No. 4, pp. 475-98.

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State as a stakeholder Sibel Yamak and O¨mu¨r Suër

Sibel Yamak is Associate Professor of Management, Galatasaray University, Istanbul, Turkey. Tel: (90212) 227 44 80 ext: 543, Fax: (90212)258 22 83, E-mail: [email protected] O¨mu¨r Suër is Assistant Professor of Finance, Galatasaray University, Istanbul, Turkey. Tel: (90212) 227 44 80, ext: 596, Fax: (90212)258 22 83, E-mail:[email protected]

Abstract In this paper, we want to focus on the interactions of shareholder theory, stakeholder theory, institutional theory and agency theory in terms of corporate social responsibility. We will specifically study this issue in the context of commercial banks in the financial sector. Financial firms appear to be subject to strong technical and institutional pressures. They are also more opaque and subject to heavier regulation than their non-financial counterparts. It appears that the application of agency-based assumptions to the financial sector is inadequate in explaining corporate governance and related social responsibility practices. In this context, the structure of asymmetric information seems to be more complex and multi-dimensional. It takes place first between the depositors, the bank and the regulatory authorities; second, between the shareholders, the bank and the regulatory authorities; last, between the borrowers, the managers and the regulatory authorities. These parties also constitute the firms’ stakeholders. In this respect, the state appears to be a major stakeholder and it is in a position to affect all other bank/stakeholder relations through its regulations and participation in the financial sector. These are the factors that intensify institutional pressures in this sector. The institutional embeddedness inherent in a special context is likely to affect stakeholder position and attitudes. Therefore, this paper aims to investigate the conflicting nature of being a stakeholder under institutional pressures and it articulates the factors that determine the behavior of the state as a stakeholder in shaping corporate social responsibility practices of firms. Keywords Social responsibility, Stakeholders, Banking, Management theory, Government

Introduction Corporate social responsibility has emerged as a major topic following recent corporate scandals. These scandals may be interpreted as the demise of shareholder theory, which supports the view that a manager’s duty is to maximize shareholders’ returns, and the rise of stakeholder theory (Smith, 2003). In a similar vein, many studies claim (Levine, 2003; Caprio and Levine, 2002; Ciancanelli and Gonzalez, 2000) that shareholder theory based on agency assumptions does not seem to be applicable to the financial sector. The difference in the financial sector stems mainly from the presence of a myriad of stakeholders (shareholders, investors, depositors, regulators) having a direct concern in firm performance (Adams and Mehran, 2003). In this paper, we try to understand corporate social responsibility in terms of the interactions between a special type of stakeholder (the state[1] ) and the banking firm. Financial firms that are important intermediaries of the economic system are at the nexus of special relations with different kind of stakeholders. Moreover, they are subject to strong institutional pressures driven

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from the overall policies of the government and the special features of the financial sector. This paper aims to investigate how the behavior of the state as a stakeholder distorts the corporate social responsibility of commercial banks. Following this introductory section, the rest of this article comprises two main sections. In the first section, an overview of the major theoretical approaches of corporate social responsibility will be presented. The shareholder and stakeholder perspectives are elaborated in this section. The second section focuses on the special features of the banking sector where stakeholders of the banks will be identified. This section then proceeds with the special characteristics of the state as a stakeholder. A synthesis of these arguments is presented in conclusion.

1. Theoretical background of corporate social responsibility The concept of corporate social responsibility develops essentially around the question of what the role of the corporation should be (Davis et. al., 1979; Szwajkowski, 1986). Shareholder and stakeholder theories are the major ones that deal with corporate social responsibility. They are both normative in nature. Shareholder theory, which is based on principal-agent argument of agency theory, limits the boundaries of corporate social responsibility to the fiduciary duties of managers to stockholders (Gregg, 2001; Macey and O’Hara, 2003). On the other hand, stakeholder theory stresses the role of stakeholder relationships in the creation of organizational wealth (Freeman, 1984). The main difference between shareholder theory and stakeholder theory is that while the former views the non-stockholders as a means to the end of profitability, the latter considers the interests of non-stockholders as ends (Hasnas, 1998). 1.1. Shareholder perspective In his early writing on shareholder theory, Friedman (1962) defines corporate social responsibility as the utilization of the firm’s resources in such a way as to increase the profits, in an open and competitive market, without engaging in deceptive or fraudulent activities. According to this perspective, the major social responsibility of a corporation is wealth creation through employment opportunities, profits and, consequently, taxes. The social responsibility of the corporation is firmly related to the managers’ duty towards shareholders, which is fulfilled through optimal investments with the capital provided by the latter. Shareholders, as suppliers of risk capital, assume a major role in the wealth creation process of the firm (Gregg, 2001). Thus, shareholder theory emphasizes the role of managers in protecting shareholder rights. In that respect, agency theory, being predominantly concerned with the relationship between managers and stockholders, is the first resort to explain the shareholder argument of corporate social responsibility. An agency relationship is identified as one in which the principal employs the agent to carry out some service on his behalf and in doing so the principal also delegates some decision-making authority to the agent (Jensen and Meckling, 1976). The main assumption in this approach is that the interest of the agent and the principal diverges. Through different interest alignment mechanisms and contracts, this divergence of interests is handled to a certain extent. In a similar vein, Gregg (2001) describes the relationship between shareholders and management as one of collaboration and co-ordination secured by contracts. Shareholder approaches are criticized for favoring short-term profit maximization at the expense of the long run and undermining the interests of third parties other than the stockholders (Handy, 2002). The focus is on profit maximization rather than benevolent activities such as charitable projects. Managers are also criticized for being easily manipulated by the owners through the use of stock options and other interest alignment mechanisms. Smith (2003) states that there is a shift towards the shareholder view in the US economy and he identifies three motives that explain this trend. He first reports the arguments of the free market economists like Friedman as a prominent factor in this development. Second, drawing from the principal-agent argument, he claims that the threat of corporate raiders targeting undervalued firms dissuades managers from acting in a way that may lead to non-optimal returns to shareholders. The aim of such a move is to avoid being a target. Last but not least, the present state of the legal system appears to favor shareholder stance.

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1.2. Stakeholder perspective Stakeholder theory appears to be the second major theoretical approach to corporate social responsibility. Freeman (1984, p. 46) identifies a stakeholder as ‘‘any group or individual who can affect or is affected by the achievement of the organization’s objectives’’. The boundary of this theory is larger than the shareholder theory in the sense that managers are assumed to have a duty to all stakeholders including shareholders. Post et al. (2002, p. 8) define the stakeholders of a firm ‘‘as individuals and constituencies that contribute, either voluntarily or involuntarily, to wealth-creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers’’. Many authors (Clarkson, 1995; Donaldson and Preston, 1995) claimed that the interests of all the stakeholders have intrinsic value and that one set of interests is not supposed to dominate the others. This brings about the problem of arbitrating between the interests of different stakeholder groups. The managers are assumed to ensure that the ethical rights of all the stakeholders are respected and balanced. Thus, to balance profit maximization with the long-term ability of the corporation to remain a going concern surfaces as the ultimate goal of the firm (Smith, 2003; Jones and Wicks, 1999) in this perspective. Although the initial studies in this tradition (Donaldson and Preston, 1995; Swanson, 1999; Jones and Wicks, 1999) focused more on bringing together descriptive (how managers deal with stakeholders), normative (how managers should deal with stakeholders) and instrumental parts of the theory (what happens if managers treat stakeholders in a certain way), there is a recent concern for better understanding of the processes and outcomes related to the stakeholder relationships (Harrison and Freeman, 1999; Mitchell et al., 1997; Agle et al., 1999; Friedman and Miles, 2002). In one of the studies following this recent trend, Harrison and Freeman (1999) point to the need for both identifying differences within stakeholder groups and understanding the overall stakeholder relationship as a many-sided, complex phenomenon. In a similar vein, Mitchell et al. (1997) elaborated a stakeholder identification model by focusing on certain characteristics to identify a salient stakeholder. In this model of a manager’s perception of the salience of stakeholders, power, legitimacy and urgency are identified as the key stakeholder characteristics. However, it is also observed that each characteristic is a variable rather than a steady state, which is subject to change for each group and relationship (Agle et al., 1999). Friedman and Miles (2002) claim that the focus is still on defining the stakeholders of the firm, rather than the dynamics of the organization/stakeholder relation in many studies. He claims that studies conducted so far on stakeholder relations have failed to provide a consistent explanation on how, why and to what extent these relations change over time. He posits that especially highly negative and conflicting organization/ stakeholder relations remain to be discovered. This lack of multifaceted perspective is partly due to stakeholder theory’s focus on managerial decision-making (Jones and Wicks, 1999). It analyses the stakeholders via the lenses of the organization, which hinders the balance between all the parties of the stakeholder relationship. For example, Agle et al., (1999) document the presence of a ‘‘stakeholder class system’’ in the minds of large corporations’ CEOs who favor shareholders, employees, and customers more than the government and communities. In one of the exceptional studies, which enabled multiple stakeholder discourses, Hill and Jones (1992) developed the stakeholder-agency perspective. The firm is viewed as a ‘‘nexus of contracts between resource holders (stakeholders)’’. In a similar vein, Friedman and Miles (2002) suggest four structural configurations on the stakeholder/organization relation to explain why different stakeholders influence organizations in different ways. The structural nature of the organization/stakeholder relation, the contractual forms and the available institutional support influence the extent of stakeholder impact on an organization. Friedman and Miles investigate the intricacies of the complex web of relations first by the compatibility of ideas and material interests. Second, they identify necessary relations that are internal to a social structure and contingent ones that are external or not integrally connected. However, there is still much to do in terms of understanding the dynamic interaction of the stakeholders.

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2. Special features of the banking sector The nature of corporate governance problems in banking is not similar to that in non-banking firms. According to many authors (Ciancanelli and Gonzalez, 2000; Caprio and Levine, 2002) the application of standard agency theory of corporate governance, which focuses on the separation of ownership and control, to the banking sector is difficult since the assumptions of ‘‘agency theory’’ and the ‘‘bank’s characteristics’’ are not compatible. Two major factors mainly lead to this incompatibility. First, the multiplicity of stakeholders in the banking sector renders more and more complex the asymmetric information problem between stakeholders (Ciancanelli and Gonzalez, 2000; Adams and Mehran, 2003). Second, financial institutions are subject to heavier regulation compared to their counterparts in unregulated industries, such as manufacturing firms (Scott, 1992). 2.1. Stakeholders of the bank As previously mentioned, since the number of major stakeholders is larger in financial institutions, their governance becomes more complicated. Along with shareholders and managers who are the essential generators of asymmetric information, depositors and regulators have a direct stake in bank performance. More specifically, regulators, having a considerable influence on the banking sector, are closely concerned with the performance of financial institutions whose main role is to assure the flow of capital between the economic agents having excess funds and those in need of financing. This concern of the regulators originates from their duty of securing the healthy functioning of the whole economic system (Adams and Mehran, 2003). In a financial institution, Ciancanelli and Gonzalez (2000) identify four major subsets of interested parties among which asymmetric information takes place: first, owners and managers; second, depositors, the bank and the regulator; third, the owner, managers and the regulator and finally, borrowers, managers and the regulator. Therefore, we identify the main stakeholders as owners, managers, depositors, borrowers and regulators (governments/states) in the banking context (Table I).

As illustrated in Table I, the list of the stakeholders starts with the owners (shareholders), as is the case in almost every firm. The main expectation of the owners is assumed to be wealth maximization, which can be fulfilled by satisfactory earnings per share and dividends. Such an expectation can be assured by projects generating positive net present value (NPV). Managers constitute the second group of stakeholders. Their main expectation is assumed to obtain the monetary and non-monetary compensation as claimed in the contract. Hill and Jones (1992) state that managers are at the nexus of all contracts with all the stakeholders of the firm.

Table I List of stakeholders

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Stakeholders of a bank

Expectations of the stakeholder from bank

Owners

Wealth maximization Satisfactory earnings per share Dividends

Managers

Monetary and non-monetary compensation Commitment to claims of the contract

Borrowers

Fair and non-discriminatory treatment

Depositors

Repayment of deposits at maturity on the agreed terms Protection of their interests Good management of risks

Regulators (government/state)

Compliance with the laws and regulations

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Borrowers, as the next group of stakeholders, are concerned with fair and non-discriminatory treatment by the bank. Depositors are the stakeholders whose interests are the most firmly protected by the regulators in most banking contexts around the world. The repayment of deposits at maturity on the agreed terms is the major expectation of this group of stakeholder. Therefore, depositors are interested in the risk management practices of the bank. Similar to the case of managers, regulators are in close interaction with all other stakeholders. This last stakeholder type is mainly interested in the relative compliance of all the stakeholders, and especially the bank, with the related laws and regulations. This regulatory role is performed by the state and its agencies. Hence, the state is one of the major stakeholders of the banks, but it is also assumed to protect the interests of all the stakeholders to preserve the sustainable health of the economic system. The state might also have an interesting position when it is also the owner of the banks in the system. Such a situation may create an overlap of responsibilities and expectations. As Mitchell et. al. (1997) point out in their typology on the attributes of stakeholders, there is a dynamism in organization/stakeholder relationships. This dynamism may also originate from the changes in the institutional environment. As the major actor in the institutional context, the state plays a crucial role in shaping not only the structures of the business environment but also individual firms and the relationships between their stakeholders (Whitley, 1994). This may also be interpreted as part of the legitimacy creation process, which is vital for all kind of organizations according to institutional theory (DiMaggio and Powell, 1983). The conditions and the boundaries of legitimacy may be set by the state or government agencies, as well as by professional institutions, deliberately or unintentionally. Furthermore, another way of acquiring legitimacy is the adoption of certain forms of thought or action that are taken for granted or infused with intrinsic value (Selznick, 1957; Stinchcombe, 1997). Therefore, the institutionalization of stakeholder concerns by corporations will be influenced by the institutional environment (Ogden and Watson, 1999) where institutional patterns affect behavior regarding what is considered as legitimate (Powell, 1991). In addition to institutional pressures, the changes in the stakeholder attributes, along power, urgency and legitimacy dimensions, modify the nature of the organization/stakeholder relationship in a dynamic way (Mitchell et al., 1997; Agle et al., 1999). Friedman and Miles (2002) develop a general model where they classify potential stakeholders of a typical firm along the dimensions of compatibility of ideas and structures, and necessary and contingent relationships. The compatibility of the ideas and material interests is the first dimension. The second dimension is identified by the necessity/contingency of relationships. Necessary relations are internal to a social structure and contingent ones are external or not integrally connected. Table II presents the characteristics of relationships between a typical firm and its major stakeholders according to Friedman and Miles (2002). The rest of this paper will focus on the elaboration of the research question which is ‘‘How does the behavior of the state as a stakeholder distort corporate social responsibility of the banks?’’. In doing so, we will solely concentrate on the relationships between the stakeholders. We will investigate the underlying mechanism behind the changing characteristics of stakeholder relationships. The structural nature of organization/stakeholder relations, the contractual forms and the available institutional support will be studied. The focus will be on the major stakeholder, which is the state. We will try to understand its role in this dynamic process, which may also influence corporate social responsibility practices.

Table II List of stakeholders in a typical firm Stakeholders of a firm

Type of relationship(firm-stakeholder)

Shareholders Top management Customers Lenders Government and their agencies

Necessary Necessary Necessary Necessary Necessary

and and and and and

compatible compatible incompatible incompatible incompatible

Source: adapted from Friedman and Miles (2002)

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2.2. The state as a stakeholder The behavior of ‘‘the state’’, as a stakeholder, may distort several relationship combinations between stakeholders in the financial sector, more specifically in commercial banks. Such a distortion in the financial sector is facilitated by the heavy regulation and opaqueness of the financial system. In particular, the dependence of commercial banks on deposits intensifies the distortional effect of the state. Moreover, the fact that some commercial banks are too-big-tofail may enhance this distortional effect (Goyeau et al., 1998). The state, as a stakeholder, may distort some stakeholder/commercial bank relationships in two main ways: 1. By its regulatory activities. 2. By its presence in the market as owner of one or more commercial bank(s). 2.2.1. Regulatory activities of the state The government, as the representative of the state, may distort the relations between stakeholders through its policies in terms of regulatory activities. As Levine (2003) states, there are three implications of regulation on the banking sector: 1. Implications for governance by shareholders and competition. 2. Implications for governance by depositors. 3. Implications for competition. The first implication consists of state concerns about the identification of people owning and controlling banks and limitation of power concentration in the economy. To deal with this issue, most governments require regulatory approval for bank ownership. The second comprises the implications for governance by depositor. For instance, through the adoption of a deposit insurance scheme, the state may significantly alter ‘‘equity and debt channels’’. Lastly, regulatory activities of the state may restrain competition in banking through restrictions on interest rates and fees, portfolios and investment in certain sectors, etc. We assume that among these regulatory actions, the second factor can be considered as the most distorting one in terms of stakeholders’ relationships in the banking sector. Such a distortion results from the fact that though deposit insurance is a system that can be adopted by governments in order to minimize the risk of deposit runs and in turn to preserve market discipline, the adoption of such a system may increase the risks of ‘‘moral hazard’’, ‘‘adverse selection’’ and ‘‘excessive risk taking’’. The probability of banking crises escalates as the level of deposit insurance rises in a country (Demirgu¨ç-Kunt and Detragiache, 2002). This situation creates a negative outcome in terms of corporate social responsibility from both shareholder and stakeholder theory. In that case, wealth creation may be hampered for shareholders at a narrower, and stakeholders at a broader, perspective. Deposit insurance alters the expectations set forth in Table I for major stakeholders and consequently changes the nature of the relationships by modifying existing risk structure, contractual forms and institutional context. Depositor/shareholder relationship Deposit insurance distorts the depositor/shareholder relationship by reducing the motivation of the former to monitor the bank since the insurance reduces the need to check the risk level of the bank’s portfolio (Jordan, 2000). This, in turn, stimulates the bank to shift from uninsured creditors to insured depositors for resource generation since they do not need anymore to pay higher risk premiums that their portfolio would have required in an uninsured system. Expectations of stakeholders will differ according to the changing level of risk. Therefore, uninsured depositors who are inherently encouraged to monitor banks’ activities would ask for higher returns from risky banks. One major consequence of such a distortion of depositors’ behavior may be moral hazard, in which bank shareholders are able to pass off some of their losses onto innocent third parties such as healthy banks and, ultimately, taxpayers who contribute to the insurance funds (Macey and O’Hara, 2003). Evidently, these ultimate taxpayers may also be the depositors themselves. Hence, the whole process turns out to function against the principles of both shareholder and stakeholder approaches towards corporate social responsibility.

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Borrower/shareholder relationship The rational behind the distortion of the borrower/shareholder relationship is indeed very similar to that of the depositor/shareholder relationship. The only difference is the change in the role of shareholder. In other words, while in the first case the shareholder holds the role of lender, in the second case it becomes borrower. Deposit insurance, which creates wrong incentives, also distorts the vigilance of the lender in making loans. In fact, the insured deposits, which constitute the funding of a relatively risky loan portfolio, play a major role in the distortion of not only the lender’s but also the borrower’s behavior. Since the ultimate responsibility for nonrepayment becomes the government’s (state’s) instead of the bank’s owners, hazardous action by bank owners becomes more likely. Similarly, borrowers will be eager to take risks since they receive all of the ‘‘upside’’ benefits from undertaking greater risks but will not bear the ‘‘downside’’ costs of the losses (White, 1999). This situation, which may typically lead to moral hazard and adverse selection problems, is frequently discussed in agency literature. 2.2.2. Presence of the state in the market Besides its regulatory activities, the state may be influential in the banking sector by owning financial institutions. Government participation in financial markets creates an overlap of its different stakeholder roles; owner and regulator. This overlap may cancel out some of the functions of these incompatible roles. As in the classification of Friedman and Miles (2002), the owner/regulator relationship may be located at different points on the dimensions of necessity and incompatibility, as a result of conflicting objectives. This conflicting nature may produce poor results, such as inefficient and ineffective use of funds, that can be criticized in terms of corporate social responsibility from both shareholder and stakeholder perspectives. La Porta et al. (2002) report two different approaches in relation to government ownership of banks. The first approach, which is basically optimistic, is the ‘‘development’’ view that prioritizes social objectives. The second approach is the ‘‘political’’ view, which explains government ownership as a way to increase political gains of ruling elites such as votes (Shleifer and Vishny, 1994). This second position may be in clear contradiction with corporate social responsibility approaches. In fact, Shleifer and Vishny (2002) posit that the bureaucrats controlling state firms may have only an indirect interest in profits since this later goes directly to the government budget. The bureaucrats are likely to have political objectives rather than economic ones. In brief, state ownership may be taken as an example of ‘‘concentrated control with no cash flow rights and socially harmful objectives’’ (Shleifer and Vishny, 2002). This divergence from the stated objective, which is the maximization of shareholder wealth, is a typical agency problem where the principal and agent are respectively the taxpayers and bureaucrats. This situation delineates the violation of stakeholder rights, which may be a detrimental case for wealth maximization and corporate social responsibility.

Conclusion The literature review that we have conducted demonstrated that the special feature of banks in terms of corporate governance problems creates incompatibility with the shareholder view, which identifies stockholders as the ‘‘exclusive beneficiaries of fiduciary duties’’. In this case, an investigation from the stakeholder perspective appears to be more relevant in terms of understanding the position of and the relationship between different stakeholders. By adopting this perspective, we analyzed the role of the state in shaping relationships between stakeholders of the bank. This analysis has shown that two attributes of the state may distort corporate social responsibility practices of banks by influencing the behavior of each stakeholder. Through regulations such as deposit insurance, not only the expectations of the stakeholders but also their risk-taking behavior and interdependencies change to a large extent. As a result of the state policy of deposit insurance, implicit contracts may emerge between borrowers, shareholders and depositors who may favor neglecting social responsibility dimensions of their risky activities. In other words, a difference may occur between explicit and implicit contracts between various stakeholders in the case of deposit insurance. Implicit contracts that favor opportunistic moves of the actors may gain precedence over the explicit ones. Unfortunately, this change may have harmful effects on the typical stakeholder objective of wealth maximization with long-term

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ability of the corporation to remain a going concern. In fact, organizations tend to espouse structures and processes to be in line with existing moral legitimacy standards (Meyer and Rowan, 1991). This latter is closely related to a set of broad societal, normative judgments and values disseminated by institutional sources such as the state and the professions (Scott, 1995). In our case, the implementation of deposit insurance by the state distorts the moral legitimacy standards. In fact, successive bank failures are observed in many countries adopting a deposit insurance scheme (Demirgu¨ç-Kunt and Detragiache, 2002). Moreover, through bank ownership, the state may further threaten corporate social responsibility concerns. This happens as a result of the overlapping stakeholder positions of the state, which create a threat to the fulfillment of its wealth maximization objective. In this paper, we assume a macro approach and we delineate the role of a major stakeholder, namely; the state, in shaping corporate social responsibility practices in a sector. In studies conducted so far, corporate social responsibility is attributed to the efforts of individual firms. In this study, the focus is on the impact of an institutional environment on the bank/stakeholder relationship. By implementing regulatory policies such as deposit insurance, the state may institutionalize the actions that can be considered to be against the objectives of corporate social responsibility for all the stakeholder groups. Hence, the state may create an institutional environment that induces opportunistic behavior in each individual stakeholder group.

Note 1 Government is the representative of the state having a regulatory role. In this paper, the terms of government and state will be used interchangeably.

References Adams, R. and Mehran, H. (2003), ‘‘Is corporate governance different for bank holding companies?’’, FRBNY Economic Policy Review, April, pp.123-42. Agle, B.R., Mitchell, R.K. and Sonnenfeld, J.A. (1999), ‘‘Who matters to CEOs? An investigation of shareholder attributes and salience, corporate performance, and CEO values’’, Academy of Management Journal, Vol. 42 No. 5, pp. 507-25. Caprio, G., Jr and Levine, R. (2002), ‘‘Corporate governance of banks: concepts and international observations’’, paper prepared for the 2002 World Bank, IMF and Brookings Institution Conference, Building the pillars of financial sector governance: the roles of public and private sectors. Ciancanelli, P. and Gonzalez, J.A.R. (2000), ‘‘Corporate governance in banking: a conceptual framework’’, paper submitted for presentation at the European Financial Management Association Conference, Athens, June. Clarkson, M.E. (1995), ‘‘A stakeholder framework for analyzing and evaluating corporate social performance’’, Academy of Management Review, Vol. 20 No. 1, pp. 92-117. Davis, K., Frederick, W.C. and Blostrom, R.L. (1979), Business and Society Concepts and Policy Issues, McGraw Hill, New York, NY. Demirgu¨ç-Kunt, A. and Detragiache, E. (2002), ‘‘Does deposit insurance increase banking system stability? An empirical investigation’’, Journal of Monetary Economics, Vol. 49 No. 7, pp. 1373-407. DiMaggio, P.J. and Powell, W.W. (1983), ‘‘The iron cage revisited: institutional isomorphism and collective rationality in organization fields’’, American Sociological Review, Vol. 48, pp. 147-60. Donaldson, T. and Preston, L.E. (1995), ‘‘Stakeholder theory of the corporation: concepts, evidence and implications’’, Academy of Management Review, Vol. 20, pp. 65-92. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman Press, Boston, MA. Friedman, A.L. and Miles, S. (2002), ‘‘Developing stakeholder theory’’, Journal of Management Studies, Vol. 39 No. 1, pp. 1-22. Friedman, M. (1962), Capitalism and Freedom, University of Chicago Press, Chicago, IL.

