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Business Ethics: A European Review




    ´
A precis of a communicative
theory of the firm
Jeffery D. Smithn

Introduction                                                                 stakeholders as part of the communicative, i.e.
                                                                             consensus-building fabric of modern society, or
Over the last two decades there have been                                    whether such relationships are merely strategic in
noteworthy attempts to apply normative moral                                 a way that emphasizes the satisfaction of private
and political theory to the conduct of business                              over collective interest. Although the answer to
firms. These applications draw upon the work of                               this general question remains open within the
Aristotle, Immanuel Kant, John Rawls, various                                communicative ethics literature, I take an ap-
figures of the social contract tradition, and the                             proach that maintains that economic organiza-
writings of the so-called communitarians (see                                tions are not only partly communicative in nature
Keeley 1988, Solomon 1993, Etzioni 1998, Do-                                 but it is indeed appropriate that the ideals set
naldson & Dunfee 1999, Bowie 1999, Phillips                                  forth by communicative action structure the terms
2003). A body of literature that has received                                of cooperation between their members. Business
substantially less attention by business ethicists,                          actors, while strategically motivated in basic ways,
however, is the work of European theorists who                               cannot be exclusively strategic without jeopardiz-
advocate an approach termed discourse, or com-                               ing the successful attainment of their shared
municative ethics.                                                           interests. I also hold that communicative action
  This paper proceeds under the assumption that                              is only enabled through a complicated network of
there is room to develop a communicative theory                              social institutions. If businesses shape and affect
of the modern business firm that can provide a                                the possibility of consensual social action in other
perspective from which to evaluate an array of                               spheres of modern society, then they too are
normative issues in business ethics, e.g. corporate                          partly subject to the normative constraints pro-
social responsibilities, stakeholder entitlements                            vided by the ideal of communicative interaction.
and obligations, managerial decision making,                                    In what follows, I will develop this position with
and corporate governance. This task, however, is                             exclusive focus on the philosophical work of
quite complex and cannot be completed in its                                 arguably the most prominent communicative
entirety here; as a result, the purpose of this                              ethicist, Juergen Habermas (1990: 43–115,
analysis will be to provide a preview of a more com-                         1996a). Since I do not purport to provide an
prehensive application of communicative ethics.                              interpretation of Habermas as much as an
  My focus will center on the first step of such an                           extension of some of his insights, I assume large,
application; that is, whether it is reasonable to                            controversial features of his work without de-
conceive of the relationships between business                               fense. The motive behind this exploration is a
                                                                             curiosity in uncovering what entitlements and
                                                                             responsibilities corporate stakeholders assume
                                                                             when they are engaged in the mutually benefi-
n
 Assistant Professor and Director of the Center for Business, Ethics
and Society, School of Business, University of Redlands, Redlands,           cial acceptance of risk and reward that consti-
CA, USA.                                                                     tutes business activity. Broadly speaking, I am


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and 350 Main St, Malden, MA 02148, USA.                                                                                       317
Volume 13 Number 4 October 2004



interested in what moral principles are implied        able needs and solutions. The promise of com-
from the fact that business organizations are          municative ethics for business ethicists is that it
composed of differently situated and differently       can provide a procedural vantage point from
interested groups of individuals who sometimes         which the relationships that characterize the
hold competing and mutually exclusive ends.            modern corporation can be normatively assessed
How can their diverse economic interests be justly     and managed.
addressed given that these differences stand              Habermas limits his normative theory to an
in contrast to the shared interests they have in       exploration of the moral principles that can be
the success of the firm? Although I will provide        rationally justified in the face of the persistent
no definitive answers to these questions in             disagreement that characterizes modern, pluralis-
this paper, I will begin the process of constructing   tic societies. He begins this account with the
a communicative perspective from which these           assumption that moral claims have the feature of
questions can be asked.                                being made with the anticipation and expectation
                                                       that there are good reasons to support the validity
                                                       of the claim that every listener can, in principle,
Communicative and strategic action                     acknowledge. Moral claims, thus, are a species of
                                                       what I have been calling communicative action, or
Juergen Habermas maintains that moral princi-          consent-oriented action (Habermas 1984: 286,
ples are justified, and ultimately conferred valid-     Baynes 1992: 80). Communicative action is social
ity, when they meet with the acceptance of             activity with the primary aim of bringing about
individuals engaged in an argumentative discourse      mutual understanding, rational agreement, or
about the principle’s ability to satisfy the needs     consent. Since communicative action is typically
and interests of all affected parties. His commu-      mediated by language, Habermas focuses his
nicative ethics provides a procedure designed to       attention on moral claims and their purported
provide an examination of the principles that can      end of enabling the recognition of certain reasons
govern the interaction and cooperation of a            as warranted grounds upon which to accept a
plurality of groups that have disparate value          normative, action-oriented claim about what
orientations, interests, and conceptions of the        ought to be done. Moral assertions are distinctive
good. Institutionalizing argumentative discourse       in that they specify universally valid human
enables a type of coordination of interests by         interests that are capable of obliging individuals
uncovering an insight into the interests of other      whatever their specific value orientations or
individuals. This, in turn, builds solidarity be-      limited set of interests. Linguistically mediated
tween those who reach collective agreement about       moral action, then, is pragmatically based on the
how to regulate the terms of their social lives.       presupposition that moral claims can lead to a
   Communicative ethics, unlike other contempor-       mutual recognition of the claim through inter-
ary work in ethical theory, maintains that moral       subjectively acceptable reasons.
norms governing social interaction are the result         In this light, Habermas’ work can be broadly
of reasoned, dialogical exchanges between differ-      viewed as an attempt to redeem the Kantian
ently situated individuals. In this respect, com-      project of uncovering a universal basis for moral
municative ethics is centrally procedural in that it   principles without appealing to an overly formal
does not recommend substantive moral norms             conception of practical reason or otherwise
but, instead, proposes that they result from           controversial metaphysical assumptions about
institutionalized discourses where those affected      human autonomy. The possibility of universal
jointly arrive at well-reasoned principles. Impor-     moral principles rests, instead, on the pragmatic
tance is placed on establishing reliable mechan-       necessity of individuals to coordinate their activ-
isms for discursive interaction where different        ities amongst each other on the basis of shared
constituencies and groups can address competing        reasons. Habermas maintains that the reasons
interest claims on the basis of mutually recogniz-     that support the universal validity of moral claims


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Business Ethics: A European Review




can be uncovered through a process of dialogic           oriented toward mutual understanding and con-
interaction among participants who may have              sensus can be preserved in the face of ongoing
very different interests or conceptions of the good      disagreement when those who disagree ‘thematize
life; hence, by identifying principles that express      contested validity claims and attempt to vindicate
universal interests, he takes seriously the liberal      or criticize them through arguments’ (Habermas
notion that certain human interests can be               1984: 18). For the special case of moral claims, the
recognized by all individuals whatever their             efforts to preserve rational consensus through a
concrete world views or particular ends. A society       process of argumentative discourse presuppose a
that is able to coordinate its activities must rely on   number of rules. Indeed, Habermas (1990: 86–93)
claims that everyone can, even if only implicitly,       explains that these rules are inescapable assump-
offer their assent. In Habermas’ terms (1984: 286–       tions behind the very effort to engage in commu-
287; 1990: 102), the restoration of communicative        nicative action. As long as you are a participant
action, oriented toward consensus, is necessary          using language to make claims that are designed
for the basic processes of socialization, social         to secure recognition from listeners, you presup-
integration, and shared cultural reproduction.           pose that there can be reasons uncovered that
   Although much of our day-to-day interaction           support your assertion. The ideal process of
proceeds in a communicative fashion – i.e., we           presenting and reconstructing this search for
act and speak in ways that implicitly rely on            reasons just is the pragmatic expression of the
agreement – Habermas admits that communica-              very rules that guide Habermasian discourse.
tive action often breaks down because of the             These rules include the equal rights of all affected
inability of certain claims to generate consensus.       parties to participate in the process of argumenta-
The inability of individuals to act in consensual        tion, an absence of coercive actions, consistency in
fashion runs the risk of leading to what Habermas        the use of language, the right of everyone to offer
(1990: 58) calls rational–purposive action – action      any relevant objection, the truthfulness of all
that is not oriented toward rational understanding       participants, and the right of everyone to express
and mutual consent but premised on the attain-           their needs and interests (cf. Baynes 1992: 80).
ment of certain ends not tied to consensus as such.         Through a complex maneuver, Habermas con-
Rational–purposive actions come in two forms:            cludes that from these necessary presuppositions
instrumental actions that are goal-oriented inter-       of argumentative discourse and the idea that
ventions in the physical world, and strategic            moral claims are justified only if they can generate
actions that are attempts to influence the thoughts       consensus to coordinate social action between
and behavior of others for the purpose of                individuals, there is one basic rule that all moral
achieving private ends. Although there is an             norms must meet in order to carry the force
overlapping area between instrumental and stra-          of reason (Habermas 1990: 57–68; Rehg 1994:
tegic action, strategic action is particularly worri-    56–84). He labels this rule (U) because, like
some for Habermas because it is social interaction       Immanuel Kant’s Categorical Imperative, it sti-
that subordinates, or perhaps purposely avoids,          pulates that all justifiable principles must be
mutual understanding in order to achieve other           universalizable. In Habermas’ case, however,
ends like power, economic efficiency, or other            universalizability is not a formal requirement of
egocentric aims. Breakdowns in communicative             maxims of action, but a requirement concerning
action can naturally lead to strategic action            the acceptability of a proposed principle within
because coordination needs to take place even            argumentative discourse.
without consensus.                                          (U): a moral principle is justified just in case all
   Strategic acts such as deception, coercion,              affected can freely accept the consequences and
manipulation, and instrumental purpose can be               side effects that the general observance of the
avoided if breaks in the fabric of communicative            principle can be expected to have for the satisfac-
consensus are repaired through a discursive                 tion of the interests of each individual (Habermas
process of argumentation; that is to say, action            1990: 93)



