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Stakeholder Debate: Beyond the Rhetoric

We all have the right to change our minds.

Two years ago, I felt some enthusiasm when the Business Roundtable, a consortium of the nation’s most powerful CEOs, declared that their companies should be devoted to the interests of “stakeholders.”

Up to that point, the prevailing wisdom held that a corporation should dedicate itself to the welfare of its shareholders only, largely by maximizing long-term profits.

This policy was framed by economist Milton Friedman, who contended that market forces would take care of everything else—product quality as well as environmental and social consequences. (I feel no obligation to explain how he thought this would happen.)

At this point “stakeholders” has become a corporate buzzword—one that is now laced with insincerity. In a lead editorial, The Economist newsmagazine stated, “Members of the Business Roundtable who took the pledge to look after all their stakeholders went on to cut hundreds of thousands of jobs last year and are busy campaigning against tax rises to pay for the social cost of the pandemic.”

The Economist takes issue with corporate policy statements such as those denouncing prominent CEOs’ criticisms of the recently passed Georgia voting act.

The Economist’s position has its inconsistencies. It acts as if up to now business has kept an Olympian distance from politics that it must maintain. But of course business interests have always meddled in political matters and show every sign of continuing to do so.

Nevertheless, at this point there seems to be something fundamentally mealy-mouthed about rhetoric about stakeholders, and one imagines that like many corporate fads, it will vanish in a couple of years.

That leaves the issue of corporate responsibility unsettled—as it has long been. In a 1908 treatise on ethics, John Dewey, one of America’s most distinguished philosophers, and James A. Tufts wrote:

“The individual with a just grievance is likely to feel toward the corporation the feeling that he is dealing with a machine, not with an ethical being, even as the company’s servants are not permitted to exercise any moral consideration in dealing with the public. Public sentiment . . . cannot fix moral responsibility definitely upon either stockholder or manager or employee, and conversely neither stockholders, nor manager, nor employee feels the moral responsibility which an individual would feel. He is not wholly responsible, and his share in the collective responsibility is so small as often to seem negligible.”

Rhetoric about stakeholders seems to have changed this situation little if at all.

Dewey and Tufts add, “The collective business enterprises, when incorporated, are regarded as ‘juristic persons,’ and so gain the support of the law as well as become subject to its control.”

The concept of a corporation as a legal person has received some attention in recent years—as well as notoriety, as we see from the documentary The Corporation. Maybe it creates a way of thinking of corporate responsibility.

In short, if a corporation is legally a person, it has the same moral duties as an individual person. I have a responsibility as a person not to pollute my neighbor’s property with sewage. The Salinas leafy greens industry might take this point and make some more demands upon their neighbors who are Monterey County cattlemen.

The bible of free enterprise is Adam Smith’s Wealth of Nations, published in 1776. Few free-enterprise enthusiasts realize that Smith wrote a companion volume entitled The Theory of Moral Sentiments. In short, free enterprise cannot work properly without moral responsibility.

This responsibility is all the more acute when it affects the fates of thousands of other persons—whether you call them “stakeholders” or not.

For all of its confusing details, history is quite clear: civilizations—including the United States—grow and become great because of their moral integrity. They collapse when this integrity falls into disrepair.

Where is our civilization in this process? Your decisions will form part of the answer.

Richard Smoley, contributing editor for Blue Book Services, Inc., has more than 40 years of experience in magazine writing and editing, and is the former managing editor of California Farmer magazine. A graduate of Harvard and Oxford universities, he has published 11 books.