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Goyeau, D., Sauviat, A. and Tarazi, A. (1998), ‘‘Taille, Rentabilite´ et Risque Bancaire, E´valuation Empirique et Perspectives pour la Re´glementation Prudentielle’’, Revue d’Economie Politique, Vol. 108 No. 3, pp. 340-59. Gregg, S. (2001), ‘‘Stakeholder theory’’, Policy, Vol. 17 No. 2, pp. 33-9. Handy, C. (2002), ‘‘What’s a business for?’’, Harvard Business Review, Vol. 80 No. 12, pp. 49-56. Harrison, J.S. and Freeman, R.E. (1999), ‘‘Stakeholders, social responsibility and performance: empirical evidence and theoretical perspectives’’, Academy of Management Journal, Vol. 42 No. 5, pp. 479-88. Hasnas, J. (1998), ‘‘The normative theories of business ethics: a guide for the perplexed’’, Business Ethics Quarterly, Vol. 8 No. 1, pp. 19-42. Hill, C.W.L. and Jones, T.M. (1992), ‘‘Stakeholder-agency theory’’, Journal of Management Studies, Vol. 29 No. 2, pp. 131-54. Jensen, M.C. and Meckling, W.H. (1976), ‘‘Theory of the firm: managerial behavior, agency costs and ownership structure’’, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-60. Jones, T.M. and Wicks, A.C. (1999), ‘‘The current state of stakeholder theory research’’, Academy of Management Review, Vol. 24, pp. 206-22. Jordan, J.S. (2000), ‘‘Depositor discipline at failing banks’’, New England Economic Review, March/April, pp. 15-28. La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (2002), ‘‘Government ownership of banks’’, The Journal of Finance, Vol. 57 No. 1, pp. 265-301. Levine, R. (2003), ‘‘The corporate governance of banks: a concise discussion of concepts and evidence’’, Global Corporate Governance Forum, Discussion paper, No. 3. Macey, J.R. and O’Hara, M. (2003), ‘‘The corporate governance of banks’’, FRBNY Economic Policy Review, April, pp. 91-107. Meyer, J.W. and Rowan, B. (1991), ‘‘Institutionalized organizations: formal structure as myth and ceremony’’, in Powell, W.W and DiMaggio, P.J. (Eds), The New Institutionalism in Organizational Analysis, University of Chicago Press, Chicago, IL, pp. 41-62. Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997), ‘‘Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts’’, Academy of Management Review, Vol. 22 No. 4, pp. 853-86. Ogden, S. and Watson, R. (1999), ‘‘Corporate performance and stakeholder management: balancing shareholder and customer interests in the UK privatized water industry’’, Academy of Management Journal, Vol. 42 No. 5, pp. 526-38. Post, J.E., Preston, L.E. and Sach, S. (2002), ‘‘Managing the extended entreprise: the new stakeholder view’’, California Management Review, Vol. 45, pp. 5-28. Powell, W.W. (1991), ‘‘Expanding the scope of institutional analysis’’, in Powell, W.W. and DiMaggio, P.J. (Eds), The New Institutionalism in Organizational Analysis, University of Chicago Press, Chicago, IL, pp. 183-203. Scott, W.R. (1992), Organizations: Rational, Natural, and Open Systems, Prentice Hall, NJ. Scott, W.R. (1995), Institutions and Organizations, Sage, Thousand Oaks, CA. Selznick, P. (1957), Leadership in Administration: A Sociological Perspective, Harper and Row, New York, NY. Shleifer, A. and Vishny, R. (1994), ‘‘Politicians and firms’’, Quarterly Journal of Economics, Vol. 109, pp. 995-1025. Shleifer, A.W. and Vishny, R. (2002), ‘‘A survey of corporate governance’’, The Journal of Finance, Vol. 57 No. 1, pp. 737-83. Smith, H.J. (2003), ‘‘The shareholders versus stakeholders debate’’, MIT Sloan Management Review, Vol. 44 No. 4, pp. 85-91.

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Stinchecombe, A.L. (1997), ‘‘On the virtues of the old institutionalism’’, Annual Review of Sociology, Vol. 23, pp. 1-18. Swanson, D.L. (1999), ‘‘Toward an integrative theory of business and society: a research strategy for corporate social performance’’, Academy of Management Journal, Vol. 24 No. 3, pp. 508-21. Szwajkowski, E.W. (1986), ‘‘The myths and realities of research on organizational misconduct’’, in Post, J.E. (Ed.), Research in Corporate Social Performance and Policy, JAI Press, Greenwich, pp. 103-22. White, L.J. (1999), ‘‘The role of financial regulation in a world of deregulation and market forces’’, paper presented at the IMF Conference on Second Generation Reforms, Washington, DC, 8-9 November. Whitley, R. (1994), ‘‘Dominant forms of economic organization in market economies’’, Organization Studies, Vol. 15, pp. 153-82.

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The stakeholders’ perspective on the international business school Albert Sta¨hli

Albert Sta¨hli is Rector at GSBA Zurich, Zurich, Switzerland. Tel: +41(0)1 226 99 70, Fax: +41(0)1 226 99 96, E-mail: [email protected]

Abstract This article describes the contribution of the international business school to anchor ethical behavior maxims in the heads of the economic decision makers. Successful management training means that knowledge is not only obtained, but that the learning processes and the key qualifications which can be reached are located in the center of the globally aligned education. The management Andragogik – the science of knowledge transfer to adults – has proven itself as a goal-oriented training form. Against this background the article presents the six constitutive elements of a successful international business school and discusses the role and the influence of the associated stakeholders: students and promoters, partner universities, members of the faculty and, last but not least, the enterprises of the economy in their triple role as idealistic sponsors of the international business school, as active members of the advisory board and as future employers of the graduates. Keywords Stakeholders, Business schools, Business ethics

Success and ethics: a contradiction only at first sight Dubious financial deals by managers, accounting scandals of some world famous firms, corruption in the medium-sized companies, mismanagement in corporate groups and ostentatiously condemned ‘‘irresponsible action’’ of high-level executives, dominate the headlines and put the economy into an altogether dubious light. ‘‘Concentrated and vast manipulations came to light, which raised doubts about the competence, the good will and the probity of large parts of the so-called elite’’, President of the Swiss Confederation Kaspar Villiger, describing the prevalent opinion (Villiger, 2002, p. 1). How does this match the manager’s task to provide lastingly for the well-being of the enterprise? And how does this match the task of an international business school, to train and send into the economy comprehensively educated executives, ready to assume responsibility? Without doubt the objective of any business policy is to guarantee the existence of the enterprise in the long-term. From this Jean-Paul Thommen derives two fundamental claims: 1. An enterprise can only survive if it is accepted by its social environment. . . . It has to strive for credibility (bold by the author) and towards the demands of its influence groups. 2. In the free market system an enterprise can only survive if it is economically successful. Strategic thinking and acting must therefore be focused on recognizing, developing and using the enterprise’s strategic success positions (bold by the author) (Thommen, J.P., 2002, p. 1176).

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The crux of the matter now is: as long as executives succeed in fulfilling both demands equally, they enjoy the esteem of society. If, however, they build their credibility at the lasting expense of the shareholder value or use their strategic success positions at the expense of their credibility with the stakeholders, they immediately experience harsh criticism. To find and hold the correct balance belongs, therefore, to the most demanding and honorable tasks of executives. Unfortunately, the recent past proves that, in the difficult navigation between the requirements of competitiveness and ethical acting, the latter fades more and more into the background. Naturally, in each critical situation the question of the executives’ responsibility is raised; naturally, it is simply answered; then the more the end of the crisis approaches, the more it is detailed and focused at the goodwill of public opinion. But, while up into the 1980s of the past century, the ethics discussion showed clear parallels to the economic cycle – no topic at all during the boom, a big topic during the recession – the particular attitude of the individual executive’s value orientation depends more and more on the rapidly growing, global competition and the ensuing decline of job opportunities. ‘‘The consequence of the pure theory of ‘more’ leads to a dead end: if capitalism isn’t there for anything but continuously producing more capital, then the money becomes an end in itself for the enterprise, the management – and finally the entire society. Greed as the central value of a community can only end in the collapse of the social conventions. In this situation the executives’ values orientation moves to a central position for they, the executives, determine according to which rules the economic everyday life proceeds, they describe which goals are pursued and they serve as corporate models. They thereby carry a responsibility far beyond the profit and loss account.’’ (Wildemann, 2003, p. 24). The driving force of the competition in a free market system is the focus on the personal benefit that is to be transformed, by the force of the invisible hand of the market (Adam Smith), into collective welfare. But many people do not want to believe any longer in the existence of this force (i.e. Plattner, 2002, p. 97 et seqq.). Whoever is persuaded of its non-existence will presume (in agreement with logic and human nature), that his fellow men always strive to increase their personal profit. In order not to belong to the losers of this system, one therefore acts exactly the same way. Thus, the central issue reads: where does the focus on the personal benefit end? And how can an enterprise, an organization, an international business school survive in the surging competition without completely losing sight of the ethics and thus dealing a deathblow to the invisible hand?

Real management excellence always becomes apparent in the mastering of business challenges. The necessary condition for this is a high level of technical and leadership knowledge; but more crucial still is the personal integrity, the attitude towards people, economics and future, the lived values standards and thus the basic mental attitude of the executive. From this results, equally, the moral responsibility for corporate behavior – and not only in the long run – as well as the professional and personal track record of a top executive. This thought is neither naive nor trivial. For economic success and market power do not stand beyond the moral terms, but are closely linked in a causal network. On the one hand, Horst Wildemann clearly analyzes: ‘‘Profit as objective is a fact that cannot be denied nor changed, the choice of the ways and means to attain the objective is free. The fixation on the financial goal and the freedom of choice of the means are the strengths of the free market system – and the weaknesses.’’ (Wildemann, 2003, p. 24). On the other hand the choice of the ways and means is not entirely ‘‘free’’, because top executives stand under increasing observation of an increasingly critical environment. Both the broad public and the influence groups of the enterprises (stakeholders) are more and more interested in the actions and the omissions of top managers. The new, categorical imperative reads: ‘‘Your actions must be successful and highly profitable – however don’t, under any circumstances, bring us into the headlines with negative messages’’. Permitted is by far not everything that pleases – and the same jury brings in the verdict, on both points.

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This implicit duplicity of the free market system is covered with loud pleas for more ethical acting, intensified – to a certain extent as ‘‘security line’’ – by the meaningful instruments of the corporate governance. Commercial laws and security exchange commission regulations, IAS and GAAP, are obviously not sufficient to make dishonest behavior impossible, and to repair the investor’s damaged trust in the executive’s performance and will for achievement. As paradoxical as it may sound, another way to anchor ethical maxims in the mind of the decision makers consists of simply appealing to their own profit thinking. The short term profit is very often bought with a long-term loss, under which the stakeholder and, in the long run, the leading executives themselves, suffer. Because what use is it to an executive to rake in a tidy efficiency bonus with unfair means if, in the following year, he has to withdraw from his office and be publicly exposed as a failure or half criminal? The financial profit may pad the waiting period up to the next, surely less publicity-laden position, but name and reputation are in the long run perdu. Can that really satisfy a conscientious top executive? Certainly not, even if he could assume that his actions would remain unobserved, uncommented and unblemished. In today’s investigative media reality they will surely not remain so. Jean-Paul Thommen therefore also recommends, next to the timeless rules for ethical behavior, the appropriate ‘‘TV test’’, suitable to the present times: ‘‘A manager should always ask himself whether he would feel well if he had to justify his decisions and actions that evening on television, in front of a broad public’’ (Thommen, 2002, p. 1253). Besides, whoever does not work against but with the society, acts in the economic sense: he invests his energy into the search for collectively accepted ways of acting and thinking, energy which he would otherwise use to persuade, to cover-up or for legal defense. This also attracts the attention of the media, but now positively and in the proper sense of the stakeholders. ‘‘The clinical distinction between business and social responsibility blurs the vision for the opportunities that an integrated approach would offer. Enterprises change the social environment and this again changes the enterprises. . . . The enterprises’ self-interests, as well as social and ecological responsibility, cannot be regarded as two separated spheres: the ground on which an innovative and, on a long-term, successful business grows, can only develop out of their amalgam.’’ (Gerber and Ammann, 2002, p. 1) Reinhard K. Sprenger narrows it down even more, when he reduces ethics and moral in the economy to the core characteristics: ‘‘credibility’’ (with the public and the coworkers) and ‘‘trust’’ (in the public and in the coworkers). ‘‘Trust is less a moral than an economic principle you can ‘count on’. Without trust no reorganization can be successful, it is basically the requirement for the existence of flexible organizations. In mergers and take-overs it becomes the critical factor. Trust is costsaving, preserves the motivation of the employees, enables knowledge management, binds customers and is the irreplaceable condition for successful management. And increasingly more important: trust is the all-crucial competitive advantage in fast-changing markets.’’ (Sprenger, 2002, p. 1)

Requirements of tomorrow’s executives For this realization to prevail, executives need teachers and models, an appropriate education and continuous training, a sense of achievement and the confirmation to be on the right track. A study of the European Foundation for Management Development (Kletz et al., 2002) comes therefore to the conclusion: ‘‘. . . today people see ethical issues as an integral part of their daily work. Moreover, they see it as a component which should be emphasized, not only for personal moral reasons, but also for the companies’ benefit and profitability. . . . Individuals and especially managers, who serve as role-models and trend-setters, are the key elements of ethical behavior promotion.’’ It is one of the primary virtues of future generations of managers to invest themselves entirely. The separation between ‘‘job’’ and ‘‘private life’’ is becoming increasingly obsolete: successful managers have the focusing capacity for both. Also, and especially, they do not hesitate with complex decisions, such as are demanded in jumping from a ‘‘certainty’’ company into an ‘‘uncertainty’’ one. They can optimize their competencies, develop new key qualifications and thereby prove their leadership and role-model aptitude. Today these are more necessary than ever. ‘‘Without effective strategic leadership, the probability that a firm can achieve superior or

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even satisfactory performance when confronting the challenges of the global economy will be greatly reduced.’’ (Rowe, 2001, p. 85). One is not born a manager. This trade, like all others, must be learned. At colleges and universities one is not trained as a manager, one rather learns technical discipline, its rules, impacts and instruments. Management is studied later on the job. In addition, one draws on an early created and constantly updated fund of basic knowledge and attitudes, values and impressions. But, as Fredmund Malik reckons, only three of the four elements of the manager job can be learned, i.e. the tasks, the tools and the principles (see Malik, 2002, p. 3) The fourth element – the assumption of the responsibility connected with the manager’s job – can be neither learned, nor decreed, nor compelled. Whether a manager accepts the ethical imperative for himself or not, nobody but he is able to determine. And he alone can determine, by his responsible acting, whether he will be a good, an acceptable or even an outstanding executive.

The contribution of the international business school In order to learn what will be needed today, and even more in the future, more and more young managers, male and female alike, enroll in a renowned business school after their first university degree. They strive for the global knowledge of a Master of business administration (MBA) and they only find this in an international business school with a multinational, multicultural faculty and a first-class reputation. In some of these schools, among which the Graduate School of Business Administration (GSBA) in Zurich, the number of applicants for the participation in an MBA program grows year by year up to 30 percent. Such schools are appreciated and in increasingly higher demand by the global economy, where an MBA degree enjoys a high level of popularity and a growing importance. Six characteristic features distinguish the successful international business school in the domain of executive education: 1. The lecturers possess a qualified academic training and have sufficient professional and international consulting experience. They prove themselves by their activity in research and practical experience as well as by constant scientific publications. 2. International business schools continuously look for networking and practical cooperation with internationally active enterprises, in order to assure that their students always get up to date and practice-oriented teaching topics, and guarantee their training programs have a high acceptance in the economy. 3. Multilingual training programs, through participation of partner schools abroad and with possibilities of specialization, take into account the individual career goals with regard to personal talents and individual knowledge levels. English as teaching language is conditio sine qua non. 4. Interdisciplinary seminars with international orientation are directed toward the requirements of world-wide active economics. They introduce new strategy concepts and innovative approaches. The basic teaching methods must be actual case studies (living cases), because only those bring the benefit of reality and with it a fast transition from theory to professional practice. 5. Severe and clearly defined conditions of admission (completed first training, job and/or leadership experience, proven foreign language knowledge – GMAT, TOEFL) guarantee efficient teaching. Likewise, a clear and comprehensible selection process contributes to the quality and the reputation of an international business school. Good positions in rankings guarantee seriousness. 6. The acknowledgment by recognized accrediting organizations (AACSB, EQUIS, FIBAA, AMBA, ASFOR, RABE and such) is a clear quality seal for a verified good business school. For well over half of the students such accreditation is the main criterion in the decision for an MBA program, according to the global MBA survey 2002 of the GMAC.

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Next to the rising requirements of the economy, the so-called Bologna resolution of 1999 gave the business schools a strong boost. In the whole of Europe the two-stage Bachelor and Master system, based on the Anglo-Saxon model, is being introduced, whereby the Master degree becomes the standard degree in the universities and the Bachelor degree in colleges. This structure clearly values the Master title and acknowledges the long-term practice of international business schools: promotion of global mobility and reasoning, replacement of the fragmented specialized knowledge by interdisciplinary and networked thinking, development of a responsible manager personality and his social and professional competencies, replacement of the bare knowledge transfer by problem-solving skills, promotion of the sense of responsibility towards himself and the society. The rising competition, in economics and in the society, calls for strategically thinking executives, capable of networked vision, who, in crucial transformation phases, can identify the opportunities for change and use them. However, how, for example, must managers act if they have to permanently evaluate and adapt the regional distribution of added value activities – due to the sharp innovation and cost competition – if they did not learn any appropriate strategy concepts during their university studies? What should they learn from past and situational case studies according to the still wide-spread Harvard method, if they are confronted with unforeseeable and completely new problems? This lack of dynamic analyses and future-oriented long-term perspective has raised the desire in many executives to further extend their training in an international business school. Up to the end of the 20th century the knowledge necessary for the economy was obtained by the guild principle: new generation managers started their career in a company and learned from their superiors everything considered necessary and correct for management. Management was understood as a trade rather than a science, and taught as such by the universities. Today, however – not least due to the pressure of the willing-to-be-trained elite as well as the economy that urgently needs those comprehensively, i.e. technically as well as personally, educated graduates – the faculty members recognize that the traditional pedagogy used in the public education system is not sufficient to better prepare experienced and confirmed executives for a fast changing world. Continuous management development, under guidance of international scientists and experienced practitioners, today begins right after the university exam and does not, by far, stop with the entrance into the board of directors of an enterprise.

Successful, continuous manager training means that knowledge is not only imparted, but that the learning processes and the achievable key qualifications are set at the heart of teaching. Learning in groups and learning from each other becomes as important as individual learning. Hereby, team ability, learning and working techniques, independent learning and working, creativity and the ability to cope with pressure have the highest priority. ‘‘Management Andragogik, i.e. continuous, progressive, career and life-cycle compatible learning, replaces the traditional educational model used in the instruction of young people and in traditional universities.’’ (Staehli, 1999). Continuous manager training also must consider the fact that thinking and acting in the economy is increasingly global. The economic interdependence of all countries expresses itself in the constant increase of the transnational exchange of goods, services, capital and knowhow. For this the enterprises need additional, more flexible, interculturally experienced and internationally trained executives. In comparison to the fast growing number of strategic business alliances, the industry-wide cooperation is hardly used for learning and development. The continuous training of executives is so far mainly limited to cooperation with external coaches, consultants and external training organizations. The cooperation of different enterprises, with regard to the development of organization and personnel, is limited to meetings where only few managers exchange experiences (cf. Heuser and Lichtenberger, 1999, p. 30).

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Therefore, the main task of management development still rests with the international business schools. If, until some years ago, there was an enormous shortage in this sector, today more and more new organizations push into the market. What is being conveyed so insistently to the executives, applies now to the business schools: they must work continuously to improve their competitiveness. To the executive development this means the challenge of adequately defining, in accordance with the future requirements, all the elements of the education and continuous training for executives, i.e. teachers, training topics, training objectives, training methods and students. In the sector of business schools, it is a conditio sine qua non that internationalization and globalization of the management education, and continuous training move to the center of the learning processes (Sta¨hli, 1996, p. 21).

Role and influence of the stakeholder Just like other economic entities, the international business school is also subject to a double claim of the general public and its specific influence spheres: certainly, the striving for dominance in the competition is to lead to the best possible economic success positions but, simultaneously, it should not harm either written or unwritten moral codes. As an integral component of the continuous training, even if not stipulated in the curriculum, the students experience and learn, in the best case, the skillful control of the difficult balance between the requirements of success and the ones of ethics. If, in the worst case, they do not experience this then the business school is, in the long-term, doomed to failure. The various interest and influence groups (stakeholders) of the international business school decide on this. ‘‘Stakeholders include those groups/individuals whose welfare is inextricably linked with the activity of the organization, whether it is a business organization or an educational institution. If the organization’s action can have either a positive or a negative impact on the quality of a group/individual’s life, then the group/individual is a stakeholder of that organization.’’ (Stumpf, 2004, p. 38). Next to the members of the faculty and the employees of the school, the students and their parents belong to the stakeholders, as well as the former graduates (alumni), the future employers, and the enterprises and the organizations connected to the school. All groups maintain specific expectations towards the proposed education and continuous training (executive development), which this institution must meet simultaneously and lastingly. Stephen A. Blunt (Stumpf, 1994, p. 15 et seqq.) has the merit of making transparent the common interests as well as the needs of each individual interest group. A common requirement of all groups is the provision of knowledge, and the conveyance of abilities and behavior patterns with which the graduates are enabled to effectively and efficiently conduct the enterprises for which they will later assume responsibility. With this common goal in mind, the business schools take quite divergent didactical paths. Next to the traditional pedagogic approach that addresses the youth and young adults, the management andragogik – the science of knowledge transfer to adults – has established itself as a target-oriented education form: ‘‘Management andragogik is that area of adult education which is concerned with the continuous training of executives in open socio-technical systems. It sets its contents and methods in relationship with the individual and professional needs, the student’s experience and life cycles. The lateral learning transfer is a mandatory component of their entire interdisciplinary curriculum’’. Apart from the development of system-oriented, more up-to-date and globally-targeted management tools, the management andragogik acts on the basis of a complex concept of man, and integrates the consideration of ethical principles and responsibility towards an economical, political, social and ecological environment as action orientation. (Staehli, 2001, p. 13) With the help of this approach, the specific needs of the students can best be met by ‘‘a more practical, time efficient, low hassle, high value-to-price ratio education’’ (Stumpf, 1994, p. 18). Adjacent – not opposite! – to this, the faculty members set great value on liberty and flexibility in research and teachings, acknowledgment and appreciation by their professional environment,

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opportunities of cooperation with enterprises and organizations in concrete business cases, as well as preferably perfect technical facilities of the school. Here resides a clear interface to the wishes of the students, and here particularly the future flexibility of the international business school becomes clearly apparent. Faculty and students must be able to communicate at the same technological level with the most progressive enterprises or they will hardly fulfill the requirements of their future employers – rightfully fastidious – who, for their organizations, are looking for technologically literate executives with state-of-the-art training. The majority of the alumni, on the other hand, wish for a close contact with their school, combined with the possibility to introduce their practical experiences and perceptions into the teaching topics and, in return, extract something new for themselves. All in all, Stumpf (1994, p. 28) has worked out 13 critical success factors for the international business school. Their quintessence reads as follows: ‘‘Continually inquire about stakeholders wants, scan the environment for trends that could affect the MBA business, and look for competitor actions so as to identify and protect against threats to the MBA program’’. The expectations of the stakeholders and their relationships with an international business school change in the course of time, as Stumpf (2004, p. 40) explains, especially with the cultural influence factors. Not only do the institutions have to consider this, but they must anticipate it as far as possible. ‘‘The maintenance of desirable partnerships might be thought of as the sine qua non of successful economic relationships’’. Vital for this is an advisory board of personalities from the economy, the sciences and the public life, whose knowledge and experiences will profit the international business school and thus constantly ‘‘update’’ it to the new requirements of the working world. Due to the increasing demand for executive development, for MBA – and doctoral programs – but also because of the mastering of this continuous challenge, the GSBA constantly strives to further improve its performances, its services and ever better fulfill its responsibility towards its stakeholders and society. The offer must permanently be extended and refined, and must satisfy the increasing exigency of the environment concerning integrity, seriousness and honesty, and it must be innovative, and it must convey exactly this same skill to its students. ‘‘It should be the proper feature of the enterprise or school culture to constantly motivate, to never content oneself with the existing, but to strive after the best performances from everybody’s viewpoint (customers, suppliers, coworkers, owners or students, consumers, parents, instructors, school administrative staff).’’ (Dubs, 1996).