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(U) summarizes the basic procedural logic behind        distributive schemes that acknowledge the impor-
moral argumentation and the discovery of accep-         tance of economic resources in the attainment of
table reasons to support a proposed principle: a        these entitlements are likely candidates for uni-
principle is rationally justified only on the            versalizable moral principles.
condition that all others who are affected by the
principle are rationally convinced of its validity.
So the consensus required by (U) is significant          Communicative ethics and business
because it identifies moral principles that partici-
pants in discourse ‘arrive at together’ by looking      There are two general ways in which commu-
for reasons that every other participant can            nicative ethics is relevant to business. First, as an
endorse (Rehg 1994: 77, 78).                            institution that affects the distribution of rights,
   Before exploring the applications of this            responsibilities, benefits, and burdens in modern
approach to themes in business ethics, it is worth      society, businesses and their agents have respon-
reiterating some important limitations to Haber-        sibilities to uphold the principles that are identi-
mas’ theory. Moral discourse is a process whereby       fied and justified through public moral discourse.
individuals who are communicatively oriented            Insofar as consensus emerges about the appro-
attempt to restore consensus on issues that have        priate ways to encourage and regulate business
temporarily resulted in disagreement. Habermas          activity there are norms to which businesses ought
is careful to stress that his theory itself does        to adhere. In other words, businesses, at a
not offer any substantive principles; rather, his       minimum, need to further the interests of all
theory is purely procedural in that such principles     who are affected by their activity. Second,
can only be determined through actual discourses.       corporations, despite being largely private asso-
Moral claims that are redeemed through dis-             ciations, are stable and successful only when it is
course represent values that are generalizable          recognized that the relationships between their
because claims that survive the process of moral        stakeholders are communicative, and not merely
discourse are those that can be recognized by           strategic in nature. This fact yields the interesting
everyone. Moral reasons, thus, can be understood        result that discourse is not simply a mechanism to
as discursive reasons, i.e., reasons that can be        regulate business at the level Rawls refers to as the
recognized as acceptable warrants by participants       ‘basic structure of society’, but is also germane to
within discourse.                                       the negotiation and management of moral con-
   The domain of the moral is clearly limited by        cerns between consociates within organizations. I
Habermas to those normative issues that are             will take up each of these applications in turn
capable of expressing generalizable interests.          (Rawls 1971: 7).
Ethical matters concerning individual or group
identity, value-oriented assessment of personal         Public morality, law, and business
ends, or questions of the good life are important       Habermas’ discourse ethics is a theory of social
to be sure; however, discourses concerning these        morality that governs the entire scope of public
questions are not geared toward the ‘mutually           interpersonal and institutional relations. To the
expectable values’ discovered within moral dis-         extent that businesses are units of civil society that
course. Habermas envisions his communicative            impact such core human interests as self-determi-
ethics as providing the conceptual framework            nation, opportunity, and welfare, there are well-
needed to develop a theory of justice that              defined responsibilities to the general interest of
articulates the basic elements of a stable system       citizens. Reed (1999a, b), for example, has argued
of public morality. Although he is reluctant to         that business activity functions in the general
specify the content of this system, the demands         interest only when three conditions are met. First,
of public recognition through individual rights,        individual profit seeking through cooperative
liberties, formal opportunities, guarantees to a life   modes of production is justified only when
consistent with one’s lifeworld commitments, and        the firm intends to provide gains in economic


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Business Ethics: A European Review




welfare to its stakeholders and that these gains are       accept its role in regulating social life. The key
appropriately distributed to everyone who has              difference for the domains of morality and
contributed to the firm’s productive activities.            legitimacy rests in the fact that legal discourses
Second, because of specific failures of the market          encompass moral, ethical and pragmatic reasons
to deliver such gains in welfare, there are generally      in the course of examining the validity of a
recognizable reasons to prefer regulatory struc-           proposed law. The creation of law characteristi-
tures that ensure the protection of the natural            cally takes into consideration a wider array of
environment, public safety, and competition in             functional questions and aims (e.g., assessments
order that the public benefits of individual profit          of efficient means and strategies), focuses, at
seeking are realized. Finally, business activity           times, on negotiation and bargaining processes,
upholds the general interest as long as it does not        and tends to be concerned with concrete problems
‘invade other realms’ that should be governed by           and policies rather than the mere implementation
non-economic ends. Reed is particularly con-               of abstract moral insights (Rehg 1994: 219;
cerned with the ways in which businesses have              Habermas 1996b: 453). Still, the fact that Haber-
been able to supplant reflective individual choice          mas (Habermas 1988: 243–244) argues that
by contributing to the creation of a ‘consumer cul-        ‘legality can produce legitimacy only to the extent
ture’ and how the ends of business have distorted          that . . . legal discourses are institutionalized in
the communicative aims of other institutions, e.g.,        ways made pervious to moral argumentation’
political parties and administrative agencies.             exposes the deep linkage between legitimacy and
   Another way that the norms of public morality           morality that Habermas derives from the ideal of
are brought to bear on business is through the             communicative action. Law, in a fundamental
creation of relevant laws by legislative, adminis-         sense, is a mechanism for the integration of moral
trative, or judicial means. This issue receives            interests into norms that are implemented and
extensive treatment within Habermas’ (1996b)               enforced through positive means.
theory of law in Between Facts and Norms. There               In this light, corporate agents can be said to act
he develops a principle of democratic law forma-           illegitimately when their actions either (a) contra-
tion whereby formal political institutions have a          vene the established provisions of existing legit-
central (although not exclusive) role to play in the       imate law or (b) undermine the conditions
maintenance of legitimate law. According to his            necessary for the ongoing development of legit-
so-called principle of democracy, Habermas                 imate law (cf. Reed 1999b: 27). The former
(1996b: 110) maintains that statutes can claim             requirement needs little explanation beyond the
legitimacy only when they meet ‘with the assent            fact that businesses are legal agents subject to the
(Zustimmung) of all citizens in a discursive process       constraints endorsed through a discursively struc-
of legislation that . . . has been legally constituted’.   tured legislative process. The latter provision is
Laws consistent with this principle reflect a kind          more complicated, but no less important. Haber-
of popular autonomy among the citizenry to                 mas stresses that modern society must be under-
reflectively endorse the laws to which they are to          stood as a ‘self-legislating’ legal community that
be subjected (Habermas 1988, 1996b: 118–131;               seeks to organize its common life on the basis
Reed 1999b: 26). Habermas (1996b: 107) draws an            of laws that receive the assent of all affected
indirect, but important, connection between (U)            individuals. The ideal of a self-legislating polity
and the principle of democracy. Indeed Habermas            necessitates the legal recognition of certain rights,
holds that both principles are ‘co-original’ in the        all of which are necessary to maintain a society
sense that the normative realms of morality and            constituted on the basis of law, so construed
legitimacy are derived from the same core                  (Habermas 1996b: 121–126). Accordingly, basic
principle, (D), expressed in the very idea of              rights of private autonomy are necessary to
communicative action, i.e., that an action norm            preserve the freedom of speech, conscience, move-
is valid only on the condition that all of those who       ment, and association necessary to engage in
are possibly affected by it could find reason to            public discourse. Habermas also outlines rights to


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legal protection and due process under the law so       of corporate responsibility that stipulates that
as to prevent capricious penalties against those        businesses have responsibilities only as members
who express dissent or who are otherwise subject        of civil society ignores this complexity and leaves
to the authority of other, more powerful institu-       businesses qua businesses immune from direct
tions. Finally, he argues for two broad categories      moral scrutiny.
of legal rights that protect individuals’ entitlement      It is fruitful to understand how corporate
to direct and indirect participation in legislative     responsibilities fit within the politico-legal recog-
processes as well as the welfare conditions nece-       nition of universal moral norms; however, busi-
ssary for the exercise of all other rights (Baynes      nesses, as organizations, are significant in their
1994: 210–212). It is therefore incumbent upon          own right in helping to shape the possibilities of
corporations to refrain from activities that under-     communicative action. Corporations are success-
mine these rights because they serve as necessary       ful to a large extent when their stakeholders can
conditions for the development of legitimate laws.      identify and share interests that enable efficient
Such expectations may include, for instance,            coordination of their efforts. The prevalence of
prohibitions on penalizing employees who are            work, expansion of private enterprise into areas
interested in organizing labor unions, respect for      formerly managed by public entities, and the
the privacy of employees in the workplace, an em-       dependence of local communities on corporations
ployer provision of due process before dismissals,      for development, underscore how the interests of
and the responsibility not to engage in political       all corporate stakeholders are intimately con-
activities that undermine the ability of individuals    nected with one another. Thus, in approaching
and communities to effect legislative change.           the application of communicative ethics to busi-
   With this said, we should resist the temptation      ness, I contend that we must be attentive to both
to conceive of corporate responsibility as arising      the need for corporations to internalize moral
merely from the external constraints of public          responsibilities as well as identify and apply such
morality discussed thus far. Viewing the firm as         responsibilities via moral discourse at the organi-
simply one of many regulated institutions fails to      zational level. I will take up some challenges to
address the special divisions and relationships that    this contention in the following section and then
characterize life within the firm. As a number of        move to a more systematic review of the commu-
contemporary stakeholder theorists have argued,         nicative dimensions of stakeholder relationships.
the unique nature of commercial relationships,
and their associated risks and rewards, generates
special moral considerations beyond mere obedi-         Communicative action within organization
ence to politically endorsed regulations (Phillips &    The normative authority of Habermas’ procedure
Margolis 1999). Moral matters in business are           of moral discourse originates from the practical
characteristically matters about how agents within      commitment of individuals to engage in commu-
the organization are to exercise moral discretion       nicative action. There is no a priori or otherwise
and balance the interests of individuals who make       metaphysically controversial foundation for com-
contributions to the success of firm. Such issues        municative ethics; its foundation rests simply in
are not exclusively a function of how the insti-        the analysis of the normative presuppositions
tution’s goals fit within the larger aims of civil       behind actions oriented toward reaching mutual
society or how the outcomes of business need to         understanding.
be adjusted to suit norms that take into account          This point is crucial; for if businesses, as social
other socially endorsed principles. Letting moral       institutions, are thought to further communicative
obligations trickle down to business merely from        ends, we should expect business relationships to
the prior demands of the law similarly neglects the     exhibit this pragmatic characteristic. Upon first
observation made by others that business is itself      blush, however, this seems dubious; there is a
a union of individuals with shared, yet simulta-        rehearsed history of argument in business ethics
neously distinct interests. Opting for a definition      that speaks to the inherent strategies that lurk


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behind the motives of business agents. The fact        through happenstance but through negotiated
that stakeholders often enter into business rela-      collective action. The most obvious examples of
tionships with doubts about trust, solidarity, and     such forms of strategic action are negotiated labor
the extent to which other stakeholders may             disputes. If we assume that a negotiated dispute is
employ strategies that compromise their interests      strategic in character, then, again, the conver-
suggests that business relationships are inherently    gence of assent between employees and managers
strategic rather than communicative. More to the       does not have its roots in mutual recognition of
point: business actors take their relationships with   some asserted interest, or a shared rationale as to
other stakeholders as strategic in the sense that      why the settlement is preferable, but simply an
they expect stakeholders to employ tactics that        agreement that relies on the contingent, over-
further some specified goal (often a self-interested    lapping aims of each party. A similar strategic
goal) at the expense of mutual understanding and       analysis might be offered for manufacturers and
consensus-building (French & Allbright 1998).          suppliers who compromise in good faith about the
Would not this speak strongly against the insti-       terms and conditions of a long-term contract only
tutional application of communicative ethics in        in the name of their private accomplishments.
the way that his being suggested?                         Finally, there are undoubtedly situations where
   This question can be cast more precisely by         a stakeholding group asserts their interests by
examining three distinct types of rational–purpo-      attempting to subordinate or suppress the satis-
sive action in business that may, sometimes, be        faction of another group’s interests. Call this kind
rhetorically confused with communicative action.       of strategic action intentional control of interest
First, competing stakeholder interests may con-        satisfaction. Acts of manipulation, deceit, and
verge through happenstance. In this situation there    coercion are likely to be placed in this category.
is little, if any, noticeable conflict between the      A neglect of long-term shareholder wealth by
interests of stakeholders but it is nonetheless        intentionally misleading investors through inac-
accurate to assert that stakeholders are primarily     curate financial statements or overt attempts to
motivated by egocentric goals. Take, for instance,     deceive through crafty advertising schemes may
the convergence of strategic interests that results    serve as instances of the intention to control
from technological innovation in product devel-        interest satisfaction.
opment. Innovation often results in market                We should expect interesting cases of strategic
position, brand name recognition, and growth in        action under all of these headings. But notice that
revenue for managers and shareholders. At the          while we can uncover examples, this, by itself,
same time, consumers often receive strategic           leaves the question of whether agents implicitly or
benefits from the development of products that          explicitly engage in communicative action largely
better suit their needs and preferences. Here the      unanswered. Habermas speaks of strategic action
motives behind manufacturer and consumer               as following the rules of rational choice so as to
decisions are not oriented toward the mutual           efficiently influence the decisions of an opponent.
recognition of each others’ interests, i.e., through   It is, in his terms, an attempt to purposefully
respect and recognition of their interest claims,      change the behavior of others to accomplish an
but, rather, on the calculated satisfaction of self-   end to which you have committed yourself.
oriented aims. In this regard, the action exhibited    Individual success, defined by the attainment of
in this category of rational–purposive action is       egocentric ends, is definitive of strategic action
instrumental in Habermas’s sense of the term           (Habermas 1984: 286). It would certainly seem as
because while managers, shareholders and con-          if the latter two categories of rational–purposive
sumers can be said to share the end of techno-         action, i.e., convergence through negotiation and
logical innovation, their reasons in favor of          intentional control of interest, exhibit features of
innovation are completely self-interested.             this sort of action. Yet the fact that business is
   Second, consider the category of cases where        characterized by strategy need not imply that its
there is a convergence of stakeholder interests not    individual relationships are exclusively structured


