The Contained-Rivalry Requirement and a ‘Triple Feature’ Program for Business Ethics

I would like to thank Wayne Norman for having presented me a first version of this threefold division of economic agent’s moral obligations. In the hope that he will eventually publish something on that subject, I present my own formulation of this tripartition.

The groundwork on adversarial ethics as been done by law ethicists, see for instance Luban (1988) and Freedman (1975). Applbaum’s (1999) work formulates a general criticism of various adversarial schemes. See also Phillips and de Leon (2005) and Heath (2007).

Hence, it is difficult to produce a definition that would be applicable to all of them. It might explain why economists have neglected this task for so long, as Hodgson (2008) puts it: “economists have for long been concerned about market prices, but, despite this ongoing preoccupation, until recently, there has been little discussion of the nature and operation of markets themselves”.

This definition is more or less equivalent to Hodgson’s (2008) definition: “Markets involve multiple exchanges, multiple buyers or multiple sellers, and thereby a degree of competition. A market is defined as an institution through which multiple buyers or multiple sellers recurrently exchange a substantial number of similar commodities of particular type”. He outlines the importance of the four characteristics mentioned above. However, the description proposed in this paper is slightly shorter for two reasons. First, it might be difficult to differentiate, at the most fundamental level, a seller from a buyer. In a barter scheme for instance (i.e., a system where exchanges are not mediated by a currency) an agent can occupy these two roles, yet that scheme would also be described as a market. Second, it might not be necessary to specify that “similar commodities” are exchanged since the type of things exchanged in a market might be diversified.

On this question, see Peter (2004) and Olsaretti (1998, 2004).

The two theorems show, first, that “under certain conditions, competitive equilibrium is Pareto-efficient” and, second, that “any Pareto efficient allocation of resources may be decentralized as a competitive equilibrium” (Lockwood 2008). About welfare economics, pareto-efficiency or the two fundamental theorems, see Feldman (1980, 2008). For the mathematical demonstration of the theorems, see Arrow and Debreu (1954).

A “planned economy” or a “command economy”, see Ericson (2008).

The formulation is purposefully general. The specific benefits of markets have been stated in various ways. It is not my intention here to evaluate which claims is the most appropriate. It might be argued, for instance, that they increase agent’s aggregate utility, well-being, economic growth, etc. Then, there are various ways to define these concepts. Utility is sometimes (but not always) understood as well-being. Well-being is sometimes (but not always) understood as preference satisfaction. Economic growth might also be defined as the gross national product or other indicators might be used. Then, it might simply be stipulated that markets are more efficient in producing these benefits, that they are pareto-efficient in producing these benefits, that they maximize the production of these benefits and so on. Not only are these claims not mutually inclusive, but their empirical validity is moot. If an example has to be given, Buchanan (1985, Chap. 2) demonstrates the lack of consensus on the efficiency thesis of competitive markets, and the lack of consensus on the validity of efficiency as a measure of markets outcomes.

If it were made relative to other agent’s capacities, the scheme would be adversarial. If the State decides to fire 1 % of its least efficient managers every year, the preference of every manager (to keep their job) would be exclusive in the sense described above. That is, not all managers’ preferences can be satisfied at once. The other mechanism given as an example (firing managers whose sales are not sufficient) doesn’t make a scheme adversarial if every manager can possibly sell enough to avoid being fired.

On pareto-efficiency and welfare economics, see Footnote 6.

For a similar phenomenon in the cosmetic industry, see Economist (2011).

McMahon (1981) also uses the expression role morality to describe the different morality that appears in a market. He provides an interesting analysis of the claim that lowering ordinary moral standards is appropriate or inevitable in the business contexts.

Heath (2007, p. 359) writes: “a significant portion of the issues traditionally dealt with by business ethicists, viz. those that pertain to market transactions, fall into the domain of adversarial ethics”, its main objective should be the “preservation of healthy competition, even when the law fails to offer sufficient guarantees”. It might be interesting to point out that, besides him, Phillips and de Leon (2005), Paine (1990), and Carr (1968) defended a similar position. The latter famously compared business practices with a poker game, suggesting the same moral standards should apply in both.

This type of moral prescription is common in the literature on commercial strategies. Porter, to name one popular example, claims that an enterprise ought to take advantage of five competitive forces: the rivalry among existing firms; the bargaining power of suppliers; the bargaining power of buyers; the treat of new entrants; and the treat of substituted products or services (Porter 1980, p. 4). The competitive nature of a market “is rooted in its underlying economic structure and goes well beyond the behavior of current competitors” (p. 3). The financial return a company will be able to achieve depends on its capacity to “defend itself against these competitive forces” and “influence them in its favor” (p. 4).

See Footnote 8.