For a responsible, leadership-oriented manager, training is convenient for many people. In the foremost position of stakeholders are the students (the direct customers), the school itself and its partner institutions, the lecturers active in both, the members of the advisory board as well as the enterprises as future employers (the indirect customers), and the graduates. They must be able to trust, from personal experience, in the high ranking reputation and the renown of their alma mater. If the international business school does not succeed with this, it can hardly pretend to be sending comprehensively competent and responsibly behaving executives into the economy. Intensive practice orientation as desired by students and enterprises is achieved by a dovetail connection with the economy. In the GSBA, representatives of the economy and the politics are organized in an advisory board. This committee ensures the transfer of practice and theory, and guarantees that quality and content of the executives’ continuous training correspond to the demand. Its members give important impulses for the continuous development of the business school and, at the same time, reflect its external reputation internally, to the school, the council and the students. The members of the faculty – also important stakeholders of the GSBA – are recruited in the economically leading nations. They rank among the most recognized scientific authorities and master the best didactical skills. They are skilled at raising the students’ interest in economic,

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sociological and intercultural interconnections, and in keeping awake their interest in ‘‘lifelong learning’’. Above all, the GSBA addresses the middle and upper management open to continuous training. The students are all employed in senior and upper management level and strive, out of personal incentive, for the completion and the updating of their knowledge and competencies. The strong self-motivation and the life experience of the students favor the interaction with the professors. Beyond this, it also increases the degree and the acuity of observation that they accord to their educational environment. In that respect the international business school also takes a crucial function as role model for future manager generations. Independently of the question of whether and to what extent the ethical understanding differs within the leading economic blocs, here the largest common multiple is to be sought-after. Therefore, team-teaching of the instruction modules by two professors represents one of the special strengths of the GSBA. ‘‘The training team normally consists of a European and an American professor, and each of the two communicates his instruction part in dialogue. In this manner a remarkable balance between European and US corporate culture is achieved.’’ (Cox, 2002, p. 133). Technology and infrastructure of the business school correspond to the up-to-date requirements of the enterprises: the knowledge and know-how transfer is ensured by Intranet and Internet, as well as via international data bases and global management knowledge. So the GSBA becomes a virtual learning place without mental, disciplinary and global barriers. In structure, organization and instructional contents it corresponds to the enterprise for which the future executives will be working. The objective evaluation puts the success of these efforts in evidence.

Conclusion: ethics and responsibility have many stakeholders The term ‘‘executive’’ is connoted with high potential but, in fact, differently by each enterprise. However, all managers agree that one should absolutely keep this employee group in the enterprise, encourage it and let it reach corporate maturity. Therefore, the central issue for human resources development is: what does it take to retain identified leadership talent? Money, status or is an interesting function sufficient? The answer becomes clear in a survey of the Institute for Organization and Personnel of the University of Berne: the income plays only a minor role, if the reputation and the culture of the enterprise are correct. ‘‘High-potentials differ in their needs from the other co-workers by considering more the social and non-material incentives than the material ones.’’ (Thom and Friedl, 2002). The empirical study in Swiss enterprises confirms that the especially encouraged new generation managers have stronger ties to the enterprise, and thus a smaller inclination to change, provided the non-material factors such as corporate culture, internal communication, continuous training and reputation of the enterprise as well as job security, are correct. Last, but not least, this argument also confirms the initially presented thesis, according to which economic success and recognized ethical acting do not exclude but rather promote each other. The foundation stone for this is laid by an international business school like the GSBA, whose exemplary attitude in teaching, economics and society reverts to the enterprises through the students, the connected stakeholder groups and, not least, through the codified principles of corporate governance.

References Cox, W.H. (2002), Die besten MBA-Programme in Europa, Frankfurt. Dubs, R. (1996), ‘‘Schule, Schulentwicklung und New Public Management’’, Schweizerische Zeitschrift fu¨r Kaufma¨nnisches Bildungswesen, Heft, Vol. 3. Gerber, E. and Ammann, H. (2002), ‘‘Den Egoismus ausleben’’, Alpha – der Kadermarkt der Schweiz, 5./6.10.2002, pp. 2-3. Heuser, M. and Lichtenberger, B. (1999), ‘‘U¨berbetriebliche Lernallianzen’’, Manager Bilanz, Vol. 1, pp. 30-3.

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Kletz, P., Terrasse, C. and Eiges, G. (2002), ‘‘Business and ethics - a presentation of survey’s results’’, The efmd Day. Malik, F. (2002), ‘‘Management erlernen’’, Alpha – der Kadermarkt der Schweiz, 21./22.12.2002, pp. 1-3. Plattner, G.-R. (2002), ‘‘Globale Wirtschaft: globale Verantwortung’’, in Giger, H., Lu¨bbe, H., Schambeck, H. and Tschirky, H. (Eds), Technologische Entwicklung im Brennpunkt von Ethik, Fortschrittsglauben und Notwendigkeit, pp. 91-112. Bern. Rowe, G.W. (2001), ‘‘Creating wealth in organizations: the role of strategic leadership’’, The Academy of Management Executive, Vol. 2, pp. 81-95. Sprenger, R.K. (2002), ‘‘Vertrauen ist Kontrolle’’, Alpha – der Kadermarkt der Schweiz, 14./15.9.2002, pp. 1-3. Sta¨hli, A. (1996), ‘‘Globalisierung in der Management-Andragogik’’, in Berndt, R. (Ed.), Global Management, Berlin/Heidelberg. Sta¨hli, A. (1999), ‘‘Management-Andragogik in der Business school 2000’’, in Berndt, R. (Ed.), Management Strategien 2000, Berlin/Heidelberg. Sta¨hli, A. (2001), Management-Andragogik I – Harvard Anti-Case, Berlin/Heidelberg/New York. Stumpf, S. (1994), ‘‘Success factors for MBA programs’’, in Berndt, R. (Ed.), Management-Qualita¨t contra Rezession und Krise, Berlin/Heidelberg. Stumpf, S. (2004), ‘‘Cultural change: unintended consequences and ethical issues’’, in Berndt, R. (Ed.), Competitiveness and Ethics, Berlin/Heidelberg. Thom, N. and Friedl, V. (2002), Fallstudien zur Personengruppe der High-Potentials, Arbeitsbericht Nr. 62 des Instituts fu¨r Organisation und Personal an der Universita¨t Bern, Bern. Thommen, J.-P. (2002), Betriebswirtschaftslehre, 5. Auflage, Zu¨rich. Villiger, K. (2002), Die Vertrauenskrise und die Rolle der Medien. Vortrag am Tag der Schweizer Presse vom 13.9.2002 in St Moritz. Wildemann, H. (2003), ‘‘Die Fu¨hrungskraft auf unsicherem Terrain’’, Frankfurter Allgemeine Zeitung vom 5.5.2003, p. 24.

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Towards a stakeholder responsible approach: the constructive role of reporting Stefano Zambon and Adele Del Bello

Abstract It is commonly recognized that nowadays social and environmental aspects, and more in general stakeholder-linked issues, are becoming important corporate value drivers. It is also rather clear that there is a strong relationship between the stakeholder perspective, and a number of concepts and practices which stress non-financial aspects of company behavior, such as corporate social responsibility (CSR), sustainability (including environmental respect) and corporate governance. Accordingly, these emerging company ideas and attitudes are here collectively referred to as ‘‘stakeholder responsible (or oriented) approaches’’. Current literature underlines especially the importance and difficulty of the implementation phase of these approaches into concrete company actions, but it seems to largely overlook the impact which the reporting process has on both concepts and company actions. On the basis of an ad hoc theoretical model, the paper aims to provide insights into the ‘‘active role’’ subtly played by stakeholder oriented reporting (e.g. social and sustainability statements) in constructing and reconstructing the underlying ideas and notions, as well as company behaviors in this field. Far from being a neutral and ‘‘passive’’ mirror of the stakeholder responsible approach implemented, reporting carries out the decisive and constitutive role to concretize abstract concepts, and to visualize company activities, thus substantially contributing to make the ‘‘stakeholder philosophy’’ viable and reliable.

Stefano Zambon (PhD, London) is Professor of Business Economics at the University of Ferrara (Italy). Adele Del Bello is a PhD student in Business Economics at the University of Ferrara. Even though the paper is the result of a joint reflection, sections 1 and 2 are to be attributed to Stefano Zambon, while sections 3, 4 and 5 to Adele Del Bello.

Keywords Stakeholders, Social responsibility, Reports

1. Introduction In the last few years, issues linked to corporate social responsibility (hereinafter CSR), sustainability, environmental respect, corporate governance[1] and similar have achieved a large resonance among practitioners, institutions and academics around the world. Indeed, these concepts are influencing the governance and the actions of a growing number of companies and institutions, thus contributing to a change in their attitudes and actions. A particular outcome of these dynamics is that more and more organizations declare the importance of preparing reports showing information, generally, of a non-financial nature to stakeholders with the aim of providing them with a clearer view of organizational performance in terms of social responsiveness, long-term sustainability, environmental respect, and corporate governance. Amid the numerous international institutions involved in the processes aimed at the diffusion of best practices related to the above issues, a relevant role is played by the EC, that is trying to define a common European framework on CSR[2], and by the global reporting initiative (GRI) which has released the second edition of its Sustainability Reporting Guidelines in 2000[3]. On a

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similar vein, the academic world has made an effort both to reach a commonly shared definition of the above concepts, and to identify possible methodologies (qualitative and quantitative) to measure and/or give an account of company stakeholder oriented information. This study interprets the recent developments in relation to CSR, sustainability, environmental respect and corporate governance as specific implementations of the stakeholder theory. Consistently, the paper takes as a starting point the existence of a strong relationship between this theory and CSR and similar approaches, in particular arguing that the latter find their roots in the former conceptual body. This assumption can be explained not only intuitively, but also through an analysis of the literature on the subject. The intuitive explanation is based on the fact that the very concepts of social/environmental responsibility, sustainability and corporate governance rely on the notion of stakeholder, that receives different interpretations according to the application context. In clearer terms, it is not possible to be, for instance, ‘‘socially responsible’’ or ‘‘sustainable’’ without identifying the stakeholder target. The conceptual linkage just mentioned can be explained though also in a more sophisticated way, based on the analysis of the relevant literature. One of the main innovations stemming from the stakeholder theory literature consists of realizing that the company does not deal with only one group of stakeholder, i.e. the shareholders, but also with other groups – each of them bearing a different interest with an intrinsic value – that are able to influence company objectives and decisions (inter alia, see Freeman, 1984; Brenner and Cochram, 1991; Hill and Jones, 1992; Clarkson, 1995; Donaldson and Preston, 1995; Jones, 1995). The managerial implication of this circumstance for the company is that it should take into account all the equally relevant interests, in order to understand which type of influence they could have on the organization’s current and future performance. In this sense, the ‘‘stakeholder management’’ becomes crucial for company results (Carrol, 1989; Preston and Sapienza, 1990). Therefore, the concepts of CSR, sustainability, environmental respect and corporate governance are the natural evolution of the basic assumptions of the stakeholder theory. Their definition and implementation, and the associated reporting activity represent then, for companies, a way to manage stakeholder groups, providing them with the information they are interested in. On this regard, it has also to be added that the stakeholder theory has attempted to identify and categorize stakeholders on the basis of different parameters (e.g. interest, ownership, and so on), that have largely been absorbed within the recent stakeholder oriented concepts (see for example Freeman’s, 1983 and Ullmann’s, 1985 frameworks). Nevertheless, a significant distinctive point is that the latter concepts appear more consciously aimed towards fostering a concrete change in corporate behaviors and practices because, since in addition to a theoretical issue, they pose a ‘‘urgent’’ implementation challenge, thus implying a need for making concrete behavioral and reporting choices. In consideration of the strong linkage between the stakeholder theory and concepts such as CSR and sustainability, hereinafter we will collectively refer to the above concepts with the expression ‘‘stakeholder responsible approaches’’. This expression appears particularly useful in this context, because it overcomes the well-known theoretical querelle regarding the definition and the boundaries of each of the above concepts (cf. note 1), while concentrating on their common feature, i.e. their orientation towards one or more stakeholder groups. The conceptual linkage that we just delineated is presented in Figure 1. The aim of the paper is to delve into the complex relationships existing between stakeholder responsible concepts, the activities implemented on their basis, and the relative reporting. In particular, by referring to a conceptual model, the paper will focus on the constructive role of social, environmental and sustainability reporting choices, both in concretizing abstract concepts and in orienting the activities implemented in this field over time. Indeed, despite its relevance, the ‘‘active role’’ played by the specific way of constructing a reporting on stakeholder responsible approaches does not seem to have been frequently investigated so far, neither by academics, nor by practitioners. The paper is articulated as follows. The next section will start analyzing the various types of linkages between ‘‘stakeholder responsible concepts’’, their implementation and reporting. In

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Figure 1 The conceptual linkage between stakeholder theory and the concepts of CSR, sustainability, environmental respect and corporate governance STAKEHOLDER THEORY

STAKEHOLDER RESPONSIBLE APPROACHES

CSR

SUSTAINABILITY

ENVIRONMENTAL Respect

CORP. GOV.

Source: authors’ elaboration

particular, the section will discuss the traditional view of reporting as a passive means to represent organizational dynamics. The third section will probe into the double active role carried out by the reporting choices on CSR, sustainability and similar stakeholder responsible approaches, both in concretizing a specific concept and in representing implemented activities. This active role will be explored more deeply in the fourth section, where – with the help of examples – some of the possible reporting choices available to a company, and their related consequences on the nature and quantity of the reported activities, will be examined. Some concluding remarks will be traced in the last section.

2. Stakeholder oriented concepts and behaviors and the ‘‘passive role’’ of reporting This section will investigate the relationships between the stakeholder responsible concepts, the activities implemented by the company in this field, and the construction of an ad hoc reporting (e.g. social, environmental or sustainability reports). These relationships are in fact more complex than they could initially appear. The nexuses between these variables seems to be informed not by a straight cause-effect link, but by more sophisticated associations which call for a careful analysis. In order to facilitate the understanding of these linkages, we will refer to Figure 2 and label each of the elements and relationships therein with a letter[4]. The elements involved in the analysis are tagged with capital letters, while the relationships between the elements with small letters. Having focused the introduction on the linkage between stakeholder theory and the stakeholder oriented concepts (cf. A), it seems now appropriate to consider two additional aspects relating to the above issues. A first aspect regards the analysis of the activities that are implemented (cf. B) by the company, including behaviors, choices, actions carried out by the firm in order to be perceived as stakeholder responsible. A second aspect deals with the reporting activity, whose main purpose is to account for what has been done by the organization and in which way, through a specific document of an internal and/or external nature. In this context, we choose to explore the reporting activity by separating

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Figure 2 Stakeholder oriented concepts, company implemented activities and the ‘‘passive’’ role of reporting

A

CONCEPTS

b

CONSTRUCTION OF REPORTING C

p a s s i v e

a r o l e

REPORTED ACTIVITIES

D

e

d

passive role (feed-forward) f

IMPLEMENTED ACTIVITIES

B

c

it in two different steps: the step of the construction of reporting (cf. C), that substantiates itself in the ex ante reporting choices and options made by the company, and the step of the report itself, that represents a particular set of activities (cf. D) according to the reporting choices adopted. This methodological approach is motivated by the fact that the first step plays a distinctive and autonomous role, vis-a`-vis, the second one with reference to the concretization of the underlying concepts and the implementation of stakeholder oriented activities, as it will be pointed out in this and the following sections. In this context, it has also to be clarified that by ‘‘reported activities’’ we refer only to quantitative or qualitative data and the related presentational structures concerning the actions that have been implemented by the company. As a consequence, the narrative section of the reports in question, such as that of conceptual definitions or the discursive description of implemented activities, is not included in the ‘‘reported activities’’ section[5]. A further point to be addressed is why we have here chosen to consider reporting as an individual and distinct phase. Indeed, being a specific organizational process, reporting might have been seen as a particular implementation activity. Nonetheless, we preferred to treat it separately, since the main paper’s purpose is that of investigating the specific influence of the reporting activity on the other elements of the analysis (concepts and implemented activities). Some of the relationships between stakeholder responsible concepts, construction of the relative reporting and implemented activity seem to be pretty straightforward. It is quite evident that the definition of an abstract concept and the description of the possible associated activities (cf. A) – coming from academics’ or practitioners’ communities – represent the starting point for both the choice of the activities to be implemented (cf. a), and the selection of the reporting contents and structure (cf. b). For example, if a company defines the concept of social responsiveness only with reference to some groups of stakeholders, avoiding considering other categories, the report will probably be structured to the information benefit of the stakeholder groups identified by the concept.

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Equally intuitive seems to be the relationship (cf. c) between the implemented activities and the reported activities. In fact, even though in the vast majority of the cases they do not perfectly match[6], the implemented activities constitute the basis for the reported activities. A less obvious relationship (cf. d) is that of the influence of the implemented activities on the concretization of a particular stakeholder responsible concept. To be honest, at a closer look the contents of the activities implemented substantiate the company’s specific idea of what, for instance, CSR or sustainability should be. As to the relationships moving off from reported activities towards concepts (cf. e) and implemented activities (cf. f ), there emerges a ‘‘passive role’’ played by the reported data. With regards to the latter relationship, according to the conventional wisdom reporting is in fact able to represent the implemented activity in a way perceived as ‘‘neutral’’. This representation tells us something about the past – giving an account of an organization’s performance (feed-back process) – but at the same time it contributes to generating company reactions (feed-forward process) as a consequence of the management’s awareness about the results achieved, which are perceived as objective and, then, reliable. However, this ‘‘passive role’’ of reporting not only intervenes with reference to the possible future corrections of the implemented activities (feed-forward process, cf. f ), but also with regards to the concretization of concepts (cf. e). In this sense, every time a reader looks at the reporting document, he/she harks a particular set of reported activities back to the underlying concept. This means that concepts find their visualization in the reported activities. Even the representation of the very concept of ‘‘stakeholder value’’ is largely dependent on the report(s) documenting the stakeholder responsible behavior implemented by an organization.

In this regard it has to be stressed that the explicit adoption of principles such as relevance, reliability and representation, faithfulness becomes important for the credibility of the reports and for the accountability of the organization towards its stakeholders. Also, the auditing of this information is linked to the reliability and transparency of the stakeholder responsible reports, and to their degree of effectiveness in carrying out the above mentioned passive role. In other words, all these principles and criteria are put in place to assure the reader about the capacity of the document to passively and reliably represent reality. However, we will see in the following sections that these principles are far from being reassuring when applied to the reporting of stakeholder responsible concepts and behaviors.

3. Unmasking the ‘‘active role’’ of stakeholder oriented reporting This section will explore the relationships originating from the phase of reporting construction (cf. C). When dealing with reporting on CSR, environmental respect, sustainability, corporate governance and similar concepts, it has to be recognized that, in addition to the above described passive role, the construction of a dedicated report plays also a much more subtle ‘‘active role’’, both by affecting firm’s actions, and by substantiating rather subjective concepts like CSR, sustainability, and so on. At first glance, the active role of report construction in orienting a company’s actions (cf. g + f ) can be confounded with the ‘‘feed-forward process’’ characterizing the passive role, but it is actually rather different. Indeed, the passive role inherent in the reports consists of their capacity to represent the implemented activities in a way perceived as ‘‘neutral’’, thus generating managers’ reactions in terms of future implemented activities (cf. ‘‘feed-forward process’’) on the basis of the data presented. In order to clarify the case, we could compare a report to a mirror and a manager to the observer: the mirror reflects reality in a perceived objective way, inducing consequential responses by the observer. Conversely, the active role played by the report construction with reference to the firm’s socially responsible actions (cf. g + f ) is linked to the ‘‘non-neutrality’’ of the ex ante reporting choices; in fact, the diverse reporting options are able to affect (cf. g) the quality, quantity and representational structure of the outcomes shown as ‘‘achieved’’ by the company (cf. D). In

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other terms, the active role has to do with the way the representation is constructed and, consequently, with the building of the perceptions by stakeholders and management[7] about the results achieved by the firm. Returning to the previous metaphor, we could imagine looking at ourselves in a mirror (i.e. the report) which is believed to be neutral, but it is in fact distorting, thus producing larger or smaller images of the person. It is also clear that this effect occurs continuously (or at least once a year) over a long period of time. Therefore, the process here described will repeat itself dynamically, so that reporting could be said to play not only a constructive role, but also a reconstructive function of the previously achieved meanings and representations in an enduring ‘‘creative destruction’’ process. The way the representation is constructed has two diverse consequences. The first deals with the stakeholder oriented actions carried out by the company. Once the construction of the report is completed (cf. active phase sub g), the reported information (cf. D) is perceived as ‘‘objective’’ and, as such, forms the basis for the evaluations of, and the reactions by, the organization (cf. passive phase sub f ). Therefore, the choices underlying the construction of the report influence – though indirectly (through D) – the organization’s behaviors and activities implemented in the name of the stakeholder responsible approach. A further consequence of the reporting choices relates to the concretization and visualization of the underlying abstract concepts. This process can occur following two different paths: directly (cf. h) or indirectly (cf. g + e). According to the latter path, the way to report the activities put in place by the company (cf. g) generates a particular set of reported activities, that – as mentioned earlier – a reader links up to the underlying concept when dealing with the document (cf. e). In this sense, we argue that the methodologies, criteria, structures and techniques used to construct these types of reports play an active role (cf. g + e) in representing and, then, reifying a company’s stakeholder responsible concepts. This process occurs then indirectly, i.e. through the user’s mental association between the reported data and the concepts called upon. Nevertheless, the concretization of the abstract concepts in question by means of the specific way an ad hoc report is constructed, can occur also directly, namely through the narrative parts of the report, such as the definitions of the ‘‘stakeholder oriented’’ concepts and ideals pursued, as well as the discourses over, and the descriptions of, the activities aimed to represent, and ultimately to substantiate, a ‘‘stakeholder responsible’’ behavior (cf. h) (see Figure 3). To summarize, we are arguing that the active role of the reporting activity, resulting from the concrete way the stakeholder oriented report is constructed, has two orders of consequences: 1. to guide company activities through a particular representation of the results (perceived as ‘‘objective’’), on the basis of which the company reacts by adjusting its objectives, actions, activities; and 2. to concretize the ‘‘stakeholder-oriented’’ concepts, namely CSR, sustainability, environmental respect and corporate governance: J directly – through the narrative parts of the report, such as conceptual definitions and discursive descriptions of the ‘‘stakeholder oriented’’ activities performed; and/or J indirectly – through the structure and content of the data reported, that contribute to visualize and diffuse a company-specific ‘‘picture’’ of the concept. With regards to the first order of consequences (point 1), it has to be noted that as a result of the diverse possible reporting choices, the information shown can be pretty different from the actual implemented activities. This could appear quite obvious; nevertheless, it seems appropriate here to make it clear that we do not refer only to the cases of purposely hidden or incomplete information, but also, and more in general, to the capacity of the reporting choices to shed light on some actions rather than on others (cf. g). In this sense, the implemented

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Figure 3 Stakeholder oriented concepts, company implemented activities and the ‘‘active’’ role ofreporting

A

CONCEPTS

b e

c

t r

i o

v l

e h

a

REPORTED ACTIVITIES

CONSTRUCTION OF REPORTING

8

p a r s o s l e i e v e

a

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IMPLEMENTED ACTIVITIES

activity can be ‘‘larger’’ than the reported activity or vice versa. The above considerations could be easily expressed by the following (triple) formula: 9 >= Reported activities ðRAÞ Implemented activities ðIAÞ ¼ ; ðas a result of the way the report is constructedÞ < The first case (IA > RA) takes place when some information is voluntarily concealed by the company, or when the report is not able to represent such information, because of the document’s intrinsic limits. In the second case (IA ¼ RA) the report would be ideal, providing a real representation of company performance in this area. Unfortunately, this perfect circumstance is nearly unreachable, especially when dealing with the new reporting tools we are discussing here such as social and sustainability reports, for which there is still no regulation, nor generally accepted reporting standards. The third case (IA < RA) refers to the situation in which reports emphasize ‘‘too much’’ the relevance of some actions carried out by the firm, and therefore they appear to be used as a marketing device to diffuse an ‘‘inflated’’ positive image of the company. The fact that the ideal case of IA ¼ RA is almost impossible clearly shows that the reporting phase plays an autonomous, non-neutral role in representing implemented activities, even though these activities are the basis for such representation. As mentioned before, this effect is amplified when dealing with stakeholder oriented concepts, because to date there are no commonly accepted reporting frameworks[8] and, consequently, the level of subjectivity increases noticeably. With regards to the second order of consequences (point 2), some further considerations on the process of concepts’ concretization carried out by the reporting activity, can be put forward. In addition to the ‘‘constructive’’ declination of an abstract concept, the report can also be used by a company as a sort of marketing device to show stakeholders its ‘‘responsible attitude’’ towards them. Indeed, it seems clear that a stakeholder responsible attitude is a major part of a

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more general ‘‘good corporate citizenship’’ policy, which is today more and more required from companies. Therefore, the stakeholder oriented report, in its constructive role vis-a`-vis the conceptual level, is an activity which is aimed not only to visualize such concepts, but more importantly, to attribute to the company a distinctive credibility and legitimization in the realm of business. In this respect the report contributes to making company strategy in this field and its declared ethical code viable and reliable. A similar type of observation has been raised with reference to traditional financial reporting, where literature has frequently pointed out the ‘‘constructive’’ function of accounting in building and communicating the economic reality (Hines, 1988). A further point of contact with financial accounting literature is the problematic and relativistic relationship between theories of the firm, and a fundamental reporting issue such as profit measurement (Zambon and Zan, 2000). Therefore, not different from the case of the stakeholder responsible approaches, financial accounts also show a relevant degree of instability between the underlying concepts and the representational tool adopted. However, it should be noticed that the degree of ‘‘constructive power’’ between the two forms of reporting is different. In fact, while in the traditional financial reporting the subjectivity – and consequently the constructive power – of the reporting choices is limited by the existence of commonly accepted models and frameworks, in the stakeholder oriented reporting area the concepts are still new and there are no common set of definitions, principles and rules, so far. This circumstance appears then to exacerbate the ‘‘constructive power’’ of reporting with a high risk of opportunistic behaviors, relativism and rhetorical usages of these approaches.

4. The construction of a stakeholder responsible report: the ‘‘active’’ choices The aim of this section is to investigate more in depth the active role of reporting towards behaviors and concepts, through an analysis of those choices informing the stakeholder oriented reporting activity which are more exposed to subjectivity and, therefore, have the largest constructive potential[9]. Some examples will support the analysis.

