Trendy Causes Are No Substitute for Ethics

By Marianne Jennings

"Stakeholder" is today's hottest buzzword in American^- business ethics. Thinking of downsizing? Don't you dare until you ask those stakeholder employees. Moving a plant? Better consult the stakeholders in the town you're leaving. Bidding on some defense work? See what the antiwar stakeholders think. But stakeholder analysis— developed in the 1960s as a tool of strategic planning—fails dismally as a system of ethics.

The concept of a "stakeholder" had its origins in a 1930s debate between two legal scholars, E. Merrick Dodd and Adolf Berle. Dodd argued that nonshareholders with an interest in a corporation's activities were "absentee owners" and that corporate boards should be held legally accountable for their interests. Dodd wanted corporate boards and managers to become "trustees with multiple constituents," not "attorneys for the stockholders." Berle correctly noted that Dodd's idea contradicted three cen­turies of property law. The debate died, leaving little mark on U.S. law.

A similar idea surfaced in 1963 in an internal research memo of the Stanford Research Institute, a consulting firm. SRI had developed a model for obtaining input from various groups before companies made changes or decisions. SRI defined stakeholders as "those groups without whose support the organization would cease to exist": shareholders, employees, customers, suppliers, lenders and society. A company considering layoffs, for example, would try to anticipate how employees, unions, customers, politicians and the local community would respond, and make adjustments and preparations accordingly.

In 1984 R. Edward Freeman of the University of Virginia popularized the idea, publishing a book called "Strategic Management: A Stakeholder Approach." He broadened the definition of stakeholders:

"any group or individual who can affect or is affected by the achievements of an organization's objectives." Mr. Freeman's definition was probably too capacious; he actually listed competitors among those whose interests a business should take into account. But his initial work, like SRI'S, focused on strategic management. Later, however, he began applying the concept to politically fraught questions like whether to do business in South Africa and whether to market infant formula in developing countries with impure water supplies. In the public mind and in Mr. Freeman's, stakeholder analysis became synonymous with a concern for "social responsibility."

Apart from the definitional imprecision, no one has described exactly what stakeholders are supposed to do once they are identified. Do they vote? Do they negotiate? Or do they just howl? One thinker divides the stakeholder kingdom into alliterative categories- "dominant, dormant, discretionary, dangerous, definitive, dependent, and demanding." This is supposed to clarify matters.

The sloppiness of stakeholder theory is a virtue in strategic analysis, for it encourages managers to think creatively about the potential effects of their decisions. But as a moral system, stakeholder analysis merely promotes trendy political agendas it the expense of genuine ethics. In an era when accounting irregularities, shareholder fraud and overbilling are daily occurrences, stakeholder theory is an excuse for moral disengagement.

Each year Business Ethics magazine publishes an award issue honoring the U.S.'s most ethical companies. This year, five of the issue's 24 pages were devoted to Sears Roebuck & Co., sponsor of the award. Sears described its "holistic transformation" through town hall meetings, front-line manager participation and customer surveys. Last year the chain had four.pages, plus a two-page ad reproducing a Sears internal ethics poster.

Now consider Sears's ethical record. In 1992 the California Department of Consumer Affairs charged the chain with "systematically overcharging" at 33 of its auto-repair centers. Sears subsequently settled the California matter and similar charges in 41 states, paying a total of $15 million in refunds. Sears abolished the compensation system for auto-center employees that it blamed for the problems—then reinstated portions of the system in 1994. On another matter, this year Sears_, settled a class-action suit by agreeing to refund money it had unlawfully collected from customers who had declared bankruptcy. And in August a lawsuit was filed in Georgia and an investigation begun in Florida over allegations that Sears was selling used DieHard batteries as new.

So what does Marjorie Kelly, editor of Business Ethics, say about the seamier side of Sears and the chain's prominence in her magazine? "We don't deprive deserving athletes of Olympic medals for having sloppy lawns." No, but we do take away their medals when they cheat.

Political correctness and feel-good management fads are no substitute for honesty, fairness and respect for the law. Stakeholder analysis has distorted business ethics into interest-group pandering, a trite exercise void of virtue.

 

Ms. Jennings directs Arizona State University's Lincoln Center for Applied Ethics.

The Wall Street journal Europe

 

Vocabulary

 

1. to downsize a company уменьшить размеры (масштабы

downsizing (rightsizing, delayering, деятельности) компании

reengineering)

2. to bid on a contract принимать участие в торгах на получение контракта

3. tool of strategic planning инструмент стратегического

планирования

4. to hold boards legally accountable считать Совет директоров

for the stakeholders’ interests ответственным с юридической т.

зр. за нарушение интересов представителей контактной среды

5. property law вещное право, право собственности

business law торговое право; право,

регулирующее область деловых

отношений

commercial law торговое право

contract law договорное право

6. local community население данного района

(региона)

7. to overbill (overcharge) выставлять счёт на завышенную

сумму

8. refund возврат, возмещение

9. a class-action suit групповой иск - истцом выступает

от имени большой группы людей

один или несколько человек

10 to file a (law) suit возбудить иск

11. to settle a suit удовлетворить иск

12. politically correct (PC) общественно приемлемый

(не оскорбляющий и не

задевающий интересов

представителей к-л этнической,

социальной, возрастной группы

Assignments

I. Suggest the Russian for:

1. stakeholder employees

2. antiwar stakeholders

3. absentee owners

4. capacious definition

5. politically fraught questions

6. moral system

7. accounting irregularities

8. moral disengagement

9. allegations

10. interest-group pandering

11. trite exercise

 

II. Find the English for:

1. идея возникла

2. выяснить позицию различных групп

3. прекратить существование

4. предугадать

5. помимо ч-л, не говоря о

6. неточность определения

7. расплывчатость теории

8. возмещение (убытков), возврат (переплаты)

9. взимать плату

10. объявить о банкротстве

11. неприглядная сторона деятельности компании

 

III. Explain the meaning of the following sentences:

1. “Later, however, he began applying the concept (of stakeholders) to politically fraught questions, like whether to do business in South Africa and whether to market infant formula in developing countries with impure water supplies...”.

2. “In the public mind... stakeholder analysis became synonymous with a concern for ‘social responsibility’ ”.

3. “What does Marjorie Kelly... say about the seamier side of Sears and the chain’s prominence in her magazine?”

4. “Political correctness and feel-good management fads are no substitute for honesty, fairness and respect for the law”.

 

IV. The author of the article comes to the conclusion that stakeholder concept is nothing

More than interest-group pandering. Do you agree or disagree with this point of view?

Substantiate your answer.

V…The extract below is taken from the book by William Q. Judge “The Leader’s Shadow”. [1] Read it and present its contents in a 10-point plan