For instance, corporate citizenship theories in business ethics focus on the similarities between corporations’ rights and responsibilities and citizen’s rights and responsibilities. This discourse on the socio-political moral obligations of corporations has arisen primarily within corporate circles as a way of describing and praising businesses that “did a little more”, that “gave back to community,” or that “recognized the interdependence of businesses and the community in which they operate” (Néron and Norman 2008, p. 5). However, the argument presented here does not allow endorsing or rejecting particular theories of corporate citizenship.

Although it could be traced back to Commons (1931, pp. 652–654), see also Backhouse (2002, p. 199).

See, for instance, Boatright (1996).

A principal–agent relation defines a relation where an agent, the principal, hire another individual, the agent, to promote his interests. The expression “agency theory” refers to the challenges and various normative implications generated by that type of relation, see Danley (1999) and Heath (2009).

Also referred to as the shareholder or stockholder theory. Friedman is seen as one of the most prominent proponents of the shareholder primacy view. However, most of the business ethics views attributed to him come from an article published in the New York Time Magazine (Friedman 1970). Earlier formulations of his ideas might be found in a longer text on the relation between capitalism and freedom (Friedman 1962, specially Chap. VIII). For a critical perspective on the shareholder primacy view, see Macey (1991), Hasnas (1998), and Schaefer (2008). For a critical perspective of the libertarian justification of the shareholder primacy view, see Nunan (1988).

On the foundation of SkH theory, see Freeman (1984), Evan and Freeman (1988), and Freeman et al. (2010). For a critical perspective, see Gibson (2000), Heath and Norman (2004), Boatright (2006), and Heath (2007).

A similar point is developed in a later paper by Norman (2011, p. 43): the “concepts, principles, and normative methods” used “to set the levels of regulations” for economic agents should also be used in “identifying and justifying beyond-compliance obligations”.

Here, a just society would be described as a society that minimized the constraints on individual liberties. Many thinkers have been associated with that view. Nozick and Hayek are two popular examples. A more systematic formulation of the main libertarian idea might be found in Steiner’s (1994) work. Under his view, some constraints to individuals’ liberties are acceptable if they intend to protect some core libertarian principles like the property of the self, free circulation of persons and goods and just acquisitions of goods, see also Kymlicka (2002, Chap. 4).

See, for instance, Kaplow and Shavell (2002) and Kymlicka (2002, Chap. 10).

Three different arguments are put forward to justify the shareholder primacy view. The first justification is libertarian. Shareholders should be allowed to use the firm’s assets however they want to. Not granting them these rights would be an infringement of their individual liberties. Friedman (1962, p. 12) writes: “As liberals, we take freedom of the individual, or perhaps the family, as our ultimate goal in judging social arrangements”. According to second justification, economic competition is the best way to maximize wealth or well being. And this is why corporations should be free to manage their assets how they want. Hasnas (1998, p. 22) labels this justification the “utilitarian argument”. The third argument is deontological in the sense that it focuses on the duties—or fiduciary obligations—of a corporation’s management toward the shareholders. It is based “on the observation that stockholders advance their money to business managers on the condition that it be used in accordance with their wishes” (p. 22). Not respecting these wishes would be like a breach of contract or, more broadly, like breaking one’s word or promise.

Goodpaster (2010) makes a similar point when he claims that SkH theory, despite being an evolution over stockholder theory, is not a sufficient account of corporate responsibilities. It does not provide a “comprehensive moral thinking” of the corporation’s responsibilities, that should also include the implications of a corporation’ s decisions for “cooperation among sectors to achieve a common good and social justice” (pp. 128–129).

In other words, as long as Rawls’ two principles of justice are respected, see Rawls (1999, Chap. 2). For an overview of the theory, see Freeman (2003, Chap. 1) and Kymlicka (2002, Chap. 3).

On the broader question of the relations between ethical and profitable practices, see Paine (2003), Margolis and Walsh (2003), and Vogel (2005). According to Margolis and Walsh, it is difficult to draw any clear conclusion.

Some SkH theorists have branded the imprecision about the normative or descriptive stance of the theory as an advantage. About the variations between normative, descriptive and instrumental SkH theory, Freeman et al. argue that these distinctions are not useful for every purposes. The type of Rortian philosophical pragmatism they want to endorse incite them to be open to all the possible argument one can make with the concept of SkH, as long that it creates “a context for thinking about how organization studies might move forward in a way that makes ethics, science and other disciplines central and essential players” (Freeman et al. 2010, p. 78). More specifically, they write: “There has been a great deal of discussion about what kind of entity “stakeholder theory” really is. […] Others have suggested that there is just too much ambiguity in the definition of the central term for it ever to be admitted to the status of theory. […] As philosophical pragmatists we do not have much to say about these debates. We see “stakeholder theory” as a “framework,” a set of ideas from which a number of theories can be derived.” (p. 63).

This variation is presented in the last paper of a four-paper series were he deals with various issues around the SkH theory, see Kaler (2002, 2003, 2006, 2009).