First, a company willing to report information on CSR, sustainability and similar new attitudes has to select the target of this type of document (e.g. owners, customers, employees, community, competitors, suppliers, social activist groups, political groups, trade associations, public at large). This appears to be a crucial decision for determining the outcomes as well as the orientation of the activities. Indeed, it is likely that the stakeholder responsible approaches will focus on the interests of the stakeholder groups which are considered more relevant by an organization. Nonetheless, it is problematic to find a concrete example of this fundamental choice for the very simple reason that most companies tend to consider the vast majority of the stakeholder categories as target groups of their report. Accordingly, the difficulty for companies is to ponder and balance the individual relevance of the stakeholder groups (Carrol, 1991; Jones, 1980; Phillips and Reichart, 2000). Furthermore, as it will be shown, the definition of a target group has a strong and pervasive influence on the other reporting choices that will be examined in the following. A further relevant aspect to decide on by a company in this field is the type of information to report. The first fundamental decision deals with the type of reporting a company thinks to be more appropriate to prepare (e.g. social, environmental and sustainability reports). Further, as Clarkson (1995, pp. 101-2) shows, for each group of stakeholders a company can disclose on different issues. For example, a company could report all the activities carried on (including the work in progress) or only the completed ones. Among the completed actions, a company could choose to report every action carried out, or only the successful actions (that achieved some positive outcomes). Alternatively, it could report only on the activities considered representative of the underlying concepts (this, for instance, requires a clear definition of what is a social behavior), or on those implying more investment, involving more people, addressed to more stakeholder groups, and so on. Most likely, the capacity of the report to shed light on a particular set of activities can push a company to make an effort in improving, especially that group of activities on which the report is based[10].

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An additional decision to take is related to the adoption of the criteria/methodologies to measure company performance on the above issues. It seems quite obvious that the subjectivity of the choices about the best stakeholder oriented performance measurement criteria to use can allow a company to ‘‘effectively’’ hide some crucial information, or to ‘‘pump’’ its positive image. For example, if a manager knows that one of the most important indicators of the working conditions is measured on the basis of the length of the work shifts, he/she could reduce such a length in order to be reported as more socially responsible. The subjectivity of the choices relating to the performance measurement criteria depends largely upon the already mentioned lack of commonly accepted standards. On the other hand, this high degree of subjectivity is hardly surprising, given that it even applies to the more regulated traditional financial reporting (as the Enron, Worldcom, Parmalat scandals have taught us), where the generally accepted principles and rules of relevance, reliability and ‘‘substance over form’’ should have assured the ‘‘true and fair view’’ of company performance. From the choice of the performance measurement criteria derives an additional problem: the legitimacy of the subjects in charge of the definition and application of the performance measurement standards, and of the procedures for the verification of the quality of information reported (Clarkson, 1995), for example, in terms of clearness, comprehensiveness, fairness, transparency, and so on. A further reporting choice to be considered is the way to organize the stakeholder oriented information disclosed. A fundamental decision in this respect regards the structure of the report, which could be organized, for example, by groups of stakeholders, or by relevant areas of company activity, or even by a mix of the two criteria. The chosen structure becomes essential in giving a concrete sense to abstract concepts like social or environmental responsiveness. In addition to that, the same company activity could be thought of as an expression of a social or, alternatively, an environmental responsible behavior, according to the understanding and definition of the underlying concept. Accordingly, the relative information can be differently allocated. This is the case of the use of natural resources, or of the pollution of a territory due to company processes. Other critical decisions for the active role of the reporting activity is the function that the report is supposed to play, its diffusion channels, and its graphical style (design). With regards to the first aspect, the report can be internally oriented – thus representing the ‘‘memory’’ of the organization and consequently contributing to the learning of the organization – or externally oriented – when the report contributes to the learning on the organization by outer stakeholders, becoming a significant constitutive element of its reputation. In the vast majority of situations, these reports, being stakeholder oriented, tend to be aimed at external users. Nevertheless, there might be some cases where the information content of such reports can be diffused only internally and utilized as a management tool for strategic decision making and human resource evaluation purposes. The choices of the diffusion channels and the graphical style are strictly related to the target of stakeholders selected. The ‘‘good corporate citizenship’’ message linked to these forms of reporting can be reinforced, for instance, by their availability on the Internet, which is perceived as a rapid, advanced and cost-effective diffusion channel of this information, thus contributing to the building of the company image and of the consensus around it. For similar purposes, companies try to get also the attention of the mass media with regards to their stakeholder responsible attitudes and their report on this subject matter. Along the same lines, a particular graphical style, clearly, can selectively attract the interest of certain stakeholders that might be more sensitive to some presentational details, such as printing on recycled paper, or the use of figures and photos documenting company activity in the field. In more general terms, it cannot be forgotten that the concrete reporting choices are also largely influenced by context-specific elements, such as the economic contingencies, the social and cultural climate and changes, the size of the company, its culture (e.g. orientation, its attention to stakeholder interests), the behavior of its competitors, and so on. As a result of the choices analyzed above, the preparation of a report on CSR, sustainability, environmental respect or corporate governance appears as a process that reveals a rather high

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level of subjectivity due to the wide variety of possible options available to an organization for selecting, measuring and disclosing information on these issues. Indeed, it is the ensemble of these discretional choices that makes it possible for the stakeholder oriented reporting to translate concepts and implemented activities into company-specific narratives, structures and data, thus permitting this document to play an active role in the management-driven representation of stakeholder responsible ideas and behaviors.

5. Concluding remarks The aim of the paper was to analyze the complex relationships existing between stakeholder responsible concepts, the activities implemented on their basis, and the associated reporting process. In particular, with reference to a delineated conceptual framework, the paper has explored the constructive (and reconstructive) role of stakeholder oriented reporting choices, both in concretizing abstract notions, and in guiding the activities implemented in this field. In the light of the rapid diffusion of the ideas and practices spreading from the stakeholder theory in all the Western world, it appears as a stark contradiction that the reporting on these company activities is still so ‘‘flexible’’ that it is able to accommodate very different structures, methodologies, disclosures, and underlying concepts. In this regard it has been noticed that ‘‘there are no definitions of CSR’’ and ‘‘there are no generally accepted ethical principles that can be cited or enforced, as with accounting principles’’ (Clarkson, 1995). On a similar vein, even though there are some guidelines and initial attempts at regulation, there is still a clear lack of reporting harmonization in this area, whereas none of the standards that are present in the market seems to have so far sufficient authoritativeness to impose a prevailing model. As a consequence, notwithstanding the clear success of the ideals, the stakeholder oriented reports which are produced by companies in the name of these ideals are hardly comparable, leaving room for the risk of a rhetorical or opportunistic use of such documents and notions. At a deeper look, as has been pointed out earlier, the role played by all the forms of stakeholder reporting appears to be not only merely instrumental, but also constitutional and re-constitutional of the concepts and practices discussed here. In particular, the company stakeholder oriented activities – as implementations of the ideas derived from the stakeholder theory – seem to find their ultimate significance and legitimacy in the company’s capacity of delivering quantitative and qualitative statements, which show its performance in this field, and which are perceived as neutral. In this sense, the meaning and relevance of these actions could be said to be largely contingent upon their representation in the reporting document. By the same token, the reports in question (as a result of the reporting choices) carry out the relevant task of both making the ‘‘stakeholder philosophy’’ viable – also on conceptual grounds – and contributing to induce a diffused perception of consonance between the theory and practice of a company’s stakeholder responsible behavior. An additional role played by the reporting choices is linked to their capacity to articulate concepts into a language, which is then used to spread messages to stakeholders, and which becomes part of the organization’s culture. What has been discussed in the paper refers largely also to company’s financial reporting. Actually, as noted earlier, the research in this area has long pointed out the constructive role of financial accounts in shaping the economic profile of an organization (Hines, 1988), and the unstable relationship between financial measurements and underlying theories (Zambon and Zan, 2000). However, the paper contributes to highlight the even ‘‘more constructive’’ role performed by reporting when applied to still rather fuzzy concepts such as CSR, sustainability, environmental respect and corporate governance and the related corporate activities. In this area this constitutive role of reporting is clearly amplified vis-a`-vis the traditional financially oriented reports by the mentioned lack of common regulation and generally accepted guidelines at an international level. Notwithstanding that, the growing trend of companies engaging themselves in stakeholder responsible behaviors is likely to continue and accelerate in the next few years, even though the relationship between the company stakeholder oriented reporting and the company profit is still

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unclear. It is not, in fact, necessarily true that to produce a stakeholder oriented report can assure a better profit for the company, especially in the short term. Therefore, it is more probable that the need for improving the quality of the company’s image perceived by stakeholders could be the real main ‘‘engine’’ of this trend, where the reporting of stakeholder responsible attitudes is able to play a decisive role in accompanying this diffusion process, also because of the ‘‘active role’’ that reporting options can exercise on the shaping of the internal and external perceptions about a company’s stakeholder responsible ideas and actions.

Notes 1 Sometimes, these subjects seem to overlap. For instance, the concept of sustainability can embrace the social and environmental responsiveness, and the corporate governance issue. Alternatively, sustainability can take account only of some of them. For this reason we prefer to mention each concept separately, even though they could be grouped in different ways. 2 See www.csrcampaign.org. 3 See www.globalreporting.org. 4 The sequencing of the letters does not involve the recognition of any order of importance. 5 This is because we will refer to the narrative section when discussing the direct relationship between the construction phase of the reporting and the stakeholder oriented concepts (see Figure 3, letter h). 6 For a deeper analysis of the differences between implemented activities and reported activities, as well the reasons for that, see section 3. 7 Indeed, we are referring here to that part of management that is not directly involved in the reporting activity. 8 Nevertheless, it should be observed that in the last years many institutions, academics and companies have worked to achieve a commonly shared reporting framework for stakeholder responsible reporting. 9 in this regard, is has to be specified that the presentation order of the reporting choices neither reflects their relevance, nor the sequence in which the relative decisions are taken in reality, because they can both significantly vary according to the context specificity. 10 The two reporting choices analyzed so far (target and type of information to report) are particularly relevant for determining the nature of the report: they are in fact both encompassed in the Freeman’s (1994) expression ‘‘the principle of who and what really counts’’.

References Brenner, S.N. and Cochram, P. (1991), ‘‘The stakeholder theory of the firm: implications for business and society theory and research’’, paper presented at the annual meeting of the International Association for Business and Society, Sundance, UT. Carrol, A.B. (1989), Business and Society: Ethics and Stakeholders Management, South-Western, Cincinnati, OH. Carrol, A.B. (1991), ‘‘The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders’’, Business Horizons, July/August, pp. 39-48. Clarkson, M.B.E. (1995), ‘‘A stakeholder framework for analysing and evaluating corporate social performance’’, Academy of Management Review, Vol. 20 No. 1, pp. 92-117. Donaldson, T. and Preston, L.E. (1995), ‘‘The stakeholder theory of corporations: concepts, evidence and implications’’, Academy of Management Review, Vol. 20 No. 1, pp. 65-91. Freeman, R.E. (1983), ‘‘Strategic management: a stakeholder approach’’, Advances in Strategic Management, pp. 31-60. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA. Freeman, R.E. (1994), ‘‘The politics of stakeholder theory: some future directions’’, Business Ethics Quarterly, Vol. 4, pp. 409-21. Hill, C.W. and Jones, T.M. (1992), ‘‘Stakeholder-agency theory’’, Journal of Management Studies, Vol. 29, pp. 131-54.

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Hines, R.D. (1988), ‘‘Financial accounting: in communicating reality, we construct reality’’, Accounting, Organisation and Society, Vol. 13 No. 3, pp. 251-61. Jones, T.M. (1980), ‘‘Corporate social responsibility revisited, redefined’’, California Management Review, Vol. 12 No. 2, pp. 59-67. Jones, T.M. (1995), ‘‘Instrumental stakeholder theory: a synthesis of ethics and economics’’, Academy of Management Review, Vol. 20 No. 2, pp. 404-37. Phillips, R.A. and Reichart, J. (2000), ‘‘The environment as a stakeholder? A fairness-based approach’’, Journal of Business Ethics, Vol. 23 No. 2, pp. 185-97. Preston, L.E. and Sapienza, H. (1990), ‘‘Stakeholder management and corporate performance’’, Journal of Behavioural Economics, Vol. 19, pp. 361-75. Ullmann, A. (1985), ‘‘Data in search of a theory: a critical examination of the relationship among social performance’’, Academy of Management Review, pp. 540-77. Zambon, S. and Zan, L. (2000), ‘‘Accounting relativism: the unstable relationship between income measurement and theories of the firms’’, Accounting, Organisations and Society, Vol. 25 No. 8, pp. 799-822.

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Organizations which make a difference: a philosophical argument for the ‘‘people focused organization’’ Ed Weymes

Abstract Traditional management theory is grounded in the concept of bureaucracy which provides a platform for managers to control behavior. When behavior is controlled, personal freedom and the ability to innovate are curtailed, yet creativity is a key driver competitive advantage. Creativity is unleashed when individuals are provided with the opportunity to express their individual freedom, when they feel their actions make a difference. Organizations, bounded only by economic motives, fail to provide such an environment, but when an organization extends its focus to encompass society and the environment, members of the organization can be inspired to share the dream of the organization. This paper explores the traditional management concepts, and presents the reader with a philosophy that both encourages individual freedom and maintains an ordered society. The paper concludes by applying the philosophy to a model for organization design, which facilitates individual freedom and retains the controls necessary to meet performance targets.

Dr Weymes, on completion of his doctorate at Cranfield School of Management, conducted a number of marketing studies for the fast-moving consumer goods industry in the UK before moving to Canada, where he taught at Laurentian University in Sudbury, Ontario. Dr Weymes then joined Saskatchewan Government Insurance as Manager, Market Research and Planning, before returning to the academic world at the University of Regina. Here, he held the position of Assistant Dean and then Associate Dean of the Faculty of Administration. In 1991, Dr Weymes was appointed Director of Executive Education at the University of Waikato, Hamilton, New Zealand, responsible for the design and implementation of the MBA program. Today, he holds the title of Associate Dean, responsible for the development of international programs within the Waikato Management School. He is co-author of Peak Performance, Lessons for Business from the World’s Leading Sports Organizations by C. Gilson, M. Pratt, K. Roberts and E. Weymes, published by Harper Collins, 2000.

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Keywords Management theory, Creative thinking, Organizational design

Introduction Modern management theories are focused on how individuals contribute to organization performance while the performance of the chief executive remains vested in the organization’s financial returns and share price. Organizations have accepted the principles associated with total quality management, learning organizations, high performance organizations and have implemented balanced scorecards, while the chief executive’s primary focus is fixated on retaining control of the organization to meet shareholder expectations. As we enter the new millennium, the corporate world has been rocked by the scandals involving Enron, Worldcom and Adelphia in the USA, and in Europe, Parmalat and Mannesmann. These, and a host of other organizations, have been publicly criticized for fraudulent accounting practices or excessive personal gain for the chief executive and senior members of the administration, while creating a financial catastrophe for employees and shareholders. The public no longer trusts the corporate world. In Europe, the concept of corporate social responsibility (CSR) is the subject of many boardroom discussions, and in the USA, the Dow Jones publishes a CSR index on the premise that many investors believe firms who practice social responsibility provide better long term financial returns. The intent of CSR is to add value to society, to leave the world in a better position for our

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DOI 10.1108/14720700510562721

grandchildren by building environmental and social responsibilities into the traditional economic equation. Proponents of CSR claim that this approach will restore public trust and respectability in the corporation, while the ‘‘non-believers’’ state that the concepts of CSR only reflect appropriate standards of corporate governance and there is no need for CSR as a separate movement. Some 20 years ago similar sentiments were expressed about ‘‘quality’’, but the quality movement ensured that the concept is now a necessary, but not sufficient, condition for effective competition. In 2003, 75 percent of chief executive officers[1] reported that they would forgo short term profits in order to implement a sustainability program. Yet the highlight of the business news remains stock market performance and share price. Despite the move towards a greater focus on people in the organization and concern for the environment, organizations remain numbers driven and subject to the vagaries of the financial markets. Chief executives measure their success by their impact on EPS and not their contribution to the social or environmental issues. But today’s CEO also recognizes that the core competence of the organization lies in the knowledge and skills of its people. Gone are the days when product design, production process or customer service could create competitive advantage. It is the skills and abilities of the individual staff members that dictate the future of the organization. Thus, the organization must ensure staff are challenged and suitably rewarded, and today we see organizations offering attractive remuneration packages including child care and a host of other benefits. But are such packages attractive if they are designed to buy the soul of the employee and not build trust between the individuals within the organization? Today, the chief executive is challenged with the task of building trust and integrity in the organization. When trust pervades the organization there is commitment from the staff and support from the external community. Trust is based on shared values and value systems lie at the heart of human behavior, behavior that cannot be controlled through systems and processes, the traditional operating standard for many organizations.

Traditionally, the dilemma of the CEO has been described as ‘‘balancing shareholder demands with achieving longevity or sustainability’’. Perhaps the dilemma should be rewritten; ‘‘providing an environment that espouses individual freedom while ensuring the financial and non-financial targets of the organization are met’’. Individual freedom provides the basis for creativity, innovation and building trust between individuals within and outside the organization. Critics would argue that in an environment where individual freedom abounds, anarchy prevails. Organizations need control, but controls, when imposed from above, can dictate behavior and constrain creativity. Performance criteria will remain key factors in the life of the organization and the longevity of the CEO. However, the organization and its senior executives need to shift their focus from one that is numbers based to one vested in the establishment of an environment designed to build trust and to maintain the appropriate performance measures which are acceptable to its staff. Thus the dilemma becomes not control or individual freedom but control and individual freedom, the yang (bright) and the yin (dark). This paper explores how such a balance may be attained in an organization (see Figure 1).

Traditional management theory Traditional management theory emerged at the turn of the 20th century when F.W. Taylor[2] published the Scientific Approach to Management, grounded in the theory of bureaucracy (Max Weber[3] ) and based on the philosophical writings of Carl Marx[4]. Marx’s work was written at the start of the industrial revolution that ushered in the reign of capitalism. A time when the nature of work was changing from the small units of production associated with an agrarian society, to one where large institutions and organizations heralded the advent of mass production. Labor was being organized into complex systems requiring rigid controls to manage behavior.

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Figure 1

Production was centered in the urban areas, and the population shifted from the countryside to the urban metropolis. At the end of the 19th century, society was highly structured with capital and land ownership concentrated in the upper classes. A middle class was yet to emerge while a large, primarily agrarian, working class provided the resource to fuel the new organizations. Movement between social classes was rare due to low incomes, and people knew and accepted their place in society. While the industrial revolution created new opportunities for the working classes to increase their income and standard of living, there was a price to be paid. Marx believed that ‘‘individuals are self created social beings and what they become depends solely on the conditions of production’’. He argued that isolation and the ever increasing rationalization of economic and social life in the capitalist order made contemporary man more and more self estranged[5]: Marx argued that the capitalist workplace created an environment which destroyed the social fabric of society by creating an individual focused solely on his own needs. Weber suggested that capitalism provided each individual with the opportunity to express their personal freedom in pursuit of materialist gains. The organizations and institutions that Weber observed were large, complex and whose efficiency could only be ensured by controlling human behavior. Capitalism had created a social species of life where ‘‘man controlled man’’ and man exchanged labor (prescribed behavior)

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for rewards. In the words of Marx, ‘‘Money is the universal, self constituted value of all things. Hence it has robbed the whole world, the human world as well as nature of its proper value. Money is the alienated essence of man’s labor and life, and this alien essence dominates him as he worships it.’’[6] The characteristics of these large organizations were; a hierarchy of authority, impersonal rules that define duties, standardized procedures, and promotion based on achievement, where labor was specialized and the sum total of these characteristics created the efficient organization[7]. Weber argued, ‘‘From a purely technical point of view, a bureaucracy is capable of attaining the highest degree of efficiency, and is in this sense formally the most rational known means of exercising authority over human beings. It is superior to any other form in precision, in stability, in the stringency of its discipline, and in its reliability. It thus makes possible a particularly high degree of calculability of results for the heads of the organization and for those acting in relation to it. It is finally superior both in intensive efficiency and in the scope of its operations, and is formally capable of application to all kinds of administrative tasks.’’[8] The German philosophers, from Hegel to Marx, had moved philosophy away from the Platonic and Aristotelian view that man is a social animal seeking happiness through relationships, to the perception that man is an individualist, intent on seeking his freedom by controlling those around him. Materialism had replaced a social perspective based on the norms and values of society. In his seminal work, Adam Smith[9], attempted to demonstrate that free exchange and accumulation of private property, under the guidance of self interest, not only preserves justice but also promotes the social wellbeing as a whole, satisfying existing needs and guaranteeing stability. Bureaucracy, the most rationally known means of exercising control over human beings provided the foundation for management theory. The theory of Marx has proven to be unsustainable. Marx’s dream was based on the premise that capitalism could not be sustained, and society would be transformed to the communist state where human beings would live in harmonious relationships, on equal terms, with no exploitation, with each person giving and taking only that which is required. History has revealed this to be an academically sound but practically useless theory, and there is general recognition that capitalism will prevail, although discussion continues as to the nature of the model.

But the theory of bureaucracy is based on the writings of Marx and formed the basis for F.W. Taylor’s Scientific Theory of Management and other classical theorists of the era including Gilbreth, Fayol and Follett. Traditional management theory is vested in the command and control philosophy which is being challenged by an organizational theory which recognizes the importance of people in the organization. For over 20 years organizations have espoused the principles of TQM, they have been re-engineered and purported to be high performers. Organizational theory appears to be spurning the scientific approach to management. ‘‘Autocracy, hierarchy, bureaucracy and management is gradually being replaced by democracy, flat, collaborative structures with self managing teams. Permanent, stockpiled, one-size-fits-all policies are giving way to innovative, just-in-time, evolving, made to order initiatives. Silos and competitive departments are being deconstructed into living evolving webs of association. Isolated, cynical, immature, apathetic employees are being transformed into connected, motivated, value driven, responsible employee owners.’’[10]

Modern management – challenging bureaucracy In 1961, Douglas McGregor[11] challenged the scientific approach to management in his book The Human Side of Enterprise. Conventional wisdom, the theory of bureaucracy, postulates that workers needed to be driven by extrinsic rewards, by punishment and rigid controls. McGregor proposed that workers could be intrinsically motivated by interesting work and entrusted to manage and direct their own behavior. This approach was seen as the ‘‘soft’’ side of management with ‘‘real’’ firms seeking financial returns and efficiencies through specified systems and procedures. Since this was a period of significant economic expansion in the

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west these ‘‘new’’ and humane approaches to organization design were dismissed. It was not until the early 1980s, when the western economies were facing severe competition from Asia, did the management literature refocus on the ‘‘soft’’ skills. In 1980, Peters and Waterman’s In Search of Excellence[12] rocketed to the top of the best selling lists worldwide. The corporate world appeared to be seeking a different approach to management. When the work of Edward Deming in Japan was broadcast on US television in 1979 total quality management suddenly became the savior of western organizations. Quality circles were implemented, self managing teams replaced supervisors and organization barriers were removed. The TQM approach was summarized in Deming’s 14 points[13], and attempted to move management philosophy away from the mechanistic approach to one that was more people focused. Organizations were encouraged to; create a sense of purpose, to drive out fear, remove inter-department barriers and educate with the intent of instilling trust throughout the organization. In 1985, the Baldridge Quality Awards[14] were introduced, initially as a move to increase productivity and focus organizations on customer service and quality, the two major areas where western industry was failing to compete with their Asian counterparts. The awards, initially established in the USA, were quickly adopted in most western countries encouraging a focus on participative management and involvement of all staff. In 1990, Peter Senge published The Learning Organisation[15], a book which suggested a fundamental shift in the way organizations were perceived. The scientific approach to management treated the organization as a closed system, one that does not interact with its environment. Senge’s work challenged this assertion, demonstrating that organizations interact with their environment and thus should be treated as open systems. In 1995, the concept of the high performance organization (HPO) was muted but the HPO was never defined. In some ways performance was perceived to be similar to quality, ‘‘you know it when you see it but you cannot define it’’. Edward Lawler[16] listed six characteristics of the HPO, again focusing on individual involvement, effective leadership, and moving away from systems and processes as the basis for control: 1. Organization can be the ultimate competitive advantage. 2. Involvement can be the most effective source of control. 3. All employees must add significant value. 4. Lateral processes are the key to organizational efficiencies. 5. Organizations should be designed around products and customers (not functions). 6. Efficient leadership is the key to organizational leadership. (Lawler: ‘‘A new approach to organising’’) Modern management theory, from Theory X&Y to total quality management, the Baldridge Quality Awards, learning organizations and high performance organizations have all foreshadowed the demise of bureaucracy, the dismantling of interdepartmental boundaries, leadership throughout the organization, a cooperative and harmonious working environment based on a management style vested in shared values and mutual trust. The implication of these approaches is that employees are not to be controlled by rigid performance criteria but their skills and knowledge should be harnessed to allow an organization to achieve its goals. From a behavioral perspective, organizations are being encouraged to transform their perception of staff as untrustworthy to one where management and staff work in a harmonious relationship, fulfilling their mutual goals and objectives in a symbiotic relationship. Clearly, such a statement is reminiscent of the Marxist perspective of communism, and the freedom of the ‘‘new’’ theories must be tempered with the rules and regulations to ensure stakeholder expectations are met. Traditional economic theory defined the purpose of the firm as the maximization of shareholder wealth. In today’s competitive environment the highlight of the business news remains whether the Dow, Nasdac, Ftse, Dax, Nikkie or Hang Seng are up or down and which annual reports

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have influenced share price. Share price drives performance and thus the mood of investors and the future of the CEO. Financial performance remains the driver of the organization yet financial performance should be the output of a well managed organization. Since ROI is based on sales and asset management there is always the temptation to control ROI from the asset management perspective, and all methods of creative accounting and auditing, particularly those systems developed by A. Anderson, have been used to ensure that the financials reflect a positive view of the company, irrespective of the true situation. When an organization is focused on the numbers, rules, regulations, systems and processes tend to be developed to ensure conformance of all staff to attain or exceed the targets specified. But quantitative targets tend to dictate behavior and stifle the opportunity for individual expression of creativity. When the organization is focused on shareholder return, there is little motivation for employee commitment and the potential for the employee to be resentful when their views and opinions are ignored. Rules and regulations control behavior, stifle creativity, and build an environment based on mistrust, self ambition, deceit and complaints. But the organization that creates an environment which allows its staff to express their own freedom may generate new and innovative approaches, foster harmonious working relationships and build trust and integrity. However, many CEOs question whether, under such conditions, the financials can be achieved. When Kaplan and Norton introduced the balanced scorecard in 1991, they stated that if an organization paid attention to customer service, production efficiencies and organization learning, the desired financial results will be achieved. Too many organizations use customer service, production efficiencies and human resources (learning) to control the financial results.