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by strategic motives; nor need it imply that           characteristic of modern business life should not
communicative purposes are absent from the             deter us from noting that resolutions to such
motives of stakeholders. It is a mistake, in short,    conflict need not take the form of rational–
to point to instances of strategy and infer from       purposive attempts to assert one’s interests over
those instances that strategy is constitutive of any   the interests of an opponent. Strategy, as a species
business relationship whatsoever. It is one thing      of rational–purposive action, is characteristically
to notice the presence of strategic action. It is      a way that individuals respond to situations of
quite another to infer that its presence norma-        conflict and competition; however, it is unlikely
tively structures what we expect of actors.            that stakeholders conceive of conflict resolution
   Moreover, strategic and communicative mo-           purely in terms of asserting their interests at the
tives hardly seem mutually exclusive in the way        expense of others’ preferences.
suggested by these general categories. The reasons        Work in the area of multi-stakeholder dialogues
that a labor union may have to support a               and the interaction between corporate constitu-
negotiated settlement can be simultaneously self-      encies, especially between non-governmental or-
directed and take account of the interests of other    ganizations and high-level management, has
stakeholders.1 A process of negotiation often          shown how dialogic processes facilitate the shared
involves what is casually referred to as a give-       goals of interest group consideration, trust,
and-take process. A prior demand or condition is       flexibility, access to information, and agenda-
sometimes given up by one party in order that          setting power (Bendell 2003: 67–68). Stakeholders
other, more pressing concerns are addressed            typically have shared goals about the long-term
in a would-be settlement. Stakeholders take what       success of the firm and the fact that they seek very
they find most important, in part, because of a         broad-based outcomes in common serves as an
recognition of what other parties may legitimately     impetus to address coordination problems in ways
find objectionable. The motive in such a process        that improve the chances of reaching these goals.
may be self-interested in the sense that each party    Stakeholders are thus likely to engage in co-
is motivated to negotiate on the basis of what         operative behavior at the level of conflict resolu-
serves their interests; however, this would not        tion and policy creation; for a lack of such
exclude the possibility that the interests of others   procedural cooperation tends to undermine the
provide acceptable limits on what sort of settle-      satisfaction of shared interests (Cohen 2003). This
ment is eventually endorsed. Communicative             underscores the extent to which the distinction
action can, in short, drive a process of searching     between strategic and communicative action with-
for norms of social coordination that are none-        in economic organizations is not to be taken as an
theless shaped by each party’s own interest in         unquestioned dualism, but two interlocking pieces
discussing the norms in the first place.                of coordinated social action.2
   It is also mistaken to assume from the fact that
stakeholders often compete for entitlements or the
satisfaction of interests that such competition is     The communicative dimensions of
preferably resolved through mere strategic means.      business
This comment is issued from the perspective of
stakeholders themselves. Political philosophers        To make these points more plausible it will
often refer to situations characterized by a           be argued in this section that there are four
competition for resources and entitlements as          important reasons to suppose that business actors
exhibiting ‘circumstances of justice’ (Sandel 1982:    proceed with communicative, rather than exclu-
28). It is fair to say that, in many situations,       sively rational–purposive, intentions. These rea-
stakeholders are involved in circumstances of          sons include the shared purposes of stakeholders,
justice where they, in effect, offer competing         the collaborative nature of decision making
claims for consideration and interest satisfaction.    in organizations, the tendency to seek mutual
The fact, however, that such circumstances are         recognition, and the need of communicative


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action to sustain the coordination necessary for       identifiable conflicts between stakeholder inter-
the firm to achieve its economic goals.                 ests. In either case, however, the fact that
                                                       stakeholder relationships are measured by this
                                                       ideal of mutuality indicates that the pragmatic
Shared purposes and collaboration                      foundation behind communicative ethics has
Business stakeholders have a number of interests       relevance to economic organizations. Moreover,
that not only coincide but, in a stronger sense, are   the fact that stakeholders have core interests in
shared. These shared interests express an under-       common will often provide the basis for ongoing
lying sense of purpose that circumscribes the          interest exploration that yields ‘co-created mean-
expectations and shared intentions of each corpo-      ings’ that tends to enhance problem identification,
rate stakeholder. First and foremost, each stake-      conflict resolution, and managerial responsiveness
holder implicitly recognizes the importance of         within organizations (Crane & Livesey 2003:
economic ends like market share, growth, innova-       48–49). Consider, for instance, the experimenta-
tion, cost minimization, return on investment, and     tion with the so-called ‘farm out committees’ in
meritocratic rewards. This is an obvious truism        industries dependent upon highly technical main-
for the most immediate stakeholders such as            tenance and production. A fine example of such a
employees, financiers, and suppliers. Customers         committee was established by Northwest Airlines
too tend to have an interest in such goals because     (NWA) as part of negotiated labor settlement
the increased price competitiveness of goods and       where technicians gave up wage increases in
product innovation tend toward preference satis-       exchange for stock ownership and control over
faction. Even communities that often have little       sourcing decisions (Smith 1998). These commit-
input in the eventual location of businesses           tees disseminate information to labor unions who
typically come to recognize the importance of a        wish to competitively bid on work that would
relationship with a competitive, stable corporate      otherwise be outsourced. The ability of labor
partner. Second, it is arguable that many stake-       unions to compete for work that would normally
holders share interests to the extent that their       be sent to other firms creates a sense of
identities are tied to the firm’s operations as a       accomplishment, tangible recognition of their
persistent and purposeful community (cf. Bowie         achievement, savings on maintenance costs and,
1999: 82–119). Employees that have long-standing       of course, job stability. In a real sense, manage-
relationships with management teams, for in-           ment and labor both discover, through a process
stance, understand themselves and their cohort         of exchanging information and creative problem
as part of a larger network of individuals with        solving with the other party, that their shared
similar histories, problems, and experiences.          interests in cost minimization and information
Indeed, a corporation’s mission statement, code        sharing are mutually recognizable from the
of conduct, and organizational structures will         others’ perspective.
often implicitly define itself as a social union           A similar sort of linkage between shared
based on a shared identity because of the              organizational ends and communicatively or-
commitment and concern stakeholders have for           iented action is illustrated by other well-known
the success of the firm.                                cases of collaboration between employers, man-
   This observation highlights Habermas’s point        agers, and suppliers. The Saturn Corporation,
that different groups often share a core set of        for instance, responded to customer complaints
interests that naturally leads them to coordinate      during the late 1980s by developing a ‘relational
their activities to further what they perceive to      employment contract’ that stipulated how labor
have in common. Many times this coordination           and management ‘team members’ should strive to
operates in the background without examination;        have joint decision-making responsibility at all
at other times, common purposes need to be             levels of the organization (Calton & Lad 1995:
brought to the fore in the context of discourse in     15). Inspired in part by Japanese management
order to articulate generalizable solutions to         models, Saturn encouraged critical exchanges


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among labor and management as a means to              what business actors expect of others: stake-
generate more widely recognized solutions to          holders naturally seek to meaningfully address
problems faced in the automobile industry. A          moral conflicts through an implied exchange of
special committee was formed that made the            reasons. It is clearly true that stakeholders
union, the United Auto Workers, an institutional      disagree about how interests should be balanced
partner in participating in ‘consensus-based deci-    in difficult circumstances. This disagreement,
sion-making from the shop floor to the levels of       however, is meaningful and important to resolve
senior management’ (Kochan 1999: 1). The union        only because stakeholders tend to acknowledge
and its membership were integral members of the       that their needs and interests are most effectively
‘decision rings’ established throughout depart-       satisfied through a sort of joint resolution that
ments and production facilities that helped to        enables a continuation of the productive activities
make strategic decisions regarding supplier con-      of the firm. This point is subtle but important: any
tracts, product development, implementation of        self-interest a stakeholder may have in resolving a
technology, and marketing (Calton & Lad 1995:         conflict in a particular way is preempted by the
15; Kochan & Rubinstein 2000). Grounding this         realization that sustainable conflict resolution is a
effort was the commitment that all stakeholders       matter of uncovering consensus through shared
had something to gain by becoming more aware          value orientations and reasonable expectations of
of the interests of customers and creating efficient   other stakeholders. The particular interests of any
production and supply chain policies.                 one stakeholder are best serviced when that
  Collaboration of the sort being described by        stakeholder engages in activities where there is
NWA’s outsourcing committee and Saturn’s              consensus about what corporate decisions have a
management committee are noteworthy because           rationale endorsed by all affected stakeholders.
there is a presumption in both cases that mutual        This communicative feature of business also
consent is a large part of how strategic problems     explains why the demands of stakeholders are
are resolved. Solutions are not sought that merely    typically voiced as claims concerning the unwar-
look for a convergence of stakeholder interests in    ranted exclusion of interests from corporate
proposing policies and decision-making proce-         decision making. To see this, reflect upon the
dures – although this is certainly part of the        second category of strategic action from above. In
motivation. The entire explanation behind these       that situation, it was suggested that some labor
avenues of organizational policy making rests on      union disputes proceed only because both parties
the fact that collaborative decision making is a      are strategically motivated to achieve some self-
way to fully understand organizational problems       interested aims and they can effectively influence
and solutions. This commitment is prior to the        and change the behavior of their negotiating
advantages provided by mere negotiation; it           partners. This picture of negotiated settlement,
recognizes that negotiation is more fruitful and      however, fails to acknowledge the kinds of claims
sustainable when decisions are sought which           made by stakeholders in labor disputes. For
integrate interests, objections and proposals of      instance, the recent claims made by members of
different stakeholders. So, like Habermas’s pro-      the United Food and Commercial Workers Union
cedural rule of moral discourse (U), participants     (UFCW) in Los Angeles were, quite explicitly,
in such collaborative techniques view solutions as    demands for recognition and fair treatment. They
justified only after seeking the assent of others      asserted that management’s plan to require
who are critically engaged and take seriously the     grocery store employees to shoulder a greater
multiple stakes of a proposed course of action.       share of health insurance costs was unjust in light
                                                      of the continued growth in net income of Safeway
                                                      and its subsidiaries (Greenhouse 2003: A10).
Mutual recognition                                    UFCW members were not merely making a
A second observation relevant to the commu-           strategic claim cloaked in the language of
nicative dimensions of business activity concerns     distributive justice; rather, they were intending


