The Business Ethics Blog

A couple of years ago, the editors of Business Ethics Quarterly asked me to write a feature-length review of Managing for Stakeholders: Survival, Reputation, Success (2007), by R. Edward Freeman, Jeffrey S. Harrison, and Andrew C. Wicks. It was a daunting task. The book was a highly anticipated one — the lead author of the book, Ed Freeman, is the man who imported the term “stakeholder” into the world of business ethics back in 1984, in his much-cited (and recently re-issued) book Strategic Management: A Stakeholder Approach. Further, Managing for Stakeholders is a book aimed specifically at a non-academic audience, and yet I was being hasked to review it for a scholarly journal. The 4500-word result appeared in the October, 2009 issue of BEQ (Vol. 19, No. 4).

For anyone unfamiliar with the term, a stakeholder in a company is roughly any person or group that can affect, or be affected by, that company’s operations. It’s a useful concept, though its real contribution to business ethics is up for debate. Freeman’s key insight, nearly 30 years ago, was that business managers have obligations to a range of stakeholders (rather than just to shareholders), and that hence the manager’s job is to balance the interests of various stakeholders. But identifying someone as a stakeholder just means, ethically, that they matter — somehow. That still leaves unanswered a whole range of harder questions about how to balance the interests of various stakeholder groups when those interests conflict.

So, here’s a brief summary of my review of Managing for Stakeholders:

On the plus side:

1) The book’s authors express their intention to tell “a new narrative” about business, one according to which a manager’s legitimate social role goes beyond short-term profit-making. They’re right. We desperately need such a narrative.

2) The authors of Managing for Stakeholders aim their message directly at managers, rather than at other scholars, and they try hard to make it a narrative that managers, themselves, can take up and consider their own. In other words, their book isn’t just about managers, it is for managers.

3) The book wisely encourages managers to seek out what might colloquially be referred to as “win-win” solutions. Creating value for all, when possible, is both wise and ethically good.

On the minus side:

1) The authors of Managing for Stakeholders portray, as the “standard” view to which their view is intended to be an alternative, a view of managerial capitalism that I doubt anyone actually holds. According to them, the “standard” view (held by managers and scholars) is that the goal of capitalism is only to generate value for shareholders, and that other stakeholders need not even be considered. This is of course false.

2) The authors of Managing for Stakeholders try very hard to deny that there is any real conflict between the interests of different stakeholders. They’re right to point out that commerce is a cooperative game from which all voluntary participants ought to benefit; what’s in the interest of one stakeholder needn’t automatically be against the interests of another. But that’s not to say that there’s never any conflict at all.

3) Managing for Stakeholders also seems to assume that the mindset of managers is all that matters — it contains no discussion of corporate culture, and no discussion of the requirements of good corporate governance or the dictates of corporate law.

4) The authors slide from the very reasonable claim that managers ought to manage stakeholder relationships to the the much-less-plausible claim that managers ought to manage the corporation for stakeholders. The latter claim is one that many others believe, but it needs support, and it certainly shouldn’t be confused with the former claim.

5) The book also make a faulty leap of logic in jumping from the very sane claim that business is in some sense about creating value for all to the much-less reasonable claim that it is the role of individual managers to ensure value for all concerned. The latter claim puts a lot of pressure on the very managers these authors seek to help, as well as implying what is likely a violation of employment contracts and committing the fallacy of division.

But the biggest problem with Managing for Stakeholders, I argue in my review, was that it was unlikely to serve well its intended audience, namely managers. For example, the authors of the book steadfastly refuse to cite any social science (including economic) literature to back up their many empirical claims. This is surely a result of their well-intentioned populist approach, but the result is that many claims go unsupported, and managers who want to learn more are left with nowhere to turn. And by telling managers that a “simple” change of mind-set is all that is needed, the book fails to make good on the now decades-old promise to turn the term “stakeholder” from a mere category word into a useful tool for ethical decision-making.