The organization dilemma The organizational dilemma can be simply stated: ‘‘to create an environment where trust, creativity and innovation flourish yet meeting the performance criteria specified by the stakeholders’’. The challenge is to find a philosophy that unites the two extremities of the dilemma. Marx favored the replacement of the capitalist society by a regime vested in humaneness, while the process of bureaucracy favored rigid rules and regulations. The philosopher Charles Taylor[17] has suggested that modern society can no longer be run according to a single principle; rules or individual freedom, yet all western philosophers associate human behavior with a single driving principle. Little has been published in the west on eastern philosophy, yet the east, and particularly China is poised to become a world power. At one time most of east Asia was influenced by Confucianism. Although its popularity has diminished in recent years, it still has an important role to play in Asian politics, religion, ethics and culture[18]. Confucianism can be traced back 2,500 years to a small state called Lu in eastern China. At this time the 124 Chinese states were ruled by the Zhou kings with the leader being the head of the army. During the early life of Confucius the power of the Zhou kings weakened and the states were constantly fighting. Master Kung (Confucius) was determined to bring an end to the troubled times and devoted his life to creating a philosophy where all could live in peace, ‘‘a goal whose realization of which he knows to be hopeless’’[19]. The key elements of the Confucian doctrine can be presented as: J The way of Heaven: j defining the transcendental, the metaphysical, the natural, the ethical, the political and the religious. J The way of humans: j deals with the human correspondence with, and implementation of, the way of Heaven as manifest in human nature, moral virtues, social integration, political order and personal destiny. J The way of harmony: j being concerned with how harmony can be achieved between humans and Heaven.

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The unity between humans and Heaven indicates ‘‘a harmonious state of the world in which humans live and behave, which provides humanity with enjoyment, peace and order. It also indicates a continuous relationship between the spiritual and the human, the mind and the body, form and matter, and the traditional and the present, which gives individuals the sense of continuity, eternity and security. It indicates once more the mutual transformation of the eternal and the temporal, the infinite and the finite, and the sacred and the secular which can be observed in the proper performance of ritual, and must be carried out in human engagement in conscientious and industrious activity.’’[20] Confucius interpreted the rituals (Li), not in the religious sense, but as activities performed by individuals and reflecting patterns of behavior developed through generations of human wisdom. The rituals reflect the rules and norms of society which dictated acceptable behavior. Thus, Confucius recognized society required rules and regulations to ensure it could function efficiently, but he warned of rules that were externally imposed. ‘‘Lead the people with government measurers and regulate them by law and punishment, and they will avoid wrong doing but will have no sense of honor and shame. Lead them with virtue and regulate them by rules of propriety and they will have a sense of shame, and more over set themselves right[21].’’ The rituals (Li) formalize the behaviors associated with society and Confucian philosophy describes this behavior as humaneness, benevolence, perfect virtue or humanity – Ren. Humaneness is central to the teaching of Confucius while later scholars placed equal emphasis on Li and Ren. Confucius perceives humans as social animals, rejecting isolation and having the ability to distinguish ‘‘good from bad’’, ‘‘right from wrong’’. He believed human nature is focused on achieving happiness and on doing good, and since man is a social creature he will achieve happiness through relationships, ‘‘The humane man, desiring to establish himself, seeks to establish others; desiring himself to succeed, helps others to succeed. To judge others by what one knows of oneself is a method of achieving humanity.’’[22] Confucianism is a philosophy of two parts, the Ren which describes the relationship between individuals and the Li or norms of society. Here we have a philosophy that addresses the freedom of the individual (Ren) with the controls necessary to allow society to function in an efficient manner (Li). There are many similarities between western philosophers and Confucianism. The rituals, or Li, being derived from the sound policies administered by the Zhou religion which can be linked to the concepts of bureaucracy, while the Ren is vested in human nature and has distinct parallels with the writings of Aristotle and Kant. However, the predominant view in western philosophy is vested in the individual and how the individual shapes society. In the east the converse is true, society shapes the individual. Also, western philosophers have taken either a humane or materialist perspective of human nature while Confucianism allows for both perspectives. Applying this philosophy to organization design implies the nature of the organization is shaped by the people in the organization. Thus, the starting point for designing, developing and transforming an organization lies in the understanding of the people in the organization, and the relationships between these individuals and stakeholders external to the organization. While developing the vision and goals, creating a customer focus and developing systems and process are not to be ignored, the starting point lies in the nature of the relationships between people.

Understanding Ren Wealth and honor are what every man desires. But if they have been obtained in violation of moral principles, they must not be kept. Poverty and humble position are what every man dislikes. But if they can be avoided only in violation of moral principles, they must not be avoided. If a superior man departs from humanity (Ren) how can he fulfil that name? A superior man never abandons humanity, even for the lapse of a single meal. In moments of haste, he acts according to it. In times of difficulty or confusion, he acts according to it[23].

The foundation for Confucian philosophy is humaneness, benevolence, perfect virtue or humanity. The Chinese character for Ren is ‘‘man’’ plus ‘‘two’’ and depicts how humans

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should interact with each other. Ren is perceived to be the supreme or perfect virtue from which all other virtues are derived, and it is perhaps for this reason that Confucius left us with no clear definition of Ren, but the following are considered representative definitions[24]: J To love men – the equivalent of benevolence. J Only the man of humanity knows how to love people and to hate people – to hate evil. J To be respectful in private life, be serious in handling affairs and to be loyal in dealing with others. J To master oneself and return to propriety is humanity. To overcome the selfish desires within ourselves, to cultivate the mind and heart within ourselves so it can be extended to every aspect of our life, allowing good will to flow to others. Thus Ren can be summarized as adopting a benevolent attitude towards others (with its implications for leadership and the ability to guide and mentor others), recognizing the intrinsic value of each individual life (and recognizing that others in the organization can make a contribution to the development of the organization), and adopting a resolute commitment to an ideal purpose (an individual or organizational goal or dream). For Confucius the true path to wisdom cannot be found by living in isolation. Man is a social creature who recognizes the difference between right and wrong and strives to do good by developing a benevolent attitude towards others. Happiness is sought through relationships where Confucius encourages his followers to be respectful in their private lives, loyal in dealing with others, to have reverence for their own life and concern for the lives of others. This philosophical perspective is not unique. Aristotle also believed that every human acts with a view to doing some good: ‘‘every act and every inquiry, and similarly every action and human pursuit, is thought to aim at some good; and for this reason the good has rightly been declared to be that which all things aim’’.[25] Similarly, Aristotle states that we cannot achieve happiness alone but only by developing relationships with others, a point later reinforced by Kant, ‘‘a rational being is constrained by reason not to bend others to his own purposes, not to enslave, abuse or exploit them but always to recognize that they contain within themselves the justification of their own existence, and a right to their autonomy’’[26].

While the philosophical writers from Hegel to Marx spurned the humanist approach to philosophy in favor of one vested in individualism and materiality, Charles Taylor links the concept associated with the growth of individualism back to the humanist philosophies through the theory of authenticity; ‘‘an idea of freedom, it involves my finding the design of my life myself, against the demands of external conformity’’[27]; ‘‘thus authenticity involves creation and construction as well as discovery; originality and, frequently, opposition to the rules of society and even potentially to what we recognize as morality’’[28]. Authenticity implies a form of individualism that recognizes that everyone has a right to develop their own form of life, grounded in their own sense of value, but Taylor questions whether the individual can attain this ‘‘moral ideal’’ in isolation; ‘‘the ideal of authenticity incorporates some of the notions of society, or at least of how people ought to live together. Authenticity is a facet of modern individualism, and it is a feature of all forms of individualism that they don’t just emphasize the freedom of the individual but also propose models of society’’[29]. An organization or institution can be defined as a group of individuals acting together towards a common purpose. Thus, the performance of the organization will depend on the nature of the relationships formed by the individuals within the organization as well as the relationships these individuals, and the organization, form with the external stakeholders. Assuming that the individuals in the organization are rational then the philosophical argument submitted above implies that each individual is seeking to attain the good life and attain happiness (and wisdom). In a bureaucratic organization, rules and regulations are designed to control behavior while the reward structures are designed to ‘‘buy out’’ the individual’s desires for the perfect life.

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(Individual dreams can be pursued outside of the organization.) While such an approach may have been acceptable during the first part of the 20th century, human behavior, at the turn of the 21st century, is less likely to embrace such constraints. Thus, the challenge facing the organization is to create an environment where individuals can fulfil their own dreams as well as those of the organization, while respecting the social norms of society.

Applying this philosophy to the organization Understanding the people in the organization (Ren and the individual) In any given situation humans judge and are judged by their behavior, a reflection of individual personality. Individual values, beliefs and attitudes (emotions) become the lens through which others are judged and the behavior between two or more individuals determines the nature of the relationship between those individuals. Sustainable relationships are formed when a high level of trust evolves between the two individuals. This trust is based on shared attitudes, beliefs and values. Thus, sustainable relationships are based on high levels of emotional commitment or emotional intelligence. Transient relationships exist when two individuals have little in common but are brought into a relationship by external sources. Unfortunately, the workplace can often be the site for such relationships with individuals having little commitment to their employer, and thus little loyalty. Emotional intelligence, a concept introduced by Dan Golman[30], can be considered to be a measure of an individual’s personality, a reflection of how an individual’s moods influence others. The components of emotional intelligence are; self awareness, the individual’s understanding of how attitudes, beliefs and values are reflected in behavior; self management, the individual’s ability to control reactions in particular situations; social awareness, the individual’s ability to judge the mood and emotional state of others; and social skills, an individual’s ability to form relationships. The process of self-reflection (gaining self-awareness) provides an understanding of how and why an individual reacts to particular situations. People with a high level of self-awareness recognize the danger signs associated with disruptive emotions and are more likely to keep these emotions in check. These are the people who, in a moment of crisis, give a measured and reasoned response to the situation, not an impulsive reaction. They are the people who are trusted, people of integrity. They do not criticize but ask questions, gather the facts and seek advice before making a measured response. They are reflective thinkers. They are the people who are admired and are easy to interact with. They may be parents, lovers, mentors or ordinary individuals who we turn to in time of need. In peak performance theory[31], such people are described as inspirational players: Inspirational players are those individuals who know how to listen, are passionately interested in reality, and curious in everything there is to be discovered. Such individuals remain alert and attentive without being overwhelmed by information, because they have judgment. They know how to distinguish between true and false, what is essential and what is secondary. They know how to identify good institutions. They are steady and open, capable of enthusiasm. They know how to join in the heat of the chase, but also how to stop, be silent, look and contemplate. They seek to unify their knowledge, to establish a unity within themselves. That is why they take time alone to meditate and internalize what they know, to weigh things up. They are less interested in the sum total of their knowledge than in having an accurate vision of the world, less interested in what people think of them than in the truth itself. (Vanier, J. (2001), Made for Happiness, Anansi, Canada, p. 79)

Inspirational players are not leaders in the traditional sense of the word. Traditionally leaders are seen at the head of the organization, but the more recent literature is now describing the concept of leadership throughout the organization[32]. Inspirational players are those people in the organization who can inspire others around them to exceed their personal best. They are tenacious, committed, driven by a passion and personal responsibility, not rules and regulations. They are open to new ideas, always pushing the envelope, yet watching and observing. They

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are people catalysts, coaching and guiding, benevolent yet demanding and revered for their knowledge. They are problem solvers and constant communicators, fun loving and friendly. In short the inspirational player is a scamp, distinguished by the following four characteristics[33]: 1. a playful curiosity and a natural genius for exploring knowledge; 2. has dreams and a lofty idealism (often vague, or confused, or cocky); 3. is able to correct his dreams by a sense of humor, and thus restrain his idealism by a more robust and healthy realism; and 4. does not react to his surroundings mechanically and uniformly. Through the process of self discovery an individual is able to discover what it is they are seeking in life, their ambition, their purpose, their inspirational dream. Charles Taylor would refer to this as the freedom the individual seeks, while Aristotle would call this dream the individual’s active goal and Confucius the individual’s path to righteousness. A personal and selfish dream will inspire its owner, but will do little to inspire others, and its fulfillment will often require devious tactics to be employed to gain assistance. The previous argument has suggested that individuals cannot achieve their dreams in isolation, and the use of subterfuge to fulfill such selfish ambitions often require an individual to sacrifice their own ideals and authenticity, a practice not to be encouraged; ‘‘when man treats another as a means, so does he become a means to himself. In exploiting the other so he exploits himself, losing his freedom in a form of subservience all the greater for his inability to recognize it as such.’’[34] An inspirational dream is a personal mantra, which defines an individual’s purpose in life yet provides meaning and inspiration for others. It captures that which the individual sees as important and reflects their values and beliefs. It forms the basis for passion. The more the dream is focused away from personal (individual) gain the easier it becomes for others to associate with the dream. Dr Martin Luther King had a personal dream that was to change the social profile of the USA and Mahat Ghandi had a personal vision that changed the face of India. Neither of these individuals started life seeking fame, but they did have a dream based on human rights in their county. Their dream was so powerful that their respective nations adopted the dream. Individual dreams do not have to be so grand but the broader the dream the greater the opportunity for the dream to be realized. The inspirational dream forms the foundation for lifelong sustainable relationships: It is the potential purpose hidden in the chaos of the moment, but which could bring to birth new possibilities for a person, a company or a nation. The inspirational dream is seeing what life could be like while dealing with life as it is. The dream deals with those deeper human intangibles that alone give ultimate purpose to life. In the end the dream must always deal with life’s qualities, not with its quantities. (Oliver, R. (2001), Inspirational Leadership The Industrial Society, p. 25)

Such relationships are based on high levels of trust between individuals where trust is vested in shared values, common beliefs and attitudes; the same characteristics that determine the inspirational dream. An individual’s dream web represents the different groups or relationships that an individual wishes to be associated with. In some of the relationships the individual will be assisting in the attainment of related dreams while contributing to their own dream, and at other times the group will be contributing to the attainment of the individual’s dream. Commitment to these groups will be high. An individual’s commitment to other relationships may be low because there is little in common between the attitudes, values and beliefs of the individual and the group. Such relationships are likely to be transitory. Thus, for an organization to ensure there is a high degree of commitment between its staff, it is necessary to ensure a match exists between the purpose of the organization (the organization’s dream) and the dream of the individual. This is what is meant when the literature states that an organization should be structured on shared values and high levels of trust.

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From individuals to organizations (Ren in the organization) Individual inspirational dreams become the inspirational dreams of organizations. Some 111 years ago, two brothers, Anton and Gehard Phillips believed that by improving the lives of people they would be successful in business, Walt Disney’s dream was to make people happy, Sam Walmart dreamt of creating the largest and most efficient retailing system, George Merk wanted to improve the quality of human life, and Paul Iams to enhance the well-being of cats and dogs. In Built to Last [35] the authors identified the differences between visionary companies and mediocre ones. Hewlett Packard was founded to make a unique contribution to society while Texas Instruments appeared to exist to make money; Johnson and Johnson had the objective to alleviate pain and create an environment based on credo of corporate responsibility while Bristol Myers showed no evidence of living by such a credo. And the list continues, Motorola versus Zenith, Marriott versus Johnson, Phillip Morris versus R.J. Reynolds, and is extended in the sequel publication From Good to Great. The power of the inspirational dream lies in the message it conveys, first to those in the organization and then to the external stakeholders; ‘‘this organization makes a difference’’. Organizations that are fixated on financial growth or return on investment are more focused on winning. Winning is important but by making a difference an organization will win. Every employee in the organization can identify with making a difference while financial growth only benefits the shareholders and does little to excite or motive staff. Organizations that make a difference have a passionate and committed staff, and are more likely to be values driven with high levels of trust throughout the organization. The inspirational dream reflects the purpose of the organization and creates a sense of belonging. It reflects the spirit of the organization. ‘‘Spirit’’ is the emotional term used to capture the essence of the organization, to reflect the way the organization approaches challenges, and to reflect the beliefs and attitudes that inspire the staff in the organization. Spirit not only captures the character of the organization but the emotional characteristics of the individuals within the organization. Sprit provides the organization with personality moving the organization from a mechanistic and impersonal object to a living being capable of growing and transforming. Spirit reflects the organizational Ren, its humaneness. An organization without spirit has no passion.

Passion, a highly emotive term used to express firmly held beliefs and desires. When present in an individual passion can be contagious as that individual looks to share their beliefs. Shaftsbury[36] refers to virtuous passion, where virtue (or propriety to use the Confucian term) tempers the application of passion to those activities that are right and lead to the attainment of happiness. When individuals believe in, and are committed to, the purpose of the organization, and recognize that their contribution to the organization makes a difference, they will be passionate about their role and will endeavor to convert others to their belief. Passion is exciting; it provides inspiration and creates a sense of adventure. It is contagious and allows the dream to be shared. Sharing the dream occurs when others are inspired by the message of the dream and others become inspired when they believe the message will assist in the attainment of their happiness. When the source of the dream is seen as reliable and trustworthy the message is perceived to be authentic and the values, attitudes and beliefs of the dream will be accepted, committing the individual to the attainment of the dream. This commitment can be observed in the pride the individual demonstrates towards the organization. An organization must first share its dream internally, to gain the commitment of the staff to the organization’s purpose. The dream must also be shared externally, with customers, suppliers, distributors, shareholders and members of the community. Externally, the dream is captured in the brand or love-mark[37] of the organization. The term love-mark has been introduced to signify a deep relationship between customer and the organization, a relationship based on

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trust and commitment. And, while an organization requires customer loyalty, it also needs to manage its relationships with other stakeholder groups. Hence, the rise in the importance of CSR; a movement designed to demonstrate that an organization is a responsible social citizen concerned for the community and society; an organization that can be trusted and respected. Through sharing the dream an organization creates a pride of association with individuals inside and outside the organization. Externally, customers are proud of being associated with the brand, communities are proud to have the organization located in their ‘‘backyard’’ and suppliers are proud to be associated with the firm. Internally, employees are proud of their achievements and the achievements of the organization. When asked, ‘‘who they work for’’, staff may reply by stating they work with or are part of the XYZ Company. They do not just work for the company they are part of the company. MAS Holdings is Sri Lanka’s only truly multinational textile company with sales in excess of $US500 million. The company was founded 15 years ago and its first order was completed with 14 sewing machines and operators. Today, there are over 15,000 employees and nine divisions in three countries. Staff work in air conditioned facilities, seated at ergonomically designed chairs with machines that are noise suppressed. They are paid above the minimum wage, provided with free transportation to and from work together with free meals and recreational facilities. The company has been responsible for providing housing for dislocated families, libraries and computer equipment for rural schools, and scholarships for the village children. The economy of the villages, where the factories are located, has increased dramatically. MAS are building the Sri Lanka economy. There is a tenacious pride demonstrated by the workforce, pride in being employed by this company, pride in their workmanship, pride in their commitment to the community and pride in what they are doing for their economy. MAS is a humane organization that has been successful because of its people and its focus on people: We focused on doing what was right and providing for the staff the type of environment that I would like to work in. There was no well thought out comprehensive strategy but a common sense approach. We did what was right in terms of certain basic values; treating people fairly, respecting them, giving them the right environment to work, valuing their contribution, developing them. We continued to do those things because we felt they were the right things to do[38].

When passion and pride permeate an organization a ‘‘family like’’ environment emerges where staff work in a harmonious manner. The term family has been used and not community because individuals in these organizations have disagreements, squabbles and the usual family rows. But the family faces the external community as a single entity. Differences are sorted and grudges are replaced by high levels of trust and respect between the individuals. ‘‘A family is more than a team. It’s that word team, but I believe the real word is actually respect. This is something you cannot create by trying to bond over a few weekends of raft building. I just don’t believe you can go out on a weekend and bond in a meaningful way. Bonding happens when the organization builds respect over time.’’[39]. A family environment cannot be engineered in an organization since it is the result of the interactions between the individuals in the organization. If individuals do not trust and respect each other, passion may be present in the senior management team but not throughout the organization, and pride may permeate the organization but the organization will not be a family, and a harmonious working environment is unlikely to exist. Family environments exist in small organizations but as the size of the family grows there is a tendency for fractions to emerge. MAS Holdings staff reported that six to eight years ago they were a family, when the workforce was under 1,000. Today, the organization is still bursting with pride but family and harmony are harder to find. A family is a special kind of friendship and Aristotle argues that the basis of friendship is goodwill – a simple attachment to, or respect for, another based on a particular attribute. In the workplace goodwill may be based on a respect for the individual to complete their task. But goodwill does not create a friendship; for true friendship, goodwill must be reciprocated; that is, friendship based on mutual respect and this is the relationship organizations should strive for. Aristotle refers to three types of friendship; friendship centered on the good of the other, friendship centered on what is pleasant and friendship based on usefulness[40]. This latter

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form of friendship is relegated to the world of commerce and ‘‘the friendship of utility is full of complaints; for as they use each other for their own interests they always want to get the better of the bargain. And think they have got less than they should and blame their partners because they do not get all they want and deserve.’’[41] Human nature appears to strive for the path of righteousness but individuals are constantly tempted by the potential for self gain. These destructive emotions need to be identified during the self awareness exercise so that each individual can cope with temptation. The larger the organization the greater the potential for fractions to exist, as it becomes physically harder to know everyone in the organization, and groups may seek to out perform each other because now their friendship or association has moved from friendship based on what is pleasant to that based on usefulness. Passion, pride and harmony provide the environment where an organization is likely to attain the state of flow. ‘‘You can illustrate this by looking at the night of a game. For example, you have media services worrying about players, locker-room interviews, brochures. You also have marketing worried about handouts, the music, promotions. . . . Everybody is out of formation, in their own formation. But we’re really in-formation. They may not be visible formations but we’re still following the same goal. We’ve all got our little different formations doing spins and loops, getting the job done. It’s like a school of fish at times. We are in formation but at times it seems as if there is no formation – which is the beauty of it.’’[42] In sport athletes strive to achieve the flow-state; a state of superior functioning that creates optimal sports performances resulting in personal bests and outstanding achievements. Sports research suggests that individual athletes will attain the flow state at certain times in their career and these moments are described as the athlete being in flow. Ken Hodge, a sports psychologist, defines flow as, ‘‘an emotionally enjoyable feeling that occurs when there is a perceived balance between your competencies and the demands of the task’’[43]. The challenge is to move the concept of flow from the individual athlete to the team based work environment. Dr Csiksezentmilhalyi[44] has undertaken research into the concept of flow in individuals and organizations, and has identified the following characteristics necessary for flow clear goals, where objectives are distinctly defined and feedback on performance is immediate, where individuals have the opportunity and ability to act, where action and awareness merge, total concentration at the task at hand. Worries and concerns are suspended and the individual appears to lose consciousness, time passes faster and activity is meaningful. The environment which Csiksezentmilhalyi is describing is one built on trust and integrity, not rules and regulations. This section has described the human side of the organization; the Ren. Ren is providing an organization with personality, building on the personality of the individuals in the organization and providing each member of the organization with the opportunity ‘‘to make a difference’’. When a person feels they can make a difference they become passionate about what can be achieved and take pride in their workmanship. Passion is infectious and others are enrolled into the dream creating a working environment ruled by self discipline and few regulations. Such a description is coming close to the Marxist philosophy of communism. As the organization grows, stories will emerge and the organization will create its own folk law based on particular behavior patterns. Rituals will emerge as will acceptable behaviors. A code of conduct can be developed that creates the boundaries for acceptable behavior and ensures that the organization achieves its financial targets. The humane side of the organization needs to be formalized so that any complex organization can function in an efficient manner. Creating the future through: organization rituals (behaviors), systems and processes – organization Li The inspirational dream provides meaning and the purpose for the people in the organization and defines the personality of the organization. But, to create the future, an organization also requires a direction, a challenge to inspire the staff and access to the necessary resources to achieve the challenge. Feedback is required to provide the organization with information on progress made. While individuals may not want to be told what to do, they do need to know how they are doing. An organization is a complex entity requiring systems and process to ensure it operates in an efficient manner. Strategy, followed by structure, resource allocation (both tangible and intangible), customer focus, systems and processes, financial and nonfinancial measurers form the traditional approach to management. Included in the systems

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and processes mix are the processes attributed to human resource management and often specified as key performance indicators (KPIs). When these KPIs provide feedback to the individual to assist them in performing more effectively, they are useful, but too often these measures are designed to control performance and provide the basis for rewards and punishment. The approach being proposed in this article does not denigrate any of the traditional approaches currently used by organizations, but encourages organizations to ensure that the formal systems and processes are designed to provide the staff with useful feedback, and not be used as a basis for reward and punishment. Thus, staff should be involved in the design of the systems and process to provide them with the information they require to fulfill their role in the organization. While the inspirational dream defines the destiny of the organization and captures its values and essence, the dream does not specify a direction for the organization, nor does it establish targets. The dream is not a challenge yet humans rise to a challenge. Intellectual curiosity has formed the basis of human nature since time immemorial, from the days when the first caveman tied a rock to a branch to create an axe to the landing of unmanned spacecraft on Mars. The task of the organization is to provide an environment to allow this curiosity to develop and grow. The first step is to present the organization with a challenge that will stretch but not frighten the people. Such a challenge is defined in the greatest imaginable challenge, derived from the inspirational dream and specifying the next challenge to be attained as the organization journeys towards its dream. The challenge is measurable and provides stretch to those working in the organization. Once achieved the challenge must be renewed, to prevent organization stagnation. The challenge provides the basis for focus, the central task to which everybody is committed. In Team New Zealand, the focus is to make the boat go faster and when the boat goes faster races are won. Winning races retains the America’s Cup and the dream of ‘‘profiling New Zealand through sailing’’ is achieved. The greatest imaginable challenge creates the future for the organization by defining the milestones to be attained as the organization strives to attain its destiny. Team New Zealand’s inspirational dream: to profile New Zealand through sailing the greatest imaginable challenge: to win the America’s Cup – 1995. To be the first team outside the USA to successfully defend the America’s Cup – 2000. Focus, to make the boat go faster.