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to make a claim that other stakeholders could          human resource management, and customer
recognize and find reasons to support. If this is       satisfaction are not challenges to be addressed
correct, then the claims made by stakeholders are      through straightforward agreements but, instead,
intended to ‘secure uptake’ or generate assent         issues that render effective, long-term solutions
among those involved in negotiation. There were        only when multiple stakeholders arrive at solu-
reasons that could, in principle, be recognized by     tions together (Calton & Lad 1995: 7).
other individuals and groups despite their parti-         To understand the collective dimension of
cular stakeholder affiliation. The intention of the     organizational decisions, recall that Habermas’s
UFCW certainly does not guarantee that other           interest in communicative action can be recast in
stakeholders would accept the reasons voiced.          terms of an interest in social action; that is, how is
Nonetheless, it does indicate an orientation to-       collective social action possible? How is it that
ward recognition rather than mere strategic play.      differently situated individuals, with distinct
                                                       interests, can come together and sustainably work
                                                       to achieve common ends? The possibility of such
Coordination and strategic advantage                   social action relies, in part, upon the ability of
Third, business problems are inherently intra-         individuals within civil society’s institutions to
organizational. By this I mean that problems, and      coordinate their activities and move together with
their corresponding solutions, are nuanced, com-       a sense of mutuality. Identifying business as a
plicated and involve multiple stakeholders. This       purely private entity where decisions are reduced
observation has led stakeholder theorists, such as     to individuated calculations of self-interest has the
Freeman & Evan (1990), to speak of stakeholder         effect of obscuring the interdependent complexity
contracting as a kind of ‘multilateral interdepen-     of organizational decision making from view. As
dence,’ and Aram (1989) to claim that organiza-        Sen (1993) aptly points out, a firm’s shared
tional management is premised on viewing               productive activities are themselves a public good;
decisions as systemic, i.e., as managing ‘inter-       they play an essential role in satisfying interests
dependent relations.’ In the midst of such com-        for distinct groups while simultaneously repre-
plexity it is rarely the case, if at all, that         senting a unified rather than merely convergent
organizational challenges can be addressed by          interest in organizational life.
‘simple, one-time, dyadic solutions’ arrived at           This point has implications, as well, for a firm’s
through a one-on-one negotiation between stake-        economic performance. Successful attainment of
holders (Calton & Lad 1995: 7). The more               strategic ends is unlikely when actions are
interdependent problems and solutions become,          motivated purely by strategic end-seeking. This
the more likely multiple parties are needed to         seemingly counter-intuitive conclusion is analo-
identify solutions that can address the separate       gous to a position made famous by Robert Frank
stakeholder interests that are jeopardized by any      and applied more directly by Norman Bowie
one problem. Hence, an individualized assessment       (Frank 1988, Bowie 1991, Frank 2002). Frank
of the interests of each stakeholder fails to          and Bowie assert that the satisfaction of ego-
recognize that each stakeholder’s interests are        centric interests, whether individual or corporate,
implicated in a web of mutually supportive and         is only possible in business settings when the
sometimes mutually detrimental organizational          conscious pursuit of self-interest is limited by an
arrangements. Shared problems, in short, demand        individual commitment to morality. Self-interest
collectively rendered solutions – not simply           is achieved, in short, only when it is appropriately
because it is valuable to have the input of all        subordinated (from time to time) to the demands
affected stakeholders, but because collective solu-    of morality; furthermore, acting morally pays self-
tions to problems tend toward outcomes that            interested dividends only insofar as individuals
would otherwise not be identified on a stake-           adhere to the requirements of morality for its
holder-by-stakeholder basis. The NWA and               own sake – not because morality turns out to
Saturn cases illustrate how product development,       maximally satisfy other non-moral private aims.


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Similarly, it seems implausible to think that the        organizations must pay for the protections that
ends set forth by mere strategic action could be         accompany feelings of distrust.
achieved without a cohesive and stable organiza-
                                                           When two or more strong form trustworthy
tional climate in which individual purposes                individuals or firms engage in an exchange, they
become public and consensus is the norm. Iterated          can all be assured that any vulnerabilities that
strategic actions are far less effective in achieving      might exist in this exchange will not be exploited
one’s private ends than action that expresses a            by their partners. This assurance comes with no
commitment to share the experiences, values, and           additional investment in social or economic forms
reasons held by other stakeholders. Without a              of governance . . . . Exchanges . . . between strong
serious commitment to the interests of others, and         form trustworthy firms are burdened neither by the
the interests you share with them, the ends that           high cost of governance nor any residual threat of
motivate strategic action could not be realized.           opportunism. Strong form trustworthy firms will
Conflict resolution based upon the face-to-face             be able to pursue these valuable. . .exchanges while
                                                           [other] firms will not . . . . This may represent a
interaction of stakeholders exposes motives that
                                                           source of competitive advantage for strong form
might otherwise remain hidden behind the man-
                                                           trustworthy exchange partners (Barney & Hansen
euvering of mediators, attorneys, and other                1994: 186).
representatives. Stakeholders are more likely to
engage in agreement and explore mutually bene-           Organizational climates where honesty and trust
ficial alternatives when genuine dialogue is              are heartfelt tend to produce higher levels of job
sought, i.e., dialogue that demonstrates an open-        satisfaction and productivity that result in lower
ness to revise or place on hold one’s preferred          labor costs (Chami & Fullenkamp 2002).
action in light of objections leveled by others             Similarly, others, like Lynn S. Paine (2000),
(Payne & Calton 2003: 123–126).                          have highlighted the ways in which moral
   The collective approach to the assessment of          commitments produce monitoring and coordina-
organizational objectives and participatory deci-        tion advantages. The costs of intra-organizational
sion making discussed thus far is essential to           cooperation are lowered when subordinates view
generating high levels of trust. Trust, in turn, is a    directors’ decisions as legitimate. When fairness
prerequisite to long-term interest satisfaction.         motivates managers, the tendency to engender
There have been a number of studies that                 conflict is minimized. Moral commitment facil-
emphasize the relationship between the costs of          itates a more complete understanding of situa-
production and corporate efforts that weave trust-       tional contexts, an ability to mobilize human
building initiatives into the fabric of their business   resources, and communicate with others regard-
culture. Social environments where, for instance,        ing solutions. In environments where mangers
genuine trust between management and suppliers           take seriously the spirit of loyalty and fidelity,
is measured at high levels seem to have lower            agreements are more flexible and creative.
moments of doubt when engaging in new ventures              Even in situations where certain stakeholders
with tangible risk (Bromiley and Cummings                shoulder a greater proportion of costs associated
1995). Trust generates consistency, stability, and       with a particular decision, it is likely to meet with
ongoing confidence in business relationships; if          acceptance when those affected can trust that
suppliers thought that the trustworthiness of            decision makers have acted with their interests in
management was only as strong as management’s            mind. Consider various accounts of how Cad-
perceived regulatory obligations, they may ques-         bury–Schweppes has approached downsizing
tion the viability of their continued agreements.        decisions (Phillips 2003: 113–115). Since the
Accordingly, some have argued that unlike                company was founded upon a belief in decision
weaker forms of trust that are motivated simply          making by consensus, a now famous move to
by the avoidance of costly non-compliance,               consolidate its packaging facilities was done
cultivating genuine trust within and between             only after consulting with a team of managers,
businesses tends to cost less than a system where        engineers, and shop stewards. The consolidation


328                                                                                       r Blackwell Publishing Ltd. 2004
Business Ethics: A European Review




resulted in the displacement of workers; however,       civil society where solidarities are formed. This is
the stakeholders who participated in the ‘working       the core reason to take seriously the need for
party’ not only recognized that there were good         discourse within firms. In A Theory of Commu-
reasons to consolidate on the basis of Cadbury’s        nicative Action, Habermas stresses that modern
commitment to its workforce as a whole, but the         society can be analyzed from two different
workers who were displaced recognized that the          perspectives (Habermas 1987). The first, following
decision was not made in ignorance of their             Max Weber and others, emphasizes society as a
particular interests. Managers sought out their         system of practices and institutions with distinct
voice as part of the decision-making process; as a      forms of rationalization and social hierarchies.
result, Cadbury engaged in a process of coopera-        Administrative elements of the state and corpo-
tive learning that cultivated a sense of trust – even   rations, for example, are part of society as a
among those whose positions were eliminated. All        complicated network of subsystems with see-
of this, it seems, would be extremely difficult to       mingly disparate goals, rules, and bureaucratic
imagine if it were not for an allegiance on the part    forms of social control. Society, however, is also a
of all organizational members to corporate objec-       lifeworld in the sense that individuals are members
tives that everyone found reasonable to endorse.        of institutions that foster shared need interpreta-
   Once stakeholders, in particular shareholders,       tions, mutual understanding, and consensus.
engage in business activity, they enter into an         From this second perspective, society is composed
arrangement that requires them to consider how          of practices that are communicative and thereby
their efforts impact those who are also instru-         focus our attention on regulating society for the
mental in achieving the end of accumulating             attainment of shared interests.
wealth. Without this orientation, the nexus of             Habermas is deeply concerned with the extent
social relationships that characterize the modern       to which the maintenance of social subsystems
firm are only as strong as the contingent, and           interferes with or otherwise distorts the commu-
merely strategic, interests adopted by stakeholders     nicative activities of society as lifeworld. The
at a particular moment in time. Communicative           private ends of business ‘colonize’ spheres of life
relationships, thus, are what can sustain the           that are premised on consensus and discourse
existence of business organization without con-         (Habermas 1987: 355). A natural way to end this
tinual breakdowns in collective action. Individual      disruption is to expect economic organizations to
stakeholders acquire and sustain their identities       internalize the ends of communicative action
and interests by belonging to corporations, appro-      broadly construed. This means that corporations
priating the culture of the organization, and           acknowledge their role and influence in the
taking part in interactions that expressed shared       maintenance of communicative action and take
values (Habermas 1990: 102). The choice to              appropriate steps to engage in the process of
pursue mere strategic action is, perhaps, possible      uncovering modes of social life and principles that
in any one case; but it is untenable in the long-       express the general interest. This is what leads
term if stakeholders intend to further their own        Daryl Reed to conclude that, all things consid-
interests in an environment where their satisfac-       ered, businesses should include decision-making
tion is dependent upon the joint activity of others.    processes that are ‘participatory’ unless stake-
                                                        holders voluntarily accept less participatory
                                                        schemes for the sake of improvements that they
Conclusion                                              can reflectively endorse (Reed 1999b: 30). The
                                                        remarks offered in the preceding sections are an
Modern society is a vast array of institutions in       attempt to provide a conceptual framework for a
which multiple forums for discourse overlap             communicative theory of business. Businesses are
(Baynes 1992: 167–181); Habermas himself em-            not merely bound by moral constraints in virtue
phasizes that moral discourse can occur in more         of being institutions subject to the demands of
or less informal movements and associations in          public morality through legitimate law; firms are


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also moral communities in which communicative            2. I owe this point to an anonymous reviewer from
action explains their ability to enhance the inter-         this journal and a reviewer for the Society for
ests of all members.                                        Business Ethics.
   The intersection of communicative ethics and
the modern business firm is an area ripe for             References
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A precis of a communicative theory of the firm

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A precis of a communicative theory of the firm