Challenges can only be conquered when an individual is placed in an environment where they are confident, have no fear of failure and have access to the resources to address the challenge. While a mountain climber knows their limitations, they will select a route to the peak that is challenging, one that stretches their capabilities and challenges them so that next time a more difficult route or mountain can be tackled. Their equipment is imperative as is trust in their climbing companions. In each climb they will attempt to try something more difficult or new, to exceed their personal best. This concept of exceeding personal best is familiar to sportsmen and women, but less well known in the world of organizations, since the traditional focus of human resource management has been to control performance with budgets and targets, and ignore the natural human instinct to exceed personal best. The world of sports research has recognized that athletes that are outcomes focused (beating opponents or winning games) do not achieve the flow state, but when athletes focus on personal mastery, seeking small integral improvements to their personal best, peak performance is attained. Should this be any different for organizations setting financial targets or achieving KPIs? If an individual is not inspired by their job, if they are not challenged, or if they feel they lack the opportunity to be innovative there is little pleasure in their work. If there is little pleasure in the work the individual will not be happy, and if they are not happy they will show little enthusiasm for the task at hand, and certainly no motivation to improve on their performance. In these situations the individuals will do the job, collect the reward and return to their life at the end of the day. Unfortunately, the bureaucratic organization encouraged this behavior. But when the individual finds their work interesting, inspiring and trusts those around them, work becomes pleasant. There is a high level of commitment to the task and the individual assumes personal responsibility for the work undertaken. Rules and KPIs become irrelevant. The individual is focused on every detail to ensure their task is performed to perfection.

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Attention to detail is closely associated with exceeding personal best. When an individual is committed to a task they exhibit pride in their workmanship and no task, no matter how small, is overlooked. Problems do not become the focus of discussion, they are addressed and advise from colleagues is sought and given. Data is collected and information is sought to ensure that problems are addressed early and solutions implemented. New ideas are encouraged not only from the recognized experts in the area, but from anyone in the organization. During the interviews for peak performance[45] with Williams Formula 1, the authors were told how the cleaner approached Frank Williams one morning to suggest that the polish used on the nose cone of the car, to improve aerodynamic, was not as good as the polish she used on the factory floor. A wind tunnel test indicated a saving of 1/1,000 seconds over a Formula 1 race, a winning margin. Data, and lots of it, is imperative as Rick Charlesworth[46] explains: Everybody gets carried away with the score. I like to develop different attitudes in the players. One of the most critical things that you have to do is to develop an attitude which is analytical and clinical. We keep a lot of statistics to help us look closely at everything that happens . . . This enables players to look behind the result. They can be honest in a way that is not threatening. It is all about improving. If you improve yourself you will beat the opposition. We actually don’t go out there to win, we go out to play well, and winning is a by-product of that. The focus is on how we play, rather than the outcome.

The balanced scorecard was developed as in integrated management information system to provide such data. Correctly constructed, such a tool can provide all members of the organization with the information they require to assess their performance and to seek improvement. Scorecards are only dangerous when they are used to set targets for individuals to attain and thus modify behavior to ensure the target is met. The natural curiosity, inherent in every human being, fuelled with relevant information and a desire to exceed personal best will ensure an environment where continual improvement and game breaking ideas flourish. Creativity and innovation are considered to be the key competitive advantage for organizations in today’s knowledge society and, thus, it is imperative that all organizations create an environment that encourages new approaches. By nature man is naturally curious, but curiosity is tempered by fear since fear acts as a natural regulator against injury. Confidence conquers fear and confidence is acquired from self knowledge and from the trust of those around us. Thus, innovation will be enhanced through education and working in an environment where an individual receives support from colleges for the implementation of a new idea or concept. The fastest and most effective means for stifling innovation is to mock the innovator or to punish the innovator for stepping outside the boundaries. Charles Taylor defined authenticity as embracing creation, discovery and construction. Taylor recognizes the innovator may challenge the rules of society or even that which is morally acceptable. Provided the changes suggested are grounded in proprietary then society should be willing to evaluate the changes proposed.

We try to create an atmosphere where innovation gains credit, where it is recognised. However, innovation often goes through considerable periods of failure before it is seen as visible success. If you have an environment where failure is not tolerated and is openly criticised, or where people look for failure in others, you can get an environment in which nobody will innovate for fear of failure. You have to run the organization in a manner which is not inward looking, where each department tries to pick faults in others. We have values here so that the first response to failure is not to pick out the individual and crucify him. The focus is on how you’re going to put it right, not to blame someone for why it’s not right. (Patrick Head, Williams F1, in Gilson et al., p. 39)

Changes can be incremental, based on the analysis of data and modifications to existing systems and processes. While such changes may contribute to incremental improvement in performance, in todays technologically complex society radical game breaking innovations are those that provide significant competitive advantage. Creating an environment to foster such radical ideas is difficult because the risk of personal and organizational failure is high. While education is important to the process, providing the supportive network and infrastructure to allow individuals to undertake such risks is critically important. Organizations must place people first, understanding their needs and matching the purpose of the organization to the dreams of

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the employees. Only when this is achieved will the organization be able to claim it is values driven with high levels of trust integrity. The organization must produce a challenge that will excite and stretch the staff. In such an environment staff will be challenged by their role and driven by the need to exceed personal best. Their information requirements will be designed to ensure the organization meets its shareholder expectation without staff having to justify their own performance. Creativity and innovation will flourish. Individual creativity forms the core of knowledge generation, the major competitive driver for today’s organization. Organizations which constrain their staff with rules and regulations create an environment designed to control behavior, and thus restrict individual freedom, the key component of creativity. Traditional management theory is vested in the theory of bureaucracy, an approach designed to control human behavior and inappropriate for organizations of the 21st century. While modern management theories have promoted greater emphasis on people in the organization such approaches have failed to identify an underlying philosophical framework to support the theory. Also, these approaches have tended to ignore the need for rules and regulations to ensure the organization can operate in an efficient manner and meet shareholder expectations. The concepts of Li and Ren provide a framework that allows for individual freedom of expression while maintaining order within the organization. The philosophy of Confucianism, or that of authenticity, provides a framework to substantiate an organization design focused on the individuals within the organization, and not on constructing an organization based on slick systems and processes imposed on individuals from above. Organizations which make a difference are those which create a harmonious working environment, where passion and pride permeate the organization, and where staff find a commonality between their own purpose in life and the purpose of the organization. Organizations focused solely on wealth generation are unlikely to create an environment of shared purpose and thus fail to provide an environment where creativity will flourish. To ensure sustainability, organizations not only require a purpose statement, but a purpose statement which resonates with the individuals who form the organization. Thus, the purpose of the organization needs to be extended from an economic perspective to one which encompasses social and environmental, as well as economic dimensions.

Notes 1 Pricewaterhouse Coopers 6th Annual CEO Survey, 2003. 2 Taylor, F.W. (1911), The Principles of Scientific Management, Noreon, New York, NY. 3 Weber, M. (1921/1968), Max Weber on Law in Economy and Society, Rheinstein, M. (Ed.) (Translated by Shils, E. and Rheinstein, M.), Simon and Schuster, New York, NY. 4 DiPadova, L.N. (1996), ‘‘Towards a Weberian management theory: lessons from Lowell Bennions neglected masterwork’’, Journal of Management History, Vol. 2 No. 1. 5 Ibid, pp. 59-74. 6 Scruton, R.A. (2002), Short History of Modern Philosophy, Routledge Classic, London and New York, p. 228 7 www.faculty.rsu.edu/~felwell/Theorists/Weber 8 Weber, M. (1921/1968), Max Weber on Law in Economy and Society, Rheinstein, M. (Ed.) (Translated by Shils, E. and Rheinstein, M.), Simon and Schuster, New York, NY. 9 Op cit. Scruton, p. 224. 10 Cloke, K. and Goldsmith, J. (2002), The End of Management and the Rise of Organisational Democracy, Jossey Bass, p. 41. 11 McGergor, D. (1960), The Human Side of the Enterprise, McGraw Hill, New York, NY. 12 Peters, T. and Waterman, R. (1982), In Search of Excellence, Harper and Row, New York, NY. 13 Dawson and Taylor (1995), Quality Management, Longman, p. 199. 14 www.quality.nist.gov/

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15 Senge, P.M. (1990), The Fifth Discipline. The Art and Practice of the Learning Organization, Random House, London. 16 Lawler III, E.E. (1996), From the Ground Up, Jossey Bass, p. 22. 17 Taylor, C. (1991), Ethics of Authenticity, Harvard University Press, p. 110. 18 Yao Xinzhong (2000), An introduction to Confucianism, Cambridge University Press, p. 4. 19 Ibid, p. 16. 20 Yao, Op cit, p. 13. 21 Liu, Op cit, p. 20. 22 Ibid, p. 18. 23 Ibid, p. 17. 24 Ibid, p. 17. 25 Vanier, J. (2001), Made for Happiness – Discovering the Meaning of Life with Aristotal ,The House of Ansi, Toronto, p. 3. 26 Scruton, R.A. (2002), Short History of Modern Philosophy, Routlidge Classics, London and New York, p. 155. 27 Taylor, C. (1992), The Ethics of Authenticity, Harvard University Press, p. 67. 28 Ibid, p. 66. 29 Ibid, p. 44. 30 Goleman, D. (1996), Emotional Intelligence, Bloomsbury. 31 This model is based on Gilson, C., Pratt, M., Roberts, K. and Weymes, E. (2000), Peak Performance. Lessons for Business from the World’s Top Sports Organisations, Harper Collins, London, but the model has undergone significant revision since this publication. 32 Kouzes, J.M. and Posner, B.Z. (2002), The Leadership Challenge, 3rd Edition, Jossey Bass. 33 Lin Yutang (2001), The Importance of Living Cultured Lotus, Singapore, pp. 11-12. 34 Scruton, Op cit, p. 226. 35 Porris, J. and Collins, J. (1994), Built to Last, Harper Business. 36 Scruton, Op cit, p. 111. 37 A term being promoted by the ‘‘greatest ideas house on the planet’’ Saatchi and Saatchi. Roberts, K., CEO Saatchi and Saatchi: Send Lawyers, Guns and Money speech to the International Trademark Association, www.saatchikevin.com/workingit/lovemarks May 2003. 38 Mahesh Amelean, Chairman and CEO, MAS Holding, speaking on the establishment of MAS Holdings with the author 2001. See also Friedman, T. (2000), The Lexus and the Olive Tree, Harper Collins, pp. 176-9. 39 Bronwyn Roberts, Team Manager for Netball Australia – The World Champions, in Gilson, C., Pratt, M., Roberts, K. and Weymes, E. (2000), Peak Performance, Harper Collins, p. 63. 40 Vanier, Op cit, p. 60. 41 Ibid, p. 61. 42 Tim Hallam, Media Manager, Chicago Bull in Ibid, p. 147. 43 Hodge, K. (1998), Peak Performance, p. 12. 44 Csikszentmihalyi, M. (1993), The Evolving Self, Harper Perennial, p. 178. 45 Gilson et al, Op cit. 46 Rick Charlesworth, Coach of the Australian Women’s Hockey Team, World and Olympic Champions, in Gilson et al., p. 124.

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The measurement of responsible governance and management of NPOs in New Zealand: an evaluation tool for NPOs, donors and government. ‘‘If you have no money – you have no mission’’ J. Mueller, D. Williams, A. Higgins and M. Tou

Jens Mueller is Associate Professor at the University of Waikato, Hamilton, New Zealand. Tel: 64 21 516 326, E-mail: [email protected] Dave Williams is Alumni at the Waikato Management School, University of Waikato, Hamilton, New Zealand. Andrew Higgins is Alumni at Waikato Management School, University of Waikato, Hamilton, New Zealand. M. Tou is Alumni at the Waikato Management School, University of Waikato, Hamilton, New Zealand.

Abstract In New Zealand, as in many other developed countries around the world, news is made not just by those many organizations with superb performance records, but also by the few whose achievements fall far short of donor expectations and public perceptions. One of the core competencies of NPOs should be the ability to build strong donor relationships (Lewis, 1998), to create a sustainable income model which allows the organization to focus on their operational efforts. Funding uncertainties affect the ability to operate, to motivate and to plan for the future. Research (Mueller et al., 2004) was undertaken to determine how the relationship between NPOs and donors can be improved. This work focused on the identification of areas where NPOs need support to improve their governance and management functions. Both donors and NPOs were investigated, and the results were used to speculate in which areas external support would be most helpful and where donor/NPO perceptions differ. NPOs and donors indicated that they are aware that NPOs require both governance and managerial support. Both the NPOs and the donors indicated that an objective evaluation system would be valuable to them as evidence of credibility. Such a system would also help to guide the internal assessment process. These findings led to the development of the Looking Glass Evaluation Tool (LGET) which measures an organization along the following dimensions: effective management, strategic planning, advocacy, legal framework, governance and fundraising. The dimensions were derived partly from the work of Lester Salamon from the Nathan Cummings Foundation, New York. The LGET questions an organization about its levels of understanding, planning and implementation of governance and managerial functions and provides a snapshot of the organization’s structural effectiveness. The tool does not test the outcomes of the organization’s work; but speculates that an organization with poor internal structure will be less likely to perform sustainably, especially in the area of creating strong donor relationships. The tool is completed through a guided self-assessment process, which is then reviewed with the organization to assure a clear understanding of the review objectives. From this snapshot of performance in a wide range of areas, organizations can focus resources on specific parts of their work for improvement. The LGET has been trialled in its prototype form in a number of NPOs in New Zealand, including a Maori charitable trust and has been favorably received. Keywords New Zealand, Governance, Non-profit organizations

DOI 10.1108/14720700510562730


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Introduction In the media, high profile scandals involving financial irresponsibility have caused shock waves around the world. Not all the scandals have been in the commercial sector; some not for profit organizations (NPOs) have been identified as having less than credible governance structures themselves (Thomson, 2003). In the Far Eastern Economic Review (21 August 2003), the watchdog organization SustainAbility reported that ‘‘accountability and transparency are issues on which several NGOs are found wanting’’ (Anon. 2003). Jon Christensen (2004) of the New York Times reports that, ‘‘until recently NGOs were thought to be exempt from traditional oversight; their do-good nature and the commitment of their participants were thought to be sufficient to produce positive results’’. A recent UN report says that the shock waves that have hit large companies show how dangerous it can be to rely on reputation and trust-based relationships (Maitland, 2003). The Oxfam America chair Barbara Fiorito agreed. She said, ‘‘This (reliance on trust based relationships) is particularly true of NGOs, because they demand so much public goodwill and attention’’ (Maitland, 2003). As a result of this media attention, some NPOs may face a problem of credibility in the eyes of their supporters. The researchers in this study were concerned that some NPOs might be unjustly subjected to due diligence beyond reason, and thus they attempted to create a model whereby NPOs can be reviewed and credentialled by a credible external organization. This problem of credibility is added to the challenge of a shrinking supply of funds (Salamon, 1998). Governments worldwide are reducing their amount of support for social welfare work. This in turn is leading to a rise in the number of charitable organizations who are filling the gaps created by reduced government expenditure. Lester Salamon (1998) said that ‘‘the nonprofit sector grew at a rate greater than that of the economy between 1982 and 1992’’. This shrinking supply of funds (especially) from governments, who supply up to 75 percent of all funding for NPOs has meant greater competition among NPOs for what money is available (Salamon, 1998). Funds for NPOs are typically contestable, which leads to uncertainty among NPOs who in many cases will not know in advance whether their request for funding will be approved. This uncertainty arises out of shifting eligibility criteria which makes if difficult for NPOs to plan long term, since they do not know what criteria they will have to meet in the next funding round. Little (2004) cites an example of ‘‘bureaucracy gone mad’’, to illustrate this point; recent changes to EU grant regulations now require charities to open a separate bank account for each grant they receive. The purpose of this rule is to help prevent fraud, but Aileen McLeish, director of resources at WWF UK, said (Little, 2004) the charity had been forced to open separate bank accounts for four grants so far. ‘‘We have applied for higher management costs, so it is diluting the impact of the grant. I could understand if it was adding value but it isn’t.’’ A short funding cycle adds to NPO woes since this makes it hard for them to know where to put money where it is most needed (M2 Presswire, 2001). In interviews with donors, the researchers found that there is also an increasing focus on the part of donors for ‘‘outcomes’’ rather than ‘‘outputs’’ from charitable organizations (Mueller et al., 2004). This is important since it goes directly to the NPO’s need to demonstrate to donors what they achieve, in a format easily understandable to outsiders. We speculate that this is a challenge for some NPOs. Put together, all of these changes raise concerns that NPOs will find it increasingly frustrating to secure their minimum required funding well in advance of its needs. A key tool for sustainability for NPOs will thus be the ability to develop lasting relationships with donors, which we surmise will result in a more continuous flow of donor funds. Both Deegan (1999) and Lewis (1998) suggest that only through relevant and transparent accounting, auditing and reporting measurements will donors and NPOs be able to develop sustainable relationships for the future. This ‘‘transparency’’ requirement will likely change with each donor, and the authors hypothesize that a uniformly accepted review tool for NPOs might reduce the workload for NPOs to comply with different donor-specific documentation requirements in each case. The problem here says Stephen Morse (Morse et al., 2001) is that the very nature and diversity in the NPO/NGO sector makes it difficult to develop a set of measurements that integrate

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accountability with sustainability. In many respects, sustainability measures are still ‘‘black boxes’’, more talked about in generalities than defined in precise terms (Deegan, 1999). The authors here wonder whether there is a causal nexus between organizational effectiveness/ efficiency and sustainability for NPOs. If organizations demonstrate better-than-average internal structure, will they be able to solicit donor funds more effectively and thus deliver more sustainable outcomes? As far as the not for profit sector is concerned then, NPO sustainability is in part linked to securing credible relationships with donors. These relationships in turn must be supported by relevant and transparent measures of accountability (Lewis, 1998). The challenge for both donors and NPOs is how to develop and communicate these measures so that they can result in long-term relationships. This challenge has become a matter of some urgency in New Zealand where the government is soliciting submissions on the proposal of a new Charitable Trusts Act, which will regulate New Zealand NPOs with a greater degree of oversight (www.legislation.govt.nz/).

The Looking Glass Company: a possible answer to the challenge Unpublished research carried out by the University of Waikato School of Management (Mueller et al., 2004) investigated the relationships between donors and NPOs. The research, which was part of the school’s action research project program for executive MBA students, and dubbed ‘‘The Looking Glass Company’’ (TLG), set out to determine if there was a need for a benchmarking or label system that would provide measures of accountability which in turn would support donor/NPO relationships. If the result was that a need existed, the researchers also desired to find the most valuable components of such a system. The findings of the research were collated from the results of questionnaire answers received from several populations of NPOs and donors. The samples comprised: J At total of 253 delegates at the conference of Pacific Island NPOs based in New Zealand, with 100 percent of these delegates responding to the questionnaire. J A total of 220 NPOs randomly selected from New Zealand (postal survey), with 73 of these responding to the postal survey questionnaire (a 33 percent return rate). This sample was randomly selected from the list of NPOs registered with the NZ Inland Revenue. J A total of 70 donor organizations randomly selected from the Hamilton City Council booklet on donor organizations, with16 responding to the questionnaire (a 23 percent return rate). J A total of 27 telephone interviews with representatives from a range of other NPOs. The research indicated that there was a need for the proposed kind of information exchange, and that its components should include an evaluation of the quality of services as well as the effectiveness of the management practices of NPOs. Furthermore, this work found that there was a call by NPOs for assistance with learning and implementation of activities to improve performance. The general objectives of the research were to investigate the following: J Is there interest from NPOs in a systematic measurement system? J What unmet needs are there in the relationships between NPOs and their donors? J What could be done to meet these needs? J Which support services are demanded by NPOs and donor organizations? Of the 16 donor organization responses, 76.5 percent stated that they would be interested in such a system. Of the 353 NPO responses, 68.3 percent stated that they would see value in a system that displayed the effectiveness of their organization. Given the suspicious nature of many NPOs when it comes to soliciting and accepting advice from outside the sector, we found these response rates remarkable.

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The Looking Glass evaluation tool Prompted by the results of the survey, the research team then developed a gap evaluation tool (GET) to evaluate the gaps between what NPOs actually did in their governance and management systems and what could be done. The GET was developed with initiatives like the New Zealand Charitable Trusts Act proposal in mind. The GET was given a field trial with nine NPOs in different locations and in different industries, the results of which showed that a favorable result from the GET would likely enhance the ability of NPOs to secure funding. It could do this by providing both donors and NPOs with a mutually acceptable evaluation of NPO systems.

How the GET works Essentially, the GET is both an explanation and a guided self-evaluation of an NPO’s governance and management systems. The GET provides a framework of six dimensions, which describe the various governance and management functions of the organization. Each dimension represents a group of related governance or managerial functions common to NPOs. The design of the dimensions was based in part, on the foundational work on NPOs by Lester Salamon (Founding Director and Principal Research Scientist, Institute for Policy Studies) and also on the ISO 9000 quality standards. The six dimensions are labeled effective management, strategic planning, advocacy, legal framework, governance and fundraising.

When the GET is introduced to the NPO, each dimension is explained by TLG facilitators, with emphasis on support and the fact that the purpose of the evaluation is to add value to the organization in the form of self knowledge. It is then explained to the organization that from this enhanced knowledge it can plan a development process, which focuses on its understanding, planning and implementation of desired governance and managerial functions.

During the process, the research team explains how to interpret these dimensions from the organization’s own perspective. To use the GET, various stakeholders of the organization, such as staff as well as management, are asked to answer questions about their organization’s functions, using a continuum scale to indicate levels of functionality. Respondents are asked to rate, on a scale of one to five, how well they think their organization functions in each of the six dimensions. A score of ‘‘five’’ indicates that they find that the organization functions excellently, whereas a score of ‘‘one’’ indicates poor functionality. The GET is therefore a subjective tool; it polls the organization’s own perceptions of its governance and managerial functionality. It is an internal measure based on an external system. The researchers elected this more subjective method partly because of the clearly manifested fears of NPO staff over the possibly intrusive and disruptive effect of an external organization passing judgment on the internal structure of NPOs. Although this tool may develop into a standardized objective process in the future, it was the collective preference of consulting NPO staff and researchers, to not create an adversarial relationship by imposing external standards and to rather take advantage of the contributive abilities of NPO staff. First, the GET measures the organization’s understanding of governance and managerial functions. Then it measures the degree to which the organization plans these functions and finally it measures how well the functions are performed or implemented. See Figure 1 for an example of a sample grid of measures. Each measure is represented on the table by a possible score, an actual score and the ratio of actual to possible, expressed as a percentage. The results of the GET are graphed showing the relative measures of understanding, planning and implementation. An organization that operates effectively would show little or no difference between the relative measures, whereas one that did not, would show differences. These

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Figure 1 Sample grid of Looking Glass GET measures

differences constitute the ‘‘gap’’ and tell the organizations’ staff where it could focus its resources in order to improve performance. See Figure 2 for an example of a GET graph showing gaps between measures.

Example of the governance measure The TLG GET questions an organization about its governance processes. It asks the organization to evaluate itself on its understanding, planning and implementation of governance issues with the following questions: J Does the organization have a transparent organizational structure? J Are the roles and responsibilities of staff, boards, and directors documented? J Does the organization administer a process for communication training? J Does the organization administer a process for decision making? J Are decisions communicated effectively? J Does the organization evaluate the effectiveness of its communication? J Does the organization have an established process for problem solving? These questions were developed using Lester Salamon’s work as well as from the university’s research. The research was able to identify areas of specific concern to both NPOs and donors. The results are recorded and graphed, and then compared against an idealized maximum score of 100. This ideal would be where the organization always functions at a level of excellence. Using the graph, it is very easy to demonstrate to the organization where there are gaps between what it says it does and what it actually does. From the GET analysis,

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Figure 2 Example of a GET scorecard

suggestions are made that the organization focuses resources on the dimensions showing the largest gaps. The researchers hypothesize that if the organization succeeds with addressing these gaps, then it is more likely that performance in that dimension would improve. Future research into organizations that have implemented the changes suggested by the GET could show how useful the tool is. However, initial results from a recent field trial suggest that the mere fact that the organization is reflecting on its own performance, is enough to enhance the relationship between it and its sponsor. The following is a report of a field trial, which showed how this happened. In the field trial the researchers found that a positive affirmation of the NPO’s structural abilities enhanced the donor/NPO relationship and the ability of an NPO to secure funding from that donor

GET – case study Tauranga Moana Maori Tourism Inc. (TMMT) is a NPO located in Tauranga, New Zealand and was formed in June 2003. It provides a forum for networking and training to tourism operators in the Bay of Plenty. It also promotes a process to enhance tourism sustainability for a large group of operators, many of whom represent Maori businesses. TMMT is funded through its members and through government support as its major donor. This donor sponsors the work of the TMMT, as part of government support for New Zealand tourism in general.