  • 1. Business Ethics: A European Review ´ A precis of a communicative theory of the firm Jeffery D. Smithn Introduction stakeholders as part of the communicative, i.e. consensus-building fabric of modern society, or Over the last two decades there have been whether such relationships are merely strategic in noteworthy attempts to apply normative moral a way that emphasizes the satisfaction of private and political theory to the conduct of business over collective interest. Although the answer to firms. These applications draw upon the work of this general question remains open within the Aristotle, Immanuel Kant, John Rawls, various communicative ethics literature, I take an ap- figures of the social contract tradition, and the proach that maintains that economic organiza- writings of the so-called communitarians (see tions are not only partly communicative in nature Keeley 1988, Solomon 1993, Etzioni 1998, Do- but it is indeed appropriate that the ideals set naldson & Dunfee 1999, Bowie 1999, Phillips forth by communicative action structure the terms 2003). A body of literature that has received of cooperation between their members. Business substantially less attention by business ethicists, actors, while strategically motivated in basic ways, however, is the work of European theorists who cannot be exclusively strategic without jeopardiz- advocate an approach termed discourse, or com- ing the successful attainment of their shared municative ethics. interests. I also hold that communicative action This paper proceeds under the assumption that is only enabled through a complicated network of there is room to develop a communicative theory social institutions. If businesses shape and affect of the modern business firm that can provide a the possibility of consensual social action in other perspective from which to evaluate an array of spheres of modern society, then they too are normative issues in business ethics, e.g. corporate partly subject to the normative constraints pro- social responsibilities, stakeholder entitlements vided by the ideal of communicative interaction. and obligations, managerial decision making, In what follows, I will develop this position with and corporate governance. This task, however, is exclusive focus on the philosophical work of quite complex and cannot be completed in its arguably the most prominent communicative entirety here; as a result, the purpose of this ethicist, Juergen Habermas (1990: 43–115, analysis will be to provide a preview of a more com- 1996a). Since I do not purport to provide an prehensive application of communicative ethics. interpretation of Habermas as much as an My focus will center on the first step of such an extension of some of his insights, I assume large, application; that is, whether it is reasonable to controversial features of his work without de- conceive of the relationships between business fense. The motive behind this exploration is a curiosity in uncovering what entitlements and responsibilities corporate stakeholders assume when they are engaged in the mutually benefi- n Assistant Professor and Director of the Center for Business, Ethics and Society, School of Business, University of Redlands, Redlands, cial acceptance of risk and reward that consti- CA, USA. tutes business activity. Broadly speaking, I am r Blackwell Publishing Ltd. 2004, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA. 317
  • 2. Volume 13 Number 4 October 2004 interested in what moral principles are implied able needs and solutions. The promise of com- from the fact that business organizations are municative ethics for business ethicists is that it composed of differently situated and differently can provide a procedural vantage point from interested groups of individuals who sometimes which the relationships that characterize the hold competing and mutually exclusive ends. modern corporation can be normatively assessed How can their diverse economic interests be justly and managed. addressed given that these differences stand Habermas limits his normative theory to an in contrast to the shared interests they have in exploration of the moral principles that can be the success of the firm? Although I will provide rationally justified in the face of the persistent no definitive answers to these questions in disagreement that characterizes modern, pluralis- this paper, I will begin the process of constructing tic societies. He begins this account with the a communicative perspective from which these assumption that moral claims have the feature of questions can be asked. being made with the anticipation and expectation that there are good reasons to support the validity of the claim that every listener can, in principle, Communicative and strategic action acknowledge. Moral claims, thus, are a species of what I have been calling communicative action, or Juergen Habermas maintains that moral princi- consent-oriented action (Habermas 1984: 286, ples are justified, and ultimately conferred valid- Baynes 1992: 80). Communicative action is social ity, when they meet with the acceptance of activity with the primary aim of bringing about individuals engaged in an argumentative discourse mutual understanding, rational agreement, or about the principle’s ability to satisfy the needs consent. Since communicative action is typically and interests of all affected parties. His commu- mediated by language, Habermas focuses his nicative ethics provides a procedure designed to attention on moral claims and their purported provide an examination of the principles that can end of enabling the recognition of certain reasons govern the interaction and cooperation of a as warranted grounds upon which to accept a plurality of groups that have disparate value normative, action-oriented claim about what orientations, interests, and conceptions of the ought to be done. Moral assertions are distinctive good. Institutionalizing argumentative discourse in that they specify universally valid human enables a type of coordination of interests by interests that are capable of obliging individuals uncovering an insight into the interests of other whatever their specific value orientations or individuals. This, in turn, builds solidarity be- limited set of interests. Linguistically mediated tween those who reach collective agreement about moral action, then, is pragmatically based on the how to regulate the terms of their social lives. presupposition that moral claims can lead to a Communicative ethics, unlike other contempor- mutual recognition of the claim through inter- ary work in ethical theory, maintains that moral subjectively acceptable reasons. norms governing social interaction are the result In this light, Habermas’ work can be broadly of reasoned, dialogical exchanges between differ- viewed as an attempt to redeem the Kantian ently situated individuals. In this respect, com- project of uncovering a universal basis for moral municative ethics is centrally procedural in that it principles without appealing to an overly formal does not recommend substantive moral norms conception of practical reason or otherwise but, instead, proposes that they result from controversial metaphysical assumptions about institutionalized discourses where those affected human autonomy. The possibility of universal jointly arrive at well-reasoned principles. Impor- moral principles rests, instead, on the pragmatic tance is placed on establishing reliable mechan- necessity of individuals to coordinate their activ- isms for discursive interaction where different ities amongst each other on the basis of shared constituencies and groups can address competing reasons. Habermas maintains that the reasons interest claims on the basis of mutually recogniz- that support the universal validity of moral claims 318 r Blackwell Publishing Ltd. 2004
  • 3. Business Ethics: A European Review can be uncovered through a process of dialogic oriented toward mutual understanding and con- interaction among participants who may have sensus can be preserved in the face of ongoing very different interests or conceptions of the good disagreement when those who disagree ‘thematize life; hence, by identifying principles that express contested validity claims and attempt to vindicate universal interests, he takes seriously the liberal or criticize them through arguments’ (Habermas notion that certain human interests can be 1984: 18). For the special case of moral claims, the recognized by all individuals whatever their efforts to preserve rational consensus through a concrete world views or particular ends. A society process of argumentative discourse presuppose a that is able to coordinate its activities must rely on number of rules. Indeed, Habermas (1990: 86–93) claims that everyone can, even if only implicitly, explains that these rules are inescapable assump- offer their assent. In Habermas’ terms (1984: 286– tions behind the very effort to engage in commu- 287; 1990: 102), the restoration of communicative nicative action. As long as you are a participant action, oriented toward consensus, is necessary using language to make claims that are designed for the basic processes of socialization, social to secure recognition from listeners, you presup- integration, and shared cultural reproduction. pose that there can be reasons uncovered that Although much of our day-to-day interaction support your assertion. The ideal process of proceeds in a communicative fashion – i.e., we presenting and reconstructing this search for act and speak in ways that implicitly rely on reasons just is the pragmatic expression of the agreement – Habermas admits that communica- very rules that guide Habermasian discourse. tive action often breaks down because of the These rules include the equal rights of all affected inability of certain claims to generate consensus. parties to participate in the process of argumenta- The inability of individuals to act in consensual tion, an absence of coercive actions, consistency in fashion runs the risk of leading to what Habermas the use of language, the right of everyone to offer (1990: 58) calls rational–purposive action – action any relevant objection, the truthfulness of all that is not oriented toward rational understanding participants, and the right of everyone to express and mutual consent but premised on the attain- their needs and interests (cf. Baynes 1992: 80). ment of certain ends not tied to consensus as such. Through a complex maneuver, Habermas con- Rational–purposive actions come in two forms: cludes that from these necessary presuppositions instrumental actions that are goal-oriented inter- of argumentative discourse and the idea that ventions in the physical world, and strategic moral claims are justified only if they can generate actions that are attempts to influence the thoughts consensus to coordinate social action between and behavior of others for the purpose of individuals, there is one basic rule that all moral achieving private ends. Although there is an norms must meet in order to carry the force overlapping area between instrumental and stra- of reason (Habermas 1990: 57–68; Rehg 1994: tegic action, strategic action is particularly worri- 56–84). He labels this rule (U) because, like some for Habermas because it is social interaction Immanuel Kant’s Categorical Imperative, it sti- that subordinates, or perhaps purposely avoids, pulates that all justifiable principles must be mutual understanding in order to achieve other universalizable. In Habermas’ case, however, ends like power, economic efficiency, or other universalizability is not a formal requirement of egocentric aims. Breakdowns in communicative maxims of action, but a requirement concerning action can naturally lead to strategic action the acceptability of a proposed principle within because coordination needs to take place even argumentative discourse. without consensus. (U): a moral principle is justified just in case all Strategic acts such as deception, coercion, affected can freely accept the consequences and manipulation, and instrumental purpose can be side effects that the general observance of the avoided if breaks in the fabric of communicative principle can be expected to have for the satisfac- consensus are repaired through a discursive tion of the interests of each individual (Habermas process of argumentation; that is to say, action 1990: 93) r Blackwell Publishing Ltd. 2004 319
  • 4. Volume 13 Number 4 October 2004 (U) summarizes the basic procedural logic behind distributive schemes that acknowledge the impor- moral argumentation and the discovery of accep- tance of economic resources in the attainment of table reasons to support a proposed principle: a these entitlements are likely candidates for uni- principle is rationally justified only on the versalizable moral principles. condition that all others who are affected by the principle are rationally convinced of its validity. So the consensus required by (U) is significant Communicative ethics and business because it identifies moral principles that partici- pants in discourse ‘arrive at together’ by looking There are two general ways in which commu- for reasons that every other participant can nicative ethics is relevant to business. First, as an endorse (Rehg 1994: 77, 78). institution that affects the distribution of rights, Before exploring the applications of this responsibilities, benefits, and burdens in modern approach to themes in business ethics, it is worth society, businesses and their agents have respon- reiterating some important limitations to Haber- sibilities to uphold the principles that are identi- mas’ theory. Moral discourse is a process whereby fied and justified through public moral discourse. individuals who are communicatively oriented Insofar as consensus emerges about the appro- attempt to restore consensus on issues that have priate ways to encourage and regulate business temporarily resulted in disagreement. Habermas activity there are norms to which businesses ought is careful to stress that his theory itself does to adhere. In other words, businesses, at a not offer any substantive principles; rather, his minimum, need to further the interests of all theory is purely procedural in that such principles who are affected by their activity. Second, can only be determined through actual discourses. corporations, despite being largely private asso- Moral claims that are redeemed through dis- ciations, are stable and successful only when it is course represent values that are generalizable recognized that the relationships between their because claims that survive the process of moral stakeholders are communicative, and not merely discourse are those that can be recognized by strategic in nature. This fact yields the interesting everyone. Moral reasons, thus, can be understood result that discourse is not simply a mechanism to as discursive reasons, i.e., reasons that can be regulate business at the level Rawls refers to as the recognized as acceptable warrants by participants ‘basic structure of society’, but is also germane to within discourse. the negotiation and management of moral con- The domain of the moral is clearly limited by cerns between consociates within organizations. I Habermas to those normative issues that are will take up each of these applications in turn capable of expressing generalizable interests. (Rawls 1971: 7). Ethical matters concerning individual or group identity, value-oriented assessment of personal Public morality, law, and business ends, or questions of the good life are important Habermas’ discourse ethics is a theory of social to be sure; however, discourses concerning these morality that governs the entire scope of public questions are not geared toward the ‘mutually interpersonal and institutional relations. To the expectable values’ discovered within moral dis- extent that businesses are units of civil society that course. Habermas envisions his communicative impact such core human interests as self-determi- ethics as providing the conceptual framework nation, opportunity, and welfare, there are well- needed to develop a theory of justice that defined responsibilities to the general interest of articulates the basic elements of a stable system citizens. Reed (1999a, b), for example, has argued of public morality. Although he is reluctant to that business activity functions in the general specify the content of this system, the demands interest only when three conditions are met. First, of public recognition through individual rights, individual profit seeking through cooperative liberties, formal opportunities, guarantees to a life modes of production is justified only when consistent with one’s lifeworld commitments, and the firm intends to provide gains in economic 320 r Blackwell Publishing Ltd. 2004