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Although membership fees are collected from those that join TMMT, the financial mainstay for TMMT is sourced from Te Puni Kokiri (TPK); the Ministry of Maori Development. The funding eligibility criteria are specific. The annual funded amount of $90,000 is granted with conditions. In the latest funding round, TPK expressly stipulated that this amount could not be used for administrative costs, wages, or for the purposes of promoting individual operators, i.e overheads. The purpose of the funding is for the development of TMMT as an organization, to enable it to provide guidance and leadership to tourism operators. A request was made by TMMT for funding for overheads, but at that time, all funding requests were denied due to shortage of donor funding for the financial year. This decision is typical of the problem facing NPOs. The donor’s funding criteria means that TMMT is unable to perform some of its core functions, because of a lack of funding for support functions. It is vitally important for TMMT to maintain its relationship with the donor so that it can continue to function. However, changes to the funding criteria make it difficult for TMMT to make long term plans, since it does not know what funding it can rely on. TPK stipulated that there are ten milestones that TMMT must achieve before further funding would be available. One of those milestones was that a ‘‘needs analysis tool’’ be incorporated into TMMT’s internal audit system. The tool would have to assist the tourism operator to identify and understand what internal structure it needed to have, and to maintain, for a successful operation. The TMMT board reviewed these ten milestones and suggested that if it could deliver at least one of the milestones, then the donor would likely make a payment to cover the overhead costs.

Upon request by the NPO, the Waikato Management School researchers demonstrated the GET to the TMMT board of directors. The board agreed that the GET was exactly what it needed to analyze ‘‘needs’’ within their operation. As a result, the Looking Glass evaluation tool was adopted to be the ‘‘needs analysis’’ tool for this NPO. TMMT then took the results of its GET analysis to TPK as evidence of reaching a milestone. TPK instantly accepted the GET and increased TMMT’s funding by several thousand dollars to allow for the cost of overheads (Conklin, 2004). The amount given paid for all previous overhead costs and for all overhead costs for the remainder of 2004.

As a donor, TPK identified value in the gap analysis tool. They said that it would ‘‘meet their internal audit requirements for a needs analysis tool’’ (Conklin, 2004). The NPO saw value in the GET in that it was able to provide a major sponsor with a credible measure of accountability. They indicated that they would probably use the tool again to support future funding applications. The researchers speculate that the fact that the GET was administered by an external, impartial and unbiased non-sector organization, might have enhanced the tool’s credibility.

Summary The researchers’ hypothesis is that there is a need for a system of measuring organizational credibility. Their practical experience also shows that such a system could provide evidence that would enhance the relationships between donors and NPOs. This is an important consideration when both are looking for sustainable futures, since both are struggling with doing their part to address complex social welfare issues. Debates over reputation and trustbased relationships detract from their core functions and adversely affect NPOs’ ability to deliver on their missions. Preliminary results from field trials of this GET suggest that donors and NPOs might accept such a tool as a credible externally administered measure of performance in specific areas. The researchers speculate that the stronger donor/NPO relationship, which resulted from this reported trial run, could be replicated in many other similar situations. Further research into the most effective methods of deploying this tool will be needed, in addition to long-term follow-up, to determine the tool’s effectiveness into sustainable fundraising.

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Results of the Looking Glass survey Data analysis: NPO survey Question 1: What type of staffing do you have and how many? (Table I and Figure 3) Purpose of the question: This question was to see how many paid and voluntary staff each of the NPO has.

Table I Question 1: NPO survey PIC* (%)

PS* (%)

Int* (%)

Total* (%)

51.6 33.7 98.4 1.2 0.4 0.0 13.5 0.4 52.4 31.5 6.4 10.0 11.1 50.4 31.9 7.6 10.4

12.3 19.2 65.8 11.0 13.7 9.8 20.5 4.1 56.2 15.2 4.1 24.8 2.7 28.8 23.1 16.3 32.0

37.0 40.7 88.9 7.4 0.0 3.7 29.6 0.0 59.3 25.9 7.4 7.4 18.5 51.9 33.3 7.4 7.4

42.3 31.3 90.9 3.8 3.2 2.4 16.2 1.1 53.7 27.6 6.1 13.4 9.9 46.0 30.2 9.5 15.3

Have Have Have Have Have Have Have Have Have Have Have Have Have Have Have Have Have

no paid staff. one paid employee. less than ten paid staff. between ten and 20 paid staff. between 21 and 30 paid staff. more than 30 paid staff. no voluntary staff. one voluntary staff member. less than ten voluntary staff. between ten and 20 voluntary staff. between 21 and 30 staff that are volunteers. more than 30 voluntary staff. one employee. less than ten staff. between ten and 20 staff. between 21 and 30 staff. more than 30 staff.

* PIC = Pacific Islands Conference, PS = Posted survey, Int = Interview, Total = PIC, PS and Int together.

Figure 3 Question 1: Chart for NPO survey

Question 2: In which areas might there be a need to develop the organization further? (Table II) Purpose: To see the areas that the NPO representatives who answered the questionnaire have identified as the areas they feel their organization needs to address. Note: For this question the NPOs were asked to provide their own thoughts. The answers given varied from ‘‘minute writing’’ to ‘‘increase funding’’ to ‘‘women support’’. Nevertheless, there were answers that occurred more than once and some could be summarized in a group. We therefore have defined 11 categories to help us analyze the outcomes.

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Table II Question 2: NPO survey PIC* (%)

PS* (%)

Int* (%)

Total* (%)

66.0 34.0 7.1

35.6 64.4 14.8

51.9 49.1 3.8

58.6 41.4 10.7

6.1

3.2

19.2

7.0

44.9

29.5

11.5

34.9

17.3 1.1 0.0 0.0 13.3 2.0 1.1 7.1

1.6 8.2 3.3 3.3 8.2 16.4 4.9 1.6

3.8 11.5 11.5 3.8 15.4 11.5 7.7 0.0

10.2 4.8 2.7 1.6 11.8 8.1 3.2 4.8

Did not answer the question. Provided at least one answer. Replied that they need further development in areas that are specific to the organization. Surveyed saw accounting and financial management as an area that requires improvement. Were especially interested in funding and how to increase revenue. Answering communications. Marketing. Provided governance as an answer. Asked for development in the structure. Were interested in enhancing the management, the staff and training and the strategy of the organization. Answered relationship management.


Question 3: What type of support would your organization value? Purpose: This section asks NPOs to indicate if they would see value in the provision of support in particular areas. These areas are: J access to funding; J the management of paid and voluntary staff; J organizational structure development; J planning; J developing sustainable links to donors; J increasing the organizations profile in the community; and J to understand how other comparable NPOs operate. Note: For each of the categories below, some organizations did not give an answer. The following percentages are based on the number of total answers that were provided (Table III and Figure 4).

Table III Question 3: NPO survey PIC* (%)

PS* (%)

Int* (%)

94.4

91.4

80.2

48.5

74.1

72.4

82.1

54.4

70.4

74.9

84.9 91.2 86.1

70.6 75.4 88.2

85.2 100 96.3

81.5 88.3 86.6

82.9

73.5

85.2

80.6

100

Total* (%) 94.0

Were interested in how to increase funds to increase services provided. Were interested in how to manage paid and unpaid staff in the organization. Were interested in how to develop the structure of the organization. Were interested in how to plan the future of the organization. Were interested in how to create sustainable links to donors. Were interested in how increase the organizations profile within the community. Were interested in how to understand how other comparable non-profit organizations operate differently.


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Question 4: Does your organization currently have an annual budget? (Table IV) Purpose: To see whether the organization has a budget set aside for the education and training of staff. The intention is to get an indication of how much money they allocate towards the education and training of their staff. Note: We have calculated the budget allocated to the education and training of the total staff (paid and voluntary staff) members within each of the organizations by dividing the amount of money allocated (by the organization) to education and training, by the number of total staff (paid and voluntary staff) within the organization. Assumptions: J That if not otherwise indicated, the amount written for this question, is the total annual budget of the organization allocated to the education and training of staff. J That the budget of the organization will be allocated evenly to the paid and voluntary staff within the organization.

Table IV Question 4: NPO survey PIC* (%)

PS* (%)

Int* (%)

Total* (%)

95.2

37.0

80.8

82.0

2.4 1.2 1.2 0.0 0.0 0.0 0.0

16.7 12.4 8.4 11.1 8.4 4.2 2.8

11.4 3.9 3.9 0.0 0.0 0.0 0.0

6.3 3.9 3.0 2.4 1.8 0.9 0.6

Either do not have a budget allocated to the education and training of their staff, or did not want to state how much they have in the education and training budget. Have a budget of $50 or less per staff member. Allocate between $51 and $100 per staff member. Allocate between $101 and $250 per staff member. Allocate between $251 and $500 per staff member. Allocate between $501 and $750 per staff member. Allocate between $751 and $1000 per staff member. Have more than $1,000 budgeted per staff member.


Question 5: Would you find value in a system that would display the effectiveness of your organization? (Table V and Figure 5) Purpose: To see if NPOs see value in a system that displays to others the effectiveness of their organization.

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Table V Question 5: NPO survey PIC* (%)

PS* (%)

Int* (%)

Total* (%)

24.9

68.3

40.7

33.8

3.2 71.9

5.0 26.7

14.8 44.4

4.5 61.6

Would find value in a system that displays the effectiveness of their organizations. Would not find value in such a system. Were unsure of the value of such a system.



Question 6: Would you like a closer relationship with donors? (Table VI and Figure 6) Purpose: To see if NPOs would see value in a closer relationship with donors.

Table VI Question 6: NPO survey PIC* (%)

PS* (%)

Int* (%)

Total* (%)

99.2 0.8 0.0

86.5 11.5 1.9

85.2 11.1 3.7

94.8 4.7 0.6

Would like a closer relationship with donors. Do not want a closer relationship with donors. Are unsure.



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Question 7: Do you feel that donors understand your needs? (Table VII and Figure 7) Purpose: To see if there is a need for improved communication between the donors and the NPOs.

Table VII Question 7: NPO survey PIC* (%)

PS* (%)

Int* (%)

Total* (%)

48.6 51.0 0.4 0.0

40.4 48.1 5.8 5.8

51.9 37.0 7.4 3.7

47.4 49.1 2.0 1.5

Feel that donors do understand their needs. Feel that donors do not understand their needs. Are unsure. State that donors sometimes understand their needs.



Question 8: Do you understand the donors’ needs? (Table VIII and Figure 8) Purpose: To see if there is a need for improved communication between the donors and the NPOs.

Table VIII Question 8: NPO survey PIC* (%)

PS* (%)

Int* (%)

Total* (%)

50.2 48.6 0.0 1.2

51.9 42.3 3.8 1.9

63.0 29.6 0.0 7.4

51.3 46.1 0.9 1.7

Understand the donors’ needs. Do not understand the donors’ needs. Are unsure if they really understood the donors. Feel that they understand the donors sometimes.


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Data analysis: donor survey Question 1: How do you select the projects or organizations you donate to? (Figure 9) Purpose of the question: To find out the criteria that donors use to choose the NPOs they donate to. J 29.4 percent take into consideration the number of people that benefit from funding. J 11.8 percent select the NPOs based on their relationship. J 52.9 percent are interested in the NPO’s performance. J 23.5 percent donate to the NPOs if the community supports the project. J 76.5 percent choose the NPOs based on the aims of the project. J 29.4 percent fund the NPO because of the people that are responsible for the project. Furthermore, some donors answered that the NPOs need to fulfil the criteria set by the donors, among these were sustainability, funding policies and credibility. Others focus on an area of need, e.g. in 2003, one donor funds NPOs that assist ‘‘youth at risk’’.

Figure 9 Question 1: Chart for donor survey

Question 2: Do you think there is a need for NPOs to improve certain areas of their organization? Purpose: To find out whether donors see a need for improvement in NPO functions. A total of 94.1 percent see a need for the NPOs to improve in certain areas. The remaining 5.9 percent refused to answer the question, because they felt it was not a ‘‘serious question but a marketing tool’’, ‘‘every organization has room for improvement’’ and if answered, ‘‘the result will be used out of context’’.

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Question 3: What would you like to see improved with NPOs? (Figure 10) Purpose: To find out which areas from the donors’ perspective need to be improved. J 58.8 percent answered that the outcomes of services need to be enhanced. J 47.1 percent feel that the financial reporting should be improved. J 29.4 percent see a need in better communications with donors. J 64.7 percent are interested in an improvement of the NPO’s management. J 70.6 percent mentioned that governance is an area for improvement. Some donors added the following areas where they see a need for improvement: J Accountability. J Competency. J Training. J Strategic planning.

Figure 10 Question 3: Chart for donor survey

Question 4: What type of training would you fund to assist NPOs? Purpose: To find out what training the donors would fund and whether that would be something the Looking Glass Company Limited might also provide. Some donors answered that they would only fund training provided by trainers that are familiar with and credible to the NPO sector. Others would only fund in-house training that directly benefit the specific NPO. The other answers provided were: J Development of the board and the CEO. J Training of managers. J Management responsibilities. J Governance. J Co-partnerships. J Education. J Measurement system for the effectiveness of the services delivered and whether there is a need for the services. J Staff capacity development. Question 5: Would an objective credential that indicates the level of managerial effectiveness of NPOs be of interest to you?

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Question 7: Please provide an explanation for the answer given. Purpose: To find out whether the donors are interested in such a credential and why or why not. J 76.5 percent would be interested in such a credential. J 23.5 percent would not be interested. The explanations provided can be separated into three parts. Part one contains the comments of those that rejected the credential. From their point of view, the credential is too general and therefore not suitable for their needs. They prefer to treat the NPOs on a case-by-case basis. In part two are all answers included from the donors that agreed to the credential, but that are skeptical. They stated that the effectiveness of an NPO is difficult to determine. Furthermore, a credential that is used for the whole NPO sector might be too general and therefore of no use to the donors. Part three contains all those answers from the donors that see a positive effect from the credential. They believe that the credential would raise the standards of the NPO sector and would also ensure that the NPOs operate effectively. It would help to increase the objectivity in assessing funding applications. Question 6: Would an objective award that indicates the quality of the service delivery of NPOs be of interest to you? Question 7: Please provide an explanation for the answer given. Purpose: To find out whether the donors are interested in such an award and why or why not. J 52.9 percent answered that they would be interested in such an award. J 35.3 percent would not be interested. J 5.9 percent were unsure about the credential. J 5.9 percent did not answer the question. Apart from the explanations already provided for the credential, the donors answered that they would be skeptical of the ‘‘objective measures’’. They think that an award would be either biased by those that develop the criteria etc. for the award, or those that do the ranking. The award is not so important and only of value if there is a monetary reward for the NPOs.

References Anon. (2003), ‘‘NGOs’’, Far Eastern Economic Review, Hong Kong, 21 Aug, Vol. 166 No. 33, p. 6. Christensen, J. (2004), ‘‘Asking the do-gooders to prove they do good’’, New York Times (Late Edition (East Coast) ), New York, NY, 3 Jan, p. B9. Conklin, A. (2004), Funding Coordinator, Tauranga Moana Maori Tourism Inc., Tauranga, New Zealand, Interview with TLG researchers, February. Deegan, C. (1999), ‘‘Implementing triple bottom line performance and reporting mechanisms’’, Charter, Sydney, May, Vol. 70 No. 4, p. 40. Lewis, D. (1998), ‘‘Nongovernmental organizations, business, and the management of ambiguity’’, Nonprofit Management and Leadership, San Francisco, Winter, Vol. 9 No. 2, p. 135. Little, M. (2004), ‘‘NGOs blast EU rules on grants as a ‘bureaucratic nightmare’ ’’, Third Sector, London, 7 April, No. 327, p. 9. M2 Presswire (2001), ‘‘UK government: making local government finance fairer – timetable announced’’, M2 Presswire, Coventry, 20 July, p. 1. Maitland, A. (2003), ‘‘Accountability ‘vital’ if NGOs are to retain trust‘‘, United Nations Report [US 2nd Edition], Financial Times, London, 26 June, p. 6. Morse, S., McNamara, N., Acholo, M. and Okwoli, B. (2001), ‘‘Sustainability indicators: the problem of integration’’, Sustainable Development, Chichester, February, Vol. 9 No. 1, p. 1. Mueller, J., Higgins, A., Williams, D. and Tau, N. (2004), The Looking Glass Company: Action Research Project, Unpublished, School of Management Executive, Education Department, University Of Waikato, Hamilton, New Zealand. Salamon, L. (1998), Holding the Center: America’s Nonprofit Sector at a Crossroads, Nathan Cummings Foundation, New York, NY.

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Lead, respond, partner or ignore: the role of business schools on corporate responsibility Louise Gardiner and Peter Lacy

Abstract A number of recent trends are influencing business schools towards better teaching and accounting for the role of ‘‘business in society’’ (BiS). The following article looks at selected results from the most comprehensive survey ever of BiS teaching and research in European academic institutions – undertaken in 2003 by the European Academy of Business in Society and Nottingham University Business School’s International Centre for Corporate Social Responsibility (ICCSR), with the support of the European Foundation for Management Development (efmd). The survey found, among other things, that there is a clear demand from business and students for research, education and training on BiS issues; that teaching on the role of BiS is still far from being ‘‘mainstream’’ to the business curriculum; and that the diversity of European approaches and terms signal both a strength and a challenge for the BiS debate. The article looks at how a wide range of initiatives are being undertaken by both business schools and business, and often in unique partnerships, to address these challenges and move the BiS research and education agenda forward. Finally, the thorny issue of accreditation is tackled. Improving accreditation processes will play an important part in bringing the business education community up to speed with the new roles and responsibilities they are being asked to fulfill by a wide range of stakeholders (students, society, business and government). As both educators and mediators in the debate, business schools have a valuable contribution to make. In turn, they too are increasingly being made accountable for their own social and environmental impact. The article argues that business schools can choose whether they want to lead, respond, or partner with business to meet these challenges. However, it seems they can no longer afford to ignore it as a passing fad.

Peter Lacy ([email protected]) is Executive Director of the European Academy of Business in Society and a graduate in political science from the University of Nottingham. Before joining EABIS, Peter was a management consultant with Accenture’s Strategy Division, and has held various posts in marketing and business management for different companies (Ford UK, Lastminute.com and Lastorders.com). On behalf of EABIS, he sits on several boards including the steering group of the newly created UK CSR Academy and the Corporate Governance Journal. Louise Gardiner ([email protected]) is a freelance writer and editor in the field of CSR and sustainable development, as well as former editor of the CSR Magazine. Louise holds a BA honours degree in Philosophy and English Literature from the University of Stellenbosch (South Africa), and an MA in International Relations from the University of Kent. She is currently working on a PhD through the International Centre for Corporate Social Responsibility (ICCSR) at Nottingham University Business School.

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Keywords Social responsibility, Business schools, Stakeholders

ecent years have seen a welcome increase in constructive engagement by the academic community on the role of business in society (BiS)[1], both from teaching and research, as well as a leadership perspective. At the second colloquium of the European Academy of Business in Society in September last year, important concerns and questions were raised by leading figures in the business education community. Management guru Michael Porter emphasized the need for ‘‘the right types and quality of education of future employees’’ as one of the requirements for business to invest successfully in CSR and, thereby, become more competitive[2]. Similarly, Laura Tyson, Dean of London Business School, and Gabriel Hawawini, Dean of INSEAD, highlighted the need to match supply to demand as far as CSR in executive management programs is concerned. Tyson, in particular, emphasized that business schools should let the market decide to what extent, and in what manner CSR should be incorporated into the business curricula.

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DOI 10.1108/14720700510562749

Despite these concerns, however, business schools are proving their support for BiS issues on the education agenda. Launched by leading European business schools and businesses in INSEAD in July 2002, the European Academy of Business in Society is designed to address the current ‘‘disconnect’’ between business education and the needs of the corporate world in creating knowledge and skills on BiS. Its membership is growing rapidly, reflecting business school demand for capacity-building in this regard. The question is no longer whether CSR should have a place in the business curricula, but how it should be incorporated, and, perhaps more importantly, what role business schools have to play in the wider BiS debate. As BiS becomes core business for many business schools around the world, they are rapidly differentiating themselves according to whether they are taking a leadership role (determining through research, teaching and dialogue how the debate should develop); simply responding to the needs of the market (waiting for students and business to tell them what is needed); partnering with business ( jointly seeking out the needs and direction of the debate over the role of BiS), or ignoring the debate as a passing fashion and continuing with business as usual. Whatever path they choose, the role of business schools on the topic of BiS is evolving. Like that of companies, it now reflects a variety of stakeholders and incorporates new activities and opportunities. Students, the marketplace, the community, government and civil society are increasingly demanding that business schools rethink their traditional role at three different levels: 1. Content and delivery in shaping and facilitating learning for today’s and tomorrow’s managers. 2. Business schools as organizations in society. 3. The academic community as social platform and mediator in the debate. In the following sections, we look more closely at how business schools are developing these aspects of their role as stakeholders in the debate on BiS.

Shaping today’s and tomorrow’s managers To a large extent, business interest in social and environmental responsibility in recent years has been triggered by successive corporate scandals combined with enormous pressure from NGOs, policy-makers, consumers, and the media. However, as the debate has grown, the role of BiS has come to be viewed as an opportunity for business not only to protect itself from risk and reputational damage, but also to strengthen its relationships with its stakeholders, and improve internal strategy and management processes at the same time. Indeed, the focus has shifted from value preservation to value creation. As a result, many more businesses are appointing in-house specialists, and creating departments to formulate and communicate their corporate values. In addition, a great number of business networks and consultancies have sprung up to support businesses in better managing their social and environmental impact[3]. However, to move forward and fully benefit from good management of corporate sustainability, the knowledge, skills and tools to effectively manage this integral dimension of a business’ operations need to become part of the education and training of every business manager, at every level of the company. As the corporate world debates the merits of corporate sustainability specialists versus mainstream generalists, there is a growing need for business educators to grasp this issue by the horns. To date, with a few exceptions, business education at European and international level has failed to answer this demand in a coherent way. This failure is due to a widespread lack of understanding of the debate and its strategic value within the core curricula of business schools, particularly in MBA courses. Several studies of MBA courses in recent years have found that many still fail to provide essential skills in less tangible areas, such as communications, interpersonal skills, multicultural skills and change management. In contrast, companies are increasingly impatient for managers who can thrive in the changing global marketplace, one in which social and environmental

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priorities are increasingly on a level with traditional economic concerns. A 2001 study conducted by CSR Europe, The Copenhagen Centre and the International Business Leaders Forum[4] identified a clear demand for new business models and management skills to help companies respond to the triple bottom line of business: economic, social and environmental.

Transforming business education The pressure on business schools to transform themselves is being met with a variety of responses. These include a growing number of courses and seminars, in-house consulting, new academic research and teaching networks, and a plethora of tools. However, balancing the demands of the business world for immediate hands-on solutions, with the priorities of the academic world to develop sound research, is proving difficult. While there may be some role for ‘‘add-on’’ or stopgap features in research, education and training – particularly in the early stages of development – ultimately, to be sustainable, the concept will have to be integrated into the mainstream of theory and practice, or it will not have a long-term impact. In September 2003, EABiS and Nottingham University Business School’s International Centre for Corporate Social Responsibility (ICCSR) presented the results of the most comprehensive assessment to date of BiS teaching and research in European academic institutions[5]. The study gives some idea of the challenges and opportunities that exist in the way European business schools are currently approaching the BiS debate. In particular, it revealed the following insights: 1. There is a clear demand from business and students for research, education and training on BiS issues Business organizations and students took joint third place as the most demanding current drivers of BiS teaching in business schools. They were topped only by individuals – long accepted as playing a crucial role as agents of change both in business and in academia – followed by leadership of the school, faculty or department. The study backs up results from the 2003 Global Campus Monitor, undertaken by leading market researchers Environics International, which found that a strong majority of students believe BiS issues should be taught more at universities.

2. Teaching on the role of BiS is still far from being ‘‘mainstream’’ to the business curriculum A total of 80 percent of respondents to the survey stated that they are ‘‘undertaking activities of some kind to bring CSR into their business teaching mainstream’’. However, a closer analysis finds that what is understood by this description varies greatly. Just under half of the respondents cited optional modules, while only a third, compulsory ones. Some 20 percent said they incorporated seminars, special events and conferences on the role of BiS into their programs. Another 38 percent said they embedded BiS teaching in other modules and courses. However, the great variance in how terms and theory within the debate are understood means that the extent of embeddedness will need to be assessed in much greater depth in future surveys. Besides tools and role-playing in elective courses, business schools have a duty to give students a solid grounding in the theory underpinning the role of BiS as a preparation for the real world situations that they will ultimately encounter. Indeed, BiS teaching needs to embed sustainability thinking in everyday business decision-making. Optional, and even compulsory stand-alone modules are only a start. Leading MBA providers now recognize that teachers of core courses – such as finance, strategic management, marketing and accounting – need to know where sustainability issues affect their own module content and how to teach this relationship. Likewise, students are realizing that concepts such as corporate sustainability and corporate citizenship are ones that cuts across disciplines, and are helping to increase demand for full integration.