  • 5. Business Ethics: A European Review welfare to its stakeholders and that these gains are accept its role in regulating social life. The key appropriately distributed to everyone who has difference for the domains of morality and contributed to the firm’s productive activities. legitimacy rests in the fact that legal discourses Second, because of specific failures of the market encompass moral, ethical and pragmatic reasons to deliver such gains in welfare, there are generally in the course of examining the validity of a recognizable reasons to prefer regulatory struc- proposed law. The creation of law characteristi- tures that ensure the protection of the natural cally takes into consideration a wider array of environment, public safety, and competition in functional questions and aims (e.g., assessments order that the public benefits of individual profit of efficient means and strategies), focuses, at seeking are realized. Finally, business activity times, on negotiation and bargaining processes, upholds the general interest as long as it does not and tends to be concerned with concrete problems ‘invade other realms’ that should be governed by and policies rather than the mere implementation non-economic ends. Reed is particularly con- of abstract moral insights (Rehg 1994: 219; cerned with the ways in which businesses have Habermas 1996b: 453). Still, the fact that Haber- been able to supplant reflective individual choice mas (Habermas 1988: 243–244) argues that by contributing to the creation of a ‘consumer cul- ‘legality can produce legitimacy only to the extent ture’ and how the ends of business have distorted that . . . legal discourses are institutionalized in the communicative aims of other institutions, e.g., ways made pervious to moral argumentation’ political parties and administrative agencies. exposes the deep linkage between legitimacy and Another way that the norms of public morality morality that Habermas derives from the ideal of are brought to bear on business is through the communicative action. Law, in a fundamental creation of relevant laws by legislative, adminis- sense, is a mechanism for the integration of moral trative, or judicial means. This issue receives interests into norms that are implemented and extensive treatment within Habermas’ (1996b) enforced through positive means. theory of law in Between Facts and Norms. There In this light, corporate agents can be said to act he develops a principle of democratic law forma- illegitimately when their actions either (a) contra- tion whereby formal political institutions have a vene the established provisions of existing legit- central (although not exclusive) role to play in the imate law or (b) undermine the conditions maintenance of legitimate law. According to his necessary for the ongoing development of legit- so-called principle of democracy, Habermas imate law (cf. Reed 1999b: 27). The former (1996b: 110) maintains that statutes can claim requirement needs little explanation beyond the legitimacy only when they meet ‘with the assent fact that businesses are legal agents subject to the (Zustimmung) of all citizens in a discursive process constraints endorsed through a discursively struc- of legislation that . . . has been legally constituted’. tured legislative process. The latter provision is Laws consistent with this principle reflect a kind more complicated, but no less important. Haber- of popular autonomy among the citizenry to mas stresses that modern society must be under- reflectively endorse the laws to which they are to stood as a ‘self-legislating’ legal community that be subjected (Habermas 1988, 1996b: 118–131; seeks to organize its common life on the basis Reed 1999b: 26). Habermas (1996b: 107) draws an of laws that receive the assent of all affected indirect, but important, connection between (U) individuals. The ideal of a self-legislating polity and the principle of democracy. Indeed Habermas necessitates the legal recognition of certain rights, holds that both principles are ‘co-original’ in the all of which are necessary to maintain a society sense that the normative realms of morality and constituted on the basis of law, so construed legitimacy are derived from the same core (Habermas 1996b: 121–126). Accordingly, basic principle, (D), expressed in the very idea of rights of private autonomy are necessary to communicative action, i.e., that an action norm preserve the freedom of speech, conscience, move- is valid only on the condition that all of those who ment, and association necessary to engage in are possibly affected by it could find reason to public discourse. Habermas also outlines rights to r Blackwell Publishing Ltd. 2004 321
  • 6. Volume 13 Number 4 October 2004 legal protection and due process under the law so of corporate responsibility that stipulates that as to prevent capricious penalties against those businesses have responsibilities only as members who express dissent or who are otherwise subject of civil society ignores this complexity and leaves to the authority of other, more powerful institu- businesses qua businesses immune from direct tions. Finally, he argues for two broad categories moral scrutiny. of legal rights that protect individuals’ entitlement It is fruitful to understand how corporate to direct and indirect participation in legislative responsibilities fit within the politico-legal recog- processes as well as the welfare conditions nece- nition of universal moral norms; however, busi- ssary for the exercise of all other rights (Baynes nesses, as organizations, are significant in their 1994: 210–212). It is therefore incumbent upon own right in helping to shape the possibilities of corporations to refrain from activities that under- communicative action. Corporations are success- mine these rights because they serve as necessary ful to a large extent when their stakeholders can conditions for the development of legitimate laws. identify and share interests that enable efficient Such expectations may include, for instance, coordination of their efforts. The prevalence of prohibitions on penalizing employees who are work, expansion of private enterprise into areas interested in organizing labor unions, respect for formerly managed by public entities, and the the privacy of employees in the workplace, an em- dependence of local communities on corporations ployer provision of due process before dismissals, for development, underscore how the interests of and the responsibility not to engage in political all corporate stakeholders are intimately con- activities that undermine the ability of individuals nected with one another. Thus, in approaching and communities to effect legislative change. the application of communicative ethics to busi- With this said, we should resist the temptation ness, I contend that we must be attentive to both to conceive of corporate responsibility as arising the need for corporations to internalize moral merely from the external constraints of public responsibilities as well as identify and apply such morality discussed thus far. Viewing the firm as responsibilities via moral discourse at the organi- simply one of many regulated institutions fails to zational level. I will take up some challenges to address the special divisions and relationships that this contention in the following section and then characterize life within the firm. As a number of move to a more systematic review of the commu- contemporary stakeholder theorists have argued, nicative dimensions of stakeholder relationships. the unique nature of commercial relationships, and their associated risks and rewards, generates special moral considerations beyond mere obedi- Communicative action within organization ence to politically endorsed regulations (Phillips & The normative authority of Habermas’ procedure Margolis 1999). Moral matters in business are of moral discourse originates from the practical characteristically matters about how agents within commitment of individuals to engage in commu- the organization are to exercise moral discretion nicative action. There is no a priori or otherwise and balance the interests of individuals who make metaphysically controversial foundation for com- contributions to the success of firm. Such issues municative ethics; its foundation rests simply in are not exclusively a function of how the insti- the analysis of the normative presuppositions tution’s goals fit within the larger aims of civil behind actions oriented toward reaching mutual society or how the outcomes of business need to understanding. be adjusted to suit norms that take into account This point is crucial; for if businesses, as social other socially endorsed principles. Letting moral institutions, are thought to further communicative obligations trickle down to business merely from ends, we should expect business relationships to the prior demands of the law similarly neglects the exhibit this pragmatic characteristic. Upon first observation made by others that business is itself blush, however, this seems dubious; there is a a union of individuals with shared, yet simulta- rehearsed history of argument in business ethics neously distinct interests. Opting for a definition that speaks to the inherent strategies that lurk 322 r Blackwell Publishing Ltd. 2004
  • 7. Business Ethics: A European Review behind the motives of business agents. The fact through happenstance but through negotiated that stakeholders often enter into business rela- collective action. The most obvious examples of tionships with doubts about trust, solidarity, and such forms of strategic action are negotiated labor the extent to which other stakeholders may disputes. If we assume that a negotiated dispute is employ strategies that compromise their interests strategic in character, then, again, the conver- suggests that business relationships are inherently gence of assent between employees and managers strategic rather than communicative. More to the does not have its roots in mutual recognition of point: business actors take their relationships with some asserted interest, or a shared rationale as to other stakeholders as strategic in the sense that why the settlement is preferable, but simply an they expect stakeholders to employ tactics that agreement that relies on the contingent, over- further some specified goal (often a self-interested lapping aims of each party. A similar strategic goal) at the expense of mutual understanding and analysis might be offered for manufacturers and consensus-building (French & Allbright 1998). suppliers who compromise in good faith about the Would not this speak strongly against the insti- terms and conditions of a long-term contract only tutional application of communicative ethics in in the name of their private accomplishments. the way that his being suggested? Finally, there are undoubtedly situations where This question can be cast more precisely by a stakeholding group asserts their interests by examining three distinct types of rational–purpo- attempting to subordinate or suppress the satis- sive action in business that may, sometimes, be faction of another group’s interests. Call this kind rhetorically confused with communicative action. of strategic action intentional control of interest First, competing stakeholder interests may con- satisfaction. Acts of manipulation, deceit, and verge through happenstance. In this situation there coercion are likely to be placed in this category. is little, if any, noticeable conflict between the A neglect of long-term shareholder wealth by interests of stakeholders but it is nonetheless intentionally misleading investors through inac- accurate to assert that stakeholders are primarily curate financial statements or overt attempts to motivated by egocentric goals. Take, for instance, deceive through crafty advertising schemes may the convergence of strategic interests that results serve as instances of the intention to control from technological innovation in product devel- interest satisfaction. opment. Innovation often results in market We should expect interesting cases of strategic position, brand name recognition, and growth in action under all of these headings. But notice that revenue for managers and shareholders. At the while we can uncover examples, this, by itself, same time, consumers often receive strategic leaves the question of whether agents implicitly or benefits from the development of products that explicitly engage in communicative action largely better suit their needs and preferences. Here the unanswered. Habermas speaks of strategic action motives behind manufacturer and consumer as following the rules of rational choice so as to decisions are not oriented toward the mutual efficiently influence the decisions of an opponent. recognition of each others’ interests, i.e., through It is, in his terms, an attempt to purposefully respect and recognition of their interest claims, change the behavior of others to accomplish an but, rather, on the calculated satisfaction of self- end to which you have committed yourself. oriented aims. In this regard, the action exhibited Individual success, defined by the attainment of in this category of rational–purposive action is egocentric ends, is definitive of strategic action instrumental in Habermas’s sense of the term (Habermas 1984: 286). It would certainly seem as because while managers, shareholders and con- if the latter two categories of rational–purposive sumers can be said to share the end of techno- action, i.e., convergence through negotiation and logical innovation, their reasons in favor of intentional control of interest, exhibit features of innovation are completely self-interested. this sort of action. Yet the fact that business is Second, consider the category of cases where characterized by strategy need not imply that its there is a convergence of stakeholder interests not individual relationships are exclusively structured r Blackwell Publishing Ltd. 2004 323
  • 8. Volume 13 Number 4 October 2004 by strategic motives; nor need it imply that characteristic of modern business life should not communicative purposes are absent from the deter us from noting that resolutions to such motives of stakeholders. It is a mistake, in short, conflict need not take the form of rational– to point to instances of strategy and infer from purposive attempts to assert one’s interests over those instances that strategy is constitutive of any the interests of an opponent. Strategy, as a species business relationship whatsoever. It is one thing of rational–purposive action, is characteristically to notice the presence of strategic action. It is a way that individuals respond to situations of quite another to infer that its presence norma- conflict and competition; however, it is unlikely tively structures what we expect of actors. that stakeholders conceive of conflict resolution Moreover, strategic and communicative mo- purely in terms of asserting their interests at the tives hardly seem mutually exclusive in the way expense of others’ preferences. suggested by these general categories. The reasons Work in the area of multi-stakeholder dialogues that a labor union may have to support a and the interaction between corporate constitu- negotiated settlement can be simultaneously self- encies, especially between non-governmental or- directed and take account of the interests of other ganizations and high-level management, has stakeholders.1 A process of negotiation often shown how dialogic processes facilitate the shared involves what is casually referred to as a give- goals of interest group consideration, trust, and-take process. A prior demand or condition is flexibility, access to information, and agenda- sometimes given up by one party in order that setting power (Bendell 2003: 67–68). Stakeholders other, more pressing concerns are addressed typically have shared goals about the long-term in a would-be settlement. Stakeholders take what success of the firm and the fact that they seek very they find most important, in part, because of a broad-based outcomes in common serves as an recognition of what other parties may legitimately impetus to address coordination problems in ways find objectionable. The motive in such a process that improve the chances of reaching these goals. may be self-interested in the sense that each party Stakeholders are thus likely to engage in co- is motivated to negotiate on the basis of what operative behavior at the level of conflict resolu- serves their interests; however, this would not tion and policy creation; for a lack of such exclude the possibility that the interests of others procedural cooperation tends to undermine the provide acceptable limits on what sort of settle- satisfaction of shared interests (Cohen 2003). This ment is eventually endorsed. Communicative underscores the extent to which the distinction action can, in short, drive a process of searching between strategic and communicative action with- for norms of social coordination that are none- in economic organizations is not to be taken as an theless shaped by each party’s own interest in unquestioned dualism, but two interlocking pieces discussing the norms in the first place. of coordinated social action.2 It is also mistaken to assume from the fact that stakeholders often compete for entitlements or the satisfaction of interests that such competition is The communicative dimensions of preferably resolved through mere strategic means. business This comment is issued from the perspective of stakeholders themselves. Political philosophers To make these points more plausible it will often refer to situations characterized by a be argued in this section that there are four competition for resources and entitlements as important reasons to suppose that business actors exhibiting ‘circumstances of justice’ (Sandel 1982: proceed with communicative, rather than exclu- 28). It is fair to say that, in many situations, sively rational–purposive, intentions. These rea- stakeholders are involved in circumstances of sons include the shared purposes of stakeholders, justice where they, in effect, offer competing the collaborative nature of decision making claims for consideration and interest satisfaction. in organizations, the tendency to seek mutual The fact, however, that such circumstances are recognition, and the need of communicative 324 r Blackwell Publishing Ltd. 2004
  • 9. Business Ethics: A European Review action to sustain the coordination necessary for identifiable conflicts between stakeholder inter- the firm to achieve its economic goals. ests. In either case, however, the fact that stakeholder relationships are measured by this ideal of mutuality indicates that the pragmatic Shared purposes and collaboration foundation behind communicative ethics has Business stakeholders have a number of interests relevance to economic organizations. Moreover, that not only coincide but, in a stronger sense, are the fact that stakeholders have core interests in shared. These shared interests express an under- common will often provide the basis for ongoing lying sense of purpose that circumscribes the interest exploration that yields ‘co-created mean- expectations and shared intentions of each corpo- ings’ that tends to enhance problem identification, rate stakeholder. First and foremost, each stake- conflict resolution, and managerial responsiveness holder implicitly recognizes the importance of within organizations (Crane & Livesey 2003: economic ends like market share, growth, innova- 48–49). Consider, for instance, the experimenta- tion, cost minimization, return on investment, and tion with the so-called ‘farm out committees’ in meritocratic rewards. This is an obvious truism industries dependent upon highly technical main- for the most immediate stakeholders such as tenance and production. A fine example of such a employees, financiers, and suppliers. Customers committee was established by Northwest Airlines too tend to have an interest in such goals because (NWA) as part of negotiated labor settlement the increased price competitiveness of goods and where technicians gave up wage increases in product innovation tend toward preference satis- exchange for stock ownership and control over faction. Even communities that often have little sourcing decisions (Smith 1998). These commit- input in the eventual location of businesses tees disseminate information to labor unions who typically come to recognize the importance of a wish to competitively bid on work that would relationship with a competitive, stable corporate otherwise be outsourced. The ability of labor partner. Second, it is arguable that many stake- unions to compete for work that would normally holders share interests to the extent that their be sent to other firms creates a sense of identities are tied to the firm’s operations as a accomplishment, tangible recognition of their persistent and purposeful community (cf. Bowie achievement, savings on maintenance costs and, 1999: 82–119). Employees that have long-standing of course, job stability. In a real sense, manage- relationships with management teams, for in- ment and labor both discover, through a process stance, understand themselves and their cohort of exchanging information and creative problem as part of a larger network of individuals with solving with the other party, that their shared similar histories, problems, and experiences. interests in cost minimization and information Indeed, a corporation’s mission statement, code sharing are mutually recognizable from the of conduct, and organizational structures will others’ perspective. often implicitly define itself as a social union A similar sort of linkage between shared based on a shared identity because of the organizational ends and communicatively or- commitment and concern stakeholders have for iented action is illustrated by other well-known the success of the firm. cases of collaboration between employers, man- This observation highlights Habermas’s point agers, and suppliers. The Saturn Corporation, that different groups often share a core set of for instance, responded to customer complaints interests that naturally leads them to coordinate during the late 1980s by developing a ‘relational their activities to further what they perceive to employment contract’ that stipulated how labor have in common. Many times this coordination and management ‘team members’ should strive to operates in the background without examination; have joint decision-making responsibility at all at other times, common purposes need to be levels of the organization (Calton & Lad 1995: brought to the fore in the context of discourse in 15). Inspired in part by Japanese management order to articulate generalizable solutions to models, Saturn encouraged critical exchanges r Blackwell Publishing Ltd. 2004 325
  • 10. Volume 13 Number 4 October 2004 among labor and management as a means to what business actors expect of others: stake- generate more widely recognized solutions to holders naturally seek to meaningfully address problems faced in the automobile industry. A moral conflicts through an implied exchange of special committee was formed that made the reasons. It is clearly true that stakeholders union, the United Auto Workers, an institutional disagree about how interests should be balanced partner in participating in ‘consensus-based deci- in difficult circumstances. This disagreement, sion-making from the shop floor to the levels of however, is meaningful and important to resolve senior management’ (Kochan 1999: 1). The union only because stakeholders tend to acknowledge and its membership were integral members of the that their needs and interests are most effectively ‘decision rings’ established throughout depart- satisfied through a sort of joint resolution that ments and production facilities that helped to enables a continuation of the productive activities make strategic decisions regarding supplier con- of the firm. This point is subtle but important: any tracts, product development, implementation of self-interest a stakeholder may have in resolving a technology, and marketing (Calton & Lad 1995: conflict in a particular way is preempted by the 15; Kochan & Rubinstein 2000). Grounding this realization that sustainable conflict resolution is a effort was the commitment that all stakeholders matter of uncovering consensus through shared had something to gain by becoming more aware value orientations and reasonable expectations of of the interests of customers and creating efficient other stakeholders. The particular interests of any production and supply chain policies. one stakeholder are best serviced when that Collaboration of the sort being described by stakeholder engages in activities where there is NWA’s outsourcing committee and Saturn’s consensus about what corporate decisions have a management committee are noteworthy because rationale endorsed by all affected stakeholders. there is a presumption in both cases that mutual This communicative feature of business also consent is a large part of how strategic problems explains why the demands of stakeholders are are resolved. Solutions are not sought that merely typically voiced as claims concerning the unwar- look for a convergence of stakeholder interests in ranted exclusion of interests from corporate proposing policies and decision-making proce- decision making. To see this, reflect upon the dures – although this is certainly part of the second category of strategic action from above. In motivation. The entire explanation behind these that situation, it was suggested that some labor avenues of organizational policy making rests on union disputes proceed only because both parties the fact that collaborative decision making is a are strategically motivated to achieve some self- way to fully understand organizational problems interested aims and they can effectively influence and solutions. This commitment is prior to the and change the behavior of their negotiating advantages provided by mere negotiation; it partners. This picture of negotiated settlement, recognizes that negotiation is more fruitful and however, fails to acknowledge the kinds of claims sustainable when decisions are sought which made by stakeholders in labor disputes. For integrate interests, objections and proposals of instance, the recent claims made by members of different stakeholders. So, like Habermas’s pro- the United Food and Commercial Workers Union cedural rule of moral discourse (U), participants (UFCW) in Los Angeles were, quite explicitly, in such collaborative techniques view solutions as demands for recognition and fair treatment. They justified only after seeking the assent of others asserted that management’s plan to require who are critically engaged and take seriously the grocery store employees to shoulder a greater multiple stakes of a proposed course of action. share of health insurance costs was unjust in light of the continued growth in net income of Safeway and its subsidiaries (Greenhouse 2003: A10). Mutual recognition UFCW members were not merely making a A second observation relevant to the commu- strategic claim cloaked in the language of nicative dimensions of business activity concerns distributive justice; rather, they were intending 326 r Blackwell Publishing Ltd. 2004