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Nevertheless, the challenges of this should not be underestimated and require a shake up, not least in the research that feeds into MBA courses. As INSEAD’s Dean, Gabriel Hawawini, argued at the launch of EABiS, ‘‘A major stumbling block to improving integrated teaching is the existing faculties. Engaging current professors in interdisciplinary research is one step. But preparing for a new generation of faculties is a second step that needs to be taken seriously.’’ The MBA curriculum, as a whole, has a unique opportunity to encourage an atmosphere for debate and deeper exploration of BiS issues, either through guest lectures, thesis topics or a variety of extra curricular activities. One resource that has yet to be fully tapped is that of bringing in reflective practitioners from business to share their insights and experiences directly from the ‘‘coalface’’. The end goal for business schools should be to merge all these elements into the curriculum in a seamless way (see Figure 1). 3. The diversity of European approaches and terms signal both a strength and a challenge for the BiS debate With responses from 166 European academic institutions in 20 countries (including 95 percent of the 64 European Foundation for Management Development EQUIS accredited business schools), the EABiS/ICCSR study sheds new light on the unique character of European approaches to the topic. In particular, it showed interesting differences in how the various geographic regions of Europe offered courses. The findings highlight a very broad range of terms and definitions used to refer to the wider BiS debate, the term we have favored in this article. CSR was the most popular label in the Anglo-Saxon countries and, to a lesser extent, in France. However, among the remaining countries, the survey identified over 50 different labels for modules and 40 different labels for programs. Overall, sustainable development was the most popular term used by almost a quarter of respondents, followed closely by business ethics. Third place was shared by business and society, CSR, and environmental/ecological management. The widespread recognition and understanding of the topic across different social and cultural contexts should be welcomed. Indeed, preserving the flexibility of terminology and interpretations at different regional, national, sub-national, or even within individual organizations will

Figure 1 Increasing level of mainstreaming in business school curricula

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be a critical future success factor for the debate. Nevertheless, the multiplicity of terms presents its own challenges when it comes to conducting the debate across cultural and sectoral boundaries, and to forging pan-European research collaboration that can effectively move the debate forward in a coherent way. Not only are businesses and students struggling with the divide between academic and corporate language, they are increasingly confronted with changing definitions and parameters for their corporate sustainability activities when moving from one country to another. Developing a common understanding of BiS issues, as well as a common language for all stakeholders, will therefore be essential steps in making this debate internationally and, perhaps more importantly, managerially relevant. However, this should not impoverish the debate at the same time. The survey highlighted the rich heterogeneity in European approaches to CSR. Going forward, integration needs to balance the benefits of diversity with the timeliness of co-operation and better articulation of the CSR debate. As the CSR debate unfolds, important questions need to be asked about: J the currency that is being exchanged (e.g. knowledge and practice); J the modes of communication (i.e. does the current situation foster or create barriers to communication and learning?); and J the continuity of activity (how is knowledge passed from researchers to teachers to students and to business managers, and does this promote growth in the debate and in the tools that are developed?). The European Academy of Business in Society is one such initiative that aims to produce a shared European vision and strategy for research, education and training development.

Creating partnerships for learning What emerges clearly is that collaboration is essential if research and teaching on the role of BiS is to have a long-term value and impact. The upsurge in interest in the topic, in recent years, has drawn attention to the fact that a great deal of the research done in preceding decades has not been finding its way to core business curricula. The European Business Ethics Network (EBEN), launched in 1987, hosts annual research conferences on business ethics; and The European Foundation for Management Development (EFMD), launched in 1972 to coordinate management education across Europe, has recently taken on the key issues of global responsibility. However, structures for collaboration and communication on BiS research remain very limited. The result is that work is still being carried out and co-ordinated by isolated pockets of researchers and institutions. Consequently, much is being done to consolidate existing research and to link this with new evidence from the corporate frontlines. More importantly, businesses are joining forces with business schools to help determine how best to meet the needs of both sides. After rankings, possibly the most valuable future driver identified by the EABiS/ICCSR study was growing approval and support from the corporate sector – and not just in financial terms. Funding for research and scholarships is a vital part of taking the debate forward. However, business participation in teaching and research is just as important. Many companies are already reaping benefits from providing access to case studies, interviews and other business data, as well as opening their doors to action research inside their operations. In return, businesses receive varying forms of support from business schools and universities. This can include the development of tools, consulting activities, applied research collaboration and specialist teaching. There are a growing number of European examples of business-academic co-operation on these issues. In France, INSEAD has been actively working with companies to develop research and training material on the social and environmental dimension of business performance. Within EABiS, they now lead a consortium of business schools and companies (including

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Johnson and Johnson, IBM, Microsoft and Unilever), which is studying the nature and consequences of societal demands on companies’ decisions and actions from a business strategy perspective, and exploring ways to raise awareness and skills amongst managers and executives[6]. Similarly, London Business School’s ‘‘Business in Society Learning Consortium’’ continues to work closely with the business community. London Business School is leading EABiS’s education pillar, which aims to provide mainstream curriculum development and teaching materials for MBA courses on the role of BiS. A key component of the project will be collaboration with business to shape BiS case studies that reflect real world business problems in areas such as strategy, finance and accounting, and organizational behavior. However, as business schools become more closely aligned with the needs of their constituencies, this learning partnership is having an impact in both directions. Just as the business sector has had to come to terms with its wider impacts and responsibilities, new questions are being asked about how business schools themselves are managed.

The business school as an organization in society Given that business education is a multi-billion Euro business and that business schools are an important broker in the knowledge economy – how could or should they account for their own role in society? Others have taken this further and asked: how credible and sustainable will education and curriculum development be in the long run among faculty, staff, students, companies and other stakeholders if business schools do not manage the economic, social and environmental impacts of their own operations[7]? Again these are not new issues. The societal role of universities and educators in society is something that dates back hundreds if not thousands of years. However, the business school – a more recent creation, is in many ways unique, located at the tectonic fault line between the academic and business community. Therefore, its sensitivity to what are often (mistakenly) regarded as ‘‘external’’ pressures and changes in society, is often heightened and more keenly felt. Mary Ellen Boyle argues that beyond the credibility of educational offerings, business school responsibility (BSR) should be regarded as an opportunity to increase the legitimacy of business schools in the eyes of both communities as a bridging agent.

Nevertheless, it seems clear that business schools themselves will in future be subject to growing pressures, both internally and externally, similar to those companies have faced, albeit on a smaller scale. If business schools are to be credible in meeting educational demand, just as companies have had to learn to do, they will need to ‘‘walk the talk’’.

The academic community as social platform and mediator in the debate In one of its most recent roundtable reports, the European Multi-stakeholder Forum on CSR (EU CSR Forum) highlighted the role of business schools, universities and other education institutions in ‘‘building the necessary capacity for relevant CSR strategies’’[8]. This involves not only education for the business world, but also for consumers, employees and other stakeholders. Perhaps more importantly, however, the report draws attention to the roles and responsibilities of all stakeholders in this debate as facilitators and catalysts. It also points to the importance of bringing together specialist views and experiences available in the different stakeholder groups through improved dialogue. In both areas, business schools can make a unique contribution to creating an enabling environment for CSR. Through their engagement in the EU CSR Forum, business schools and leading academics – such as Lutgart Van den Berghe, who acted as rapporteur for the Learning Roundtable – have shown that they have an important part to play in the dialogue. The academic world has a rich stock of experience in creating channels for communication, and in capturing and disseminating knowledge so that it can be molded into tangible uses. An example of this is the European

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Platform for Excellence in CSR. Set up within EABiS, it aims to facilitate cooperation among academic institutions, businesses and other stakeholders in the setting of research priorities as well as in the use and exploitation of research findings[9]. Supported by the EU’s Sixth Framework Programme, and starting in 2004, the project will bring together business schools, companies and other stakeholders to look at how Europe can establish a research area on CSR. The CSR Platform aims to address the fragmentation of research and co-ordination in Europe, not only by creating a single point of reference for the region, by connecting groups of academics internationally, across disciplines and even with more fundamental subjects such as economics, sociology, and psychology, but also by actively engaging CSR researchers with practical end-users. The project will question the idea of CSR ‘‘research as usual’’, and explore ways and means to engage companies and other stakeholders in terms of structuring inputs and outputs from research across Europe. Ultimately, the greatest value that academics can bring to the debate might not be just as translators between practitioners and theorists, but also by helping to break down the barriers that exist between and within business, academia and other stakeholder groups. This can serve to change the way these constituencies see themselves and others, both with regards to the concept of responsibility and the wider role of BiS.

A future for business school accreditation Accreditation, alongside rankings[10], continues to be the Holy Grail for business schools. In the near future, it will also come to offer some indication of how well or how poorly the academic community succeeds in meeting the challenges explored above. Respondents to the EABiS/ICCSR survey cited inclusion in program accreditation and business school ranking criteria as being major drivers in years to come. A seal of approval from bodies such as the European Foundation for Management Development’s EQUIS, the Association for the Advancement of Collegiate Schools of Business (AACSB) or the Association of MBAs (AMBA) is much more than just an attractive certificate at reception and a logo on school stationery. Accreditation sends a clear signal of a school’s quality and international pedigree to prospective students, faculty, and business customers. BiS and related concepts such as business ethics, CSR and sustainable development (SD) are relatively new terms in the context of accreditation[11]. EQUIS – Europe’s most important and influential accreditation standard – has included consideration of the schools’ community relations since its inception, but is now piloting some new standards on business ethics and CSR in the peer review. Internationally, other accreditation bodies such as AACSB and AMBA are beginning to address the issue. In recent years, widespread public debate on corporate responsibility and even the extent to which business schools might share the blame for a lack of public trust and confidence in business, has raised questions about accreditation procedures[12]. These debates are sometimes also set within the context of more substantive criticism of business schools, and particularly the nature and success of the MBA[13]. While in some cases there might be links, there is a danger of mixing agendas and clouding issues. However, the media[14], companies, students, faculty, and even the deans of major business schools and awarding bodies themselves[15], have argued for accreditation as a critical piece of the jigsaw.

How can accreditation support educational content development? One key issue is ‘‘integration’’ across the curriculum versus ‘‘stand alone’’ courses. Should accreditation standards support transversal infusion across core subjects such as strategy, finance and accounting, marketing, etc., or should it support separate treatment and consideration with specific modules or courses? This has been fiercely debated in exchanges over the future of the AACSB accreditation standard. Scholars such as Duane Windsor, Diane Swanson and other members of the International Association of Business and Society (IABS), have strongly argued for the idea of a ‘‘stand alone’’ foundation course to complement any

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attempts towards integration. In a series of papers and open letters over the last two years, they have challenged the revised 2003 AACSB accreditation standards, which emphasized the importance of infusion across the board over and above the provision of separate courses. The experience of EABiS practitioners, supported by the survey[16], is that the tendency in Europe in the past has favored ‘‘stand alone’’ approaches. Ultimately, it seems that enlightened thinking on this issue, rather than emphasizing mutual exclusivity, stresses the need for a ‘‘blended’’ approach in schools, where the different approaches to mainstreaming complement and reinforce each other (see Figure 1). As argued in the previous section, this also seems to reflect corporate and student demand for business education to develop leaders and managers across the organization. This can serve not only to raise the bar generally on how managers incorporate BiS considerations into their decision-making, but also, more specifically, shed light on how these issues affect their business function and what skills are needed to manage them[17]. While some might argue that a blended approach equates to a watered down ‘‘halfway-house’’, it avoids the dangers of an overly prescriptive one-size-fits all solution, which could stifle innovation and faculty buy-in at business schools.

Learning from experiences in the corporate world There is a lot to be done in developing thinking around how accreditation could, or even should, require schools to integrate BiS aspects into their own management processes. There are also significant dangers of entangling the two issues of educational content and organizational performance at schools and it is far from clear whether at this stage, these are truly interdependent. Interestingly, corporate experiences on standards in this area might hold valuable learning points for accreditation bodies and schools. A single generally accepted standard on corporate responsibility has not emerged in either category. However, the last five to ten years have seen some significant developments. For instance, on the reporting and accountability front, the Global Reporting Initiative (GRI), Social Accountability 8000 (SA 8000), AccountAbility 1000 (AA1000) and a host of other initiatives have made progress in different areas[18]. The idea of a compulsory standard has had little support and in many cases has met with strong resistance from companies. Many argue that this is a good thing in that it reflects the complex and diverse challenges of the role of BiS across geographies, industries, and corporate cultures.

Some of the most successful initiatives have been those that support and stimulate companies to ask the right questions for their own business. This non-prescriptive approach based on the idea of flexible and voluntary frameworks to help companies develop in this area, is also reflected in the EU’s policy, set out in their 2002 communication, that ‘‘CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’’[19]. While the standards discussed above are clearly designed with a very different purpose in mind than the support of business education content and management, consideration of activity and lessons from the corporate world could prove valuable in structuring developments in accreditation. Another interesting development, which could have relevance for accreditation, is the emerging work of organizations such as the European Foundation for Quality Management (EFQM). EFQM has made strong moves towards incorporating CSR into its management framework[20], catering for organizations who want to treat CSR as a ‘‘stand alone’’ issue as well as those who would like to ‘‘integrate’’ or ‘‘mainstream’’. Although the approach remains untested in all but a few companies, it represents an interesting attempt to support a diversity of approaches within the same framework. Given that EFQM was an important player in the establishment of the EQUIS standard and apparent similarities and parallels with the quality movement, it would be interesting to see how accreditation bodies might explore the possibility of similar measures.

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A multi-stakeholder approach to innovation A number of initiatives and partnerships have emerged in the last two years, whose work has relevance to accreditation. Some of these initiatives bring together business schools to discuss BiS issues. Some go a step further to actively include companies and other stakeholders in recognition of the value and necessity of grounding education on BiS in real world examples and experience. The European Academy of Business in Society itself was established to bring together the business and academic community in Europe along with other stakeholders to discuss the ways and means to develop high quality knowledge, skills and attitudes among existing and future business leaders. Its programs on curriculum development, led by the London Business School and its partnership agreement with EFMD as one of the lead partners in their GRI, have already proved fruitful. At the invitation of the EQUIS team, EABIS has participated in the business school assessment process in a consultative capacity in order to help support and stimulate thinking on this issue. Some of the early findings illustrate the need to build on existing measures within EQUIS. The focus and steer from deans and assessors has stressed the need to ensure EQUIS leads schools to ask the right questions. There has also been strong recognition of the value of the self-assessment process. Some of the key headings that have emerged so far are[21]: J Governance of schools. J Standards of ethical conduct in schools. J Environmental and social responsibility of the school. J Research (disciplinary and interdisciplinary). J Faculty development (PhD, post-doctorate, etc.). J Leadership by deans and faculty heads. J Organization (center, department, chair, etc.). J Specific courses (optional/mandatory). J Infusion into core courses (strategy, finance and accounting, organization behavior, etc.). J Extra curricular and experiential learning opportunities. J Executive education. J Involvement of business community and other stakeholders in course design/delivery to provide reality check and ongoing relevance. These initiatives are complementary to the EFMD Action Learning Project for schools and companies, which will take place over the coming 12 months in partnership with the UNs Global Compact. Other organizations making significant steps forward in this area include the pioneering work done by Judy Samuelson and her team at the ASPEN Institute in the USA, who are also planning a two-year action learning project among business schools. At the national level in Europe, we have begun to see activity in this area. One example is the UK’s CSR Academy, to be launched in July 2004. Currently under the wing of the UK’s Minister for CSR, Stephen Timms at the Department of Trade and Industry, the initiative has received strong support from the business community and other stakeholders. Clive Mather, chairman of Shell UK has led a multi-stakeholder steering group to shape the academy to raise awareness on the need for knowledge and skills on BiS among UK companies, business schools and small and medium-sized enterprises (SMEs). It promises to be an important development that will hopefully be repeated in other countries across Europe. As momentum increases on this issue in the business education community, it is important to ensure that a diversity of approaches is supported around the world. However, at the same it is important to design and implement effective means to promote cross-fertilization and avoid duplication at global, regional and national levels.

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Looking to the future Accreditation standards will need to support business schools to harness the innovation and energy of their staff and faculty to take account of BiS issues in the most appropriate ways for their own organizations. It is unlikely that any attempt towards a one-size-fits-all approach will gain traction or support. Given the diversity of different types of business schools, catering for very different markets[22], not to mention European differences, any attempt at this stage towards that end would seem pointless and doomed to failure. However, this is not to say that stronger measures should be ruled out if change does not come. Perhaps the most important role of accreditation bodies and standards could be to set the tone and parameters within which innovation can take place. In this sense – as early results from EABIS and EFMD’s work on accreditation show – it is often more important to ask the right questions than to give the right answers. In this respect, the peer review process of EQUIS seems to be particularly conducive to a learning approach. But accreditation bodies will need to find ways and means to ensure that conversations go far beyond a five-year review process between senior management and an external assessment team. The aim must be to stimulate ongoing internal reflection, learning and change among a broad base of actors inside and outside schools. Successfully incorporating BiS issues in educational content and management will increasingly be a critical success factor for individual schools and the business education community at large. In this context, accreditation bodies will play a crucial role in providing the platform to ensure business education remains legitimate and relevant.

Conclusion The survey and initiatives discussed above clearly indicate a need to rethink the identity, role and responsibilities of business schools in relation to their students, their business constituencies and the wider community. This has the potential to make business schools more competitive, more responsive and more effective as institutions where knowledge is developed and not just reflected. BiS as a subject area challenges research and teaching boundaries along traditional disciplinary lines. It also calls for reflection on the aims and means of business education, just as it does for the business sector. The best way to fuel this revision is through cross-pollination and partnership approaches to engaging with the marketplace. Many CSR specialists, and indeed business people and academics in general, are already doing this by straddling several roles simultaneously. For example, many are combining roles as researchers and teachers with being consultants to the private sector; or that of practitioners and in-house company experts with being educators in the academic environment. While they are having a refreshing, if not pioneering and invaluable, impact on the field, they are only the start of what is needed, as is shown by the results of the EABiS/ICCSR survey. The two-way conduits between the private sector and business schools that have been opened in this way need to be reinforced and expanded to create an environment of ongoing dialogue and learning. We will also need to find better ways and means to engage civil society actors, policy-makers and others. In this framework, business schools have a vital role to play, not only as educators, but also as facilitators, by extending the teaching and research agenda to include all stakeholders. Business education and research is by nature an academic field that deals with very practical situations and must ultimately produce hands-on solutions, even in the form of theory. Thus, corporate sustainability thinking needs to be built into business education in a way that reflects the real issues that business people have to deal with, in everyday strategic decision-making, not just in times of crisis. If the BiS agenda is to progress to the next stage, new knowledge and skills will be critical. As we have argued above, getting it right can only be achieved through effective collaboration between all parties. However, it remains up to business schools to choose how to go forward, whether to lead, respond or partner depending on their goals, capabilities and organizational context. One thing they can no longer do is ignore this as a passing fad. For companies, business schools, students and society at large, stakes are high.

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Notes 1 ‘‘Business in society’’ (‘‘BiS’’) is the term we have favored in this article to most effectively refer to the wider social and environmental responsibilities of companies, and the debate that this encompasses. It incorporates related concepts such as corporate responsibility, business ethics, corporate social responsibility (CSR), sustainable development, and corporate citizenship. 2 Morsing, 2003. 3 The increase in volume of organizations working on BiS and CSR has even created what The Economist termed a ‘‘CSR industry’’ (Economist, 2004). It remains to be seen whether this will, or should be, subject to market consolidation and shake out in the coming years. 4 CSR Europe, 2001, ‘‘Attitudes and training needs on CSR’’. 5 ICCSR and EABiS, 2003. The full results of the survey are available online at www.eabis.org/education/ Directory 6 The RESPONSE project is part of the EU’s Sixth Framework of Research, the first time they have included CSR in the Framework Program. Under the EABIS umbrella, it will shape a new model of research on social responsibility, with business and academic partners shaping the project to combine the need for high academic quality with quick access to business relevant results. 7 For a recent example see Boyle, 2004. 8 European Multi-stakeholder Forum on CSR, 2004. 9 For more information, visit www.eabis.org 10 Rankings and accreditation are often seen as serving similar purposes. While accreditation reflects external ‘‘market’’ perception, rankings are the business school community’s own quality mechanism. The Finacial Times, Business Week and Economist rankings of business schools raise many of the same issues that emerge from the debate on accreditation and the improvements that are needed to the performance assessment of schools. Although we have chosen, in this instance, not to make rankings the subject of this paper, it is an area that invites future discussion. 11 Mahoney, 1990. 12 Goshal, 2003. 13 For some examples, see Mintzberg, 2004 and Pfeffer and Fong. 14 The Financial Times raised the issue of accreditation in business education, see Oliva, 2004. 15 Samuelson, 2003. 16 ICCSR and EABiS, 2003. 17 Another closely related issue not covered in this article is that of accreditation in companies for learning programs or corporate academies such as the EFMD CLIP award. Given the blurring of boundaries between formal education and company training towards lifelong learning, this could prove another interesting area for accreditation bodies. Recent internal EABIS research demonstrated that the impact of ‘‘in company’’ learning will be statistically very significant for the BiS knowledge and skills debate in coming years. 18 These are not intended to be an exhaustive list of related standards. Nevertheless, for more information visit Global Reporting Initiative – www.globalreporting.org/; SA8000 – www.cepaa.org/SA8000/ SA8000.htm; AA1000 – www.accountability.org.uk/aa1000/default.asp 19 European Commission, 2002. 20 For more information visit: www.efqm.org 21 Adapted from Lenssen, 2004. 22 Lorange, 2003.

References AACSB (2003), International Business School Accreditation Standards, Approved April 2003, replacing standards April 1991, www.aacsb.edu/accreditation/standards.asp

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The Aspen Institute Business and Society programme and the World Resources Institute (2003), Beyond Grey Pinstripes 2003: Preparing MBAs for Social and Environmental Stewardship. Boyle, M. (2004), ‘‘Walking our talk: business schools, legitimacy and citizenship’’, Business and Society, Vol. 43 No. 1, March, pp. 37-68. Caulkin, S. (2004), ‘‘Business schools for scandal’’, The Observer, 28 March, p. 9 (business section). Collins, D. and Wartick, S. ‘‘Business and society/Business ethics courses: twenty years at the crossroads’’, Business and Society, Vol. 34 No. 1, pp. 51-89. CSR Europe, the Copenhagen Centre and the International Business Leaders Forum (2001), Attitudes and Training Needs on CSR. The Economist editorial team (2004), ‘‘Corporate social responsibility is all the rage. Does it, and should it, make any difference to the way firms behave?’’, The Economist, 22 January. Environics International Limited (2003), Global Campus Monitor. European Commission (2002), Corporate Social Responsibility: A Business Contribution to Sustainable Development, Commission Communication (White Paper), July. European Multi-stakeholder Forum on CSR (2004), Report on the Roundtable on ‘‘Improving Knowledge About CSR and Facilitating the Exchange of Experience and Good Practice, Final version 29 April. Gioia, D. (2002), ‘‘Business education’s role in the crisis of confidence in corporations’’, Academy of Management Executive, Vol. 16 No. 3, pp. 142-4. Goshal, S. (2003), ‘‘Business schools share the blame for Enron’’, The Financial Times, 18 July. International Centre for Corporate Social Responsibility (Nottingham University Business School) and the European Academy of Business in Society (2003), Survey of CSR Teaching and Research in Europe on CSR, with the support of the European Foundation for Management Development (efmd). Lenssen, G. (2004), EABIS/EQUIS Consultation Pilot, EABIS Internal Working Paper, May. Lorange, P. (2003), ‘‘Case study: global responsibility – business education and business schools – roles in promoting a global perspective’’, Corporate Governance, Vol. 3 No. 3. Mahoney, J. (1990), Teaching Business Ethics in the UK, Europe, and the USA: A Comparative Study, Athlone Press, London. Matten, D. and Moon J. (Forthcoming), Corporate Social Responsibility Education in Europe. Mintzberg, H. (2004), Managers Not MBAs: A Hard Look at the Soft Practice of Management and Management Development, Berrett-Koehler. Morsing, M. (2003), ‘‘CSR – a religion with too many priests?’’, Interview with Michael Porter in European Business Forum, No. 15, October. Oliva, L. (2004), ‘‘Ethics edges onto courses’’, The Financial Times, 15 February. Pfeffer, J. and Fong, C. ‘‘The end of business schools? Less success than meets the eye’’, Academy of Management Learning and Education, Vol. 1 No. 1, pp. 78-95. Samuelson, J. (2003), ‘‘The state of affairs for management and education and social responsibility’’, Aspen Institute Initiative for Social Innovation Through Business Publication, Keynote address to AACSB International Deans Conference, February. Van Luijk, H. (2001), ‘‘Business ethics in Europe: a tale of two efforts’’ in Frederick, R. (Ed.), A Companion to Business Ethics, Blackwell, Oxford/Cambridge, MA, pp. 643-58. Windsor, D. (Forthcoming), A Required Foundation Course for Moral, Legal and Political Education. Young, S. (2004), ‘‘Getting real: new requirements for teaching ethics in business schools’’, European Business Forum Magazine, Summer.

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Stakeholders: Theory and Practice

Sustainable Success with Stakeholders: The Untapped Potential

Community in Historical Perspective

Radiation Risks in Perspective

Copyright in Historical Perspective

A Shift In Perspective

Fundamentalism in comparative perspective

Modality in typological perspective

Sustainable Success with Stakeholders: The Untapped Potential

Global Communication: Theories, Stakeholders, and Trends

Entrepreneurship in a European Perspective

Peacebuilding: Women in International Perspective

Australian popular music in perspective

Biobanks: Governance in Comparative Perspective

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African Politics in Comparative Perspective

Tibetan Buddhism in Western Perspective

Hominid culture in primate perspective

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Product Liability in Comparative Perspective

Consumer Bankruptcy in Global Perspective

Cultural Attitudes in Psychological Perspective

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