  • 11. Business Ethics: A European Review to make a claim that other stakeholders could human resource management, and customer recognize and find reasons to support. If this is satisfaction are not challenges to be addressed correct, then the claims made by stakeholders are through straightforward agreements but, instead, intended to ‘secure uptake’ or generate assent issues that render effective, long-term solutions among those involved in negotiation. There were only when multiple stakeholders arrive at solu- reasons that could, in principle, be recognized by tions together (Calton & Lad 1995: 7). other individuals and groups despite their parti- To understand the collective dimension of cular stakeholder affiliation. The intention of the organizational decisions, recall that Habermas’s UFCW certainly does not guarantee that other interest in communicative action can be recast in stakeholders would accept the reasons voiced. terms of an interest in social action; that is, how is Nonetheless, it does indicate an orientation to- collective social action possible? How is it that ward recognition rather than mere strategic play. differently situated individuals, with distinct interests, can come together and sustainably work to achieve common ends? The possibility of such Coordination and strategic advantage social action relies, in part, upon the ability of Third, business problems are inherently intra- individuals within civil society’s institutions to organizational. By this I mean that problems, and coordinate their activities and move together with their corresponding solutions, are nuanced, com- a sense of mutuality. Identifying business as a plicated and involve multiple stakeholders. This purely private entity where decisions are reduced observation has led stakeholder theorists, such as to individuated calculations of self-interest has the Freeman & Evan (1990), to speak of stakeholder effect of obscuring the interdependent complexity contracting as a kind of ‘multilateral interdepen- of organizational decision making from view. As dence,’ and Aram (1989) to claim that organiza- Sen (1993) aptly points out, a firm’s shared tional management is premised on viewing productive activities are themselves a public good; decisions as systemic, i.e., as managing ‘inter- they play an essential role in satisfying interests dependent relations.’ In the midst of such com- for distinct groups while simultaneously repre- plexity it is rarely the case, if at all, that senting a unified rather than merely convergent organizational challenges can be addressed by interest in organizational life. ‘simple, one-time, dyadic solutions’ arrived at This point has implications, as well, for a firm’s through a one-on-one negotiation between stake- economic performance. Successful attainment of holders (Calton & Lad 1995: 7). The more strategic ends is unlikely when actions are interdependent problems and solutions become, motivated purely by strategic end-seeking. This the more likely multiple parties are needed to seemingly counter-intuitive conclusion is analo- identify solutions that can address the separate gous to a position made famous by Robert Frank stakeholder interests that are jeopardized by any and applied more directly by Norman Bowie one problem. Hence, an individualized assessment (Frank 1988, Bowie 1991, Frank 2002). Frank of the interests of each stakeholder fails to and Bowie assert that the satisfaction of ego- recognize that each stakeholder’s interests are centric interests, whether individual or corporate, implicated in a web of mutually supportive and is only possible in business settings when the sometimes mutually detrimental organizational conscious pursuit of self-interest is limited by an arrangements. Shared problems, in short, demand individual commitment to morality. Self-interest collectively rendered solutions – not simply is achieved, in short, only when it is appropriately because it is valuable to have the input of all subordinated (from time to time) to the demands affected stakeholders, but because collective solu- of morality; furthermore, acting morally pays self- tions to problems tend toward outcomes that interested dividends only insofar as individuals would otherwise not be identified on a stake- adhere to the requirements of morality for its holder-by-stakeholder basis. The NWA and own sake – not because morality turns out to Saturn cases illustrate how product development, maximally satisfy other non-moral private aims. r Blackwell Publishing Ltd. 2004 327
  • 12. Volume 13 Number 4 October 2004 Similarly, it seems implausible to think that the organizations must pay for the protections that ends set forth by mere strategic action could be accompany feelings of distrust. achieved without a cohesive and stable organiza- When two or more strong form trustworthy tional climate in which individual purposes individuals or firms engage in an exchange, they become public and consensus is the norm. Iterated can all be assured that any vulnerabilities that strategic actions are far less effective in achieving might exist in this exchange will not be exploited one’s private ends than action that expresses a by their partners. This assurance comes with no commitment to share the experiences, values, and additional investment in social or economic forms reasons held by other stakeholders. Without a of governance . . . . Exchanges . . . between strong serious commitment to the interests of others, and form trustworthy firms are burdened neither by the the interests you share with them, the ends that high cost of governance nor any residual threat of motivate strategic action could not be realized. opportunism. Strong form trustworthy firms will Conflict resolution based upon the face-to-face be able to pursue these valuable. . .exchanges while [other] firms will not . . . . This may represent a interaction of stakeholders exposes motives that source of competitive advantage for strong form might otherwise remain hidden behind the man- trustworthy exchange partners (Barney & Hansen euvering of mediators, attorneys, and other 1994: 186). representatives. Stakeholders are more likely to engage in agreement and explore mutually bene- Organizational climates where honesty and trust ficial alternatives when genuine dialogue is are heartfelt tend to produce higher levels of job sought, i.e., dialogue that demonstrates an open- satisfaction and productivity that result in lower ness to revise or place on hold one’s preferred labor costs (Chami & Fullenkamp 2002). action in light of objections leveled by others Similarly, others, like Lynn S. Paine (2000), (Payne & Calton 2003: 123–126). have highlighted the ways in which moral The collective approach to the assessment of commitments produce monitoring and coordina- organizational objectives and participatory deci- tion advantages. The costs of intra-organizational sion making discussed thus far is essential to cooperation are lowered when subordinates view generating high levels of trust. Trust, in turn, is a directors’ decisions as legitimate. When fairness prerequisite to long-term interest satisfaction. motivates managers, the tendency to engender There have been a number of studies that conflict is minimized. Moral commitment facil- emphasize the relationship between the costs of itates a more complete understanding of situa- production and corporate efforts that weave trust- tional contexts, an ability to mobilize human building initiatives into the fabric of their business resources, and communicate with others regard- culture. Social environments where, for instance, ing solutions. In environments where mangers genuine trust between management and suppliers take seriously the spirit of loyalty and fidelity, is measured at high levels seem to have lower agreements are more flexible and creative. moments of doubt when engaging in new ventures Even in situations where certain stakeholders with tangible risk (Bromiley and Cummings shoulder a greater proportion of costs associated 1995). Trust generates consistency, stability, and with a particular decision, it is likely to meet with ongoing confidence in business relationships; if acceptance when those affected can trust that suppliers thought that the trustworthiness of decision makers have acted with their interests in management was only as strong as management’s mind. Consider various accounts of how Cad- perceived regulatory obligations, they may ques- bury–Schweppes has approached downsizing tion the viability of their continued agreements. decisions (Phillips 2003: 113–115). Since the Accordingly, some have argued that unlike company was founded upon a belief in decision weaker forms of trust that are motivated simply making by consensus, a now famous move to by the avoidance of costly non-compliance, consolidate its packaging facilities was done cultivating genuine trust within and between only after consulting with a team of managers, businesses tends to cost less than a system where engineers, and shop stewards. The consolidation 328 r Blackwell Publishing Ltd. 2004
  • 13. Business Ethics: A European Review resulted in the displacement of workers; however, civil society where solidarities are formed. This is the stakeholders who participated in the ‘working the core reason to take seriously the need for party’ not only recognized that there were good discourse within firms. In A Theory of Commu- reasons to consolidate on the basis of Cadbury’s nicative Action, Habermas stresses that modern commitment to its workforce as a whole, but the society can be analyzed from two different workers who were displaced recognized that the perspectives (Habermas 1987). The first, following decision was not made in ignorance of their Max Weber and others, emphasizes society as a particular interests. Managers sought out their system of practices and institutions with distinct voice as part of the decision-making process; as a forms of rationalization and social hierarchies. result, Cadbury engaged in a process of coopera- Administrative elements of the state and corpo- tive learning that cultivated a sense of trust – even rations, for example, are part of society as a among those whose positions were eliminated. All complicated network of subsystems with see- of this, it seems, would be extremely difficult to mingly disparate goals, rules, and bureaucratic imagine if it were not for an allegiance on the part forms of social control. Society, however, is also a of all organizational members to corporate objec- lifeworld in the sense that individuals are members tives that everyone found reasonable to endorse. of institutions that foster shared need interpreta- Once stakeholders, in particular shareholders, tions, mutual understanding, and consensus. engage in business activity, they enter into an From this second perspective, society is composed arrangement that requires them to consider how of practices that are communicative and thereby their efforts impact those who are also instru- focus our attention on regulating society for the mental in achieving the end of accumulating attainment of shared interests. wealth. Without this orientation, the nexus of Habermas is deeply concerned with the extent social relationships that characterize the modern to which the maintenance of social subsystems firm are only as strong as the contingent, and interferes with or otherwise distorts the commu- merely strategic, interests adopted by stakeholders nicative activities of society as lifeworld. The at a particular moment in time. Communicative private ends of business ‘colonize’ spheres of life relationships, thus, are what can sustain the that are premised on consensus and discourse existence of business organization without con- (Habermas 1987: 355). A natural way to end this tinual breakdowns in collective action. Individual disruption is to expect economic organizations to stakeholders acquire and sustain their identities internalize the ends of communicative action and interests by belonging to corporations, appro- broadly construed. This means that corporations priating the culture of the organization, and acknowledge their role and influence in the taking part in interactions that expressed shared maintenance of communicative action and take values (Habermas 1990: 102). The choice to appropriate steps to engage in the process of pursue mere strategic action is, perhaps, possible uncovering modes of social life and principles that in any one case; but it is untenable in the long- express the general interest. This is what leads term if stakeholders intend to further their own Daryl Reed to conclude that, all things consid- interests in an environment where their satisfac- ered, businesses should include decision-making tion is dependent upon the joint activity of others. processes that are ‘participatory’ unless stake- holders voluntarily accept less participatory schemes for the sake of improvements that they Conclusion can reflectively endorse (Reed 1999b: 30). The remarks offered in the preceding sections are an Modern society is a vast array of institutions in attempt to provide a conceptual framework for a which multiple forums for discourse overlap communicative theory of business. Businesses are (Baynes 1992: 167–181); Habermas himself em- not merely bound by moral constraints in virtue phasizes that moral discourse can occur in more of being institutions subject to the demands of or less informal movements and associations in public morality through legitimate law; firms are r Blackwell Publishing Ltd. 2004 329
  • 14. Volume 13 Number 4 October 2004 also moral communities in which communicative 2. I owe this point to an anonymous reviewer from action explains their ability to enhance the inter- this journal and a reviewer for the Society for ests of all members. Business Ethics. The intersection of communicative ethics and the modern business firm is an area ripe for References additional exploration. In this discussion I have not addressed a number of obvious concerns with Aram, J. 1989. ‘The paradox of interdependent a complete extension of this approach. One relations in the field of social issues in management’. noteworthy problem centers on the extent to Academy of Management Journal, 14:2, 266–283. which the demand for consensus (as expressed in Barney, J. and Hansen, M. 1994. ‘Trustworthiness as a Habermas’ principle (U)) within business is a source of competitive advantage’. Strategic Manage- realistic and/or conceptually appropriate goal. ment Journal, 15:2, 175–190. Indeed there is a case to be made, it seems, that Baynes, K. 1992. The Normative Grounds of Social being oriented toward consensus need not imply Criticism: Kant, Rawls, and Habermas. Albany: that consensus serve as a normative standard for SUNY Press. Baynes, K. 1994. ‘Democracy and the Rechtsstaat: right action (McMahon 2000). Another issue Habermas’s >Faktizitaet und Geltung’. In White, concerns how, exactly, discourse is to be institu- S.K. (Ed.), The Cambridge Companion to Habermas: tionalized within organizations. I have given 201–232. Cambridge: Cambridge University Press. cursory examples of such practices but others Bendell, J. 2003. ‘Talking for change?: reflections on naturally surface, e.g., formal stakeholder board effective stakeholder dialogue’. In Andriof, J. and representation, management teams, problem-sol- Waddock, S. (Eds.), Unfolding Stakeholder Think- ving committees and strategic collaboration be- ing, Vol. 2: 53–69. Sheffield: Greenleaf Publishing. tween different units within an organization. Still Bowie, N. 1991. ‘New directions in corporate social others will be skeptical that discourse can be responsibility’. Business Horizons, 34, 56–65. maintained in the face of numerous examples of Bowie, N. 1999. Business Ethics: A Kantian Interpreta- short-term, strategically minded attempts to assert tion. Oxford: Blackwell. private over-shared interests. While I am sympa- Bromiley, P. and Cummings, L. 1995. ‘Organizations thetic to this worry (in light of the great conflicts with trust’. In Bies, R. Lewicki, R., and Sheppard, B. (Eds.), Research in Negotiation: 219–247, 5th edn, that have surfaced between shareholders, man- Greenwich, CN: JAI Press. agers, and employees), it is important to remem- Calton, J. and Lad, L. 1995. ‘Social contracting as a ber that breakdowns in communicative action do trust building process of network governance’. not justify the inference that communicative aims Business Ethics Quarterly, 5:2, 271–295. are wholly misplaced in business. The same Chami, R. and Fullenkamp, C. 2002. ‘Trust and concern could easily be raised within spheres of efficiency’. Journal of Banking and Finance, 26:9, modern society where consensus is accepted 1785–1809. as a norm; democratic politics, for example, is Cohen, J. 2003. ‘State of the union: NGO-business ripe for strategic maneuvering and, despite partnership stakeholders’. In Andriof, J. and Wad- this, communicative assessments of democratic dock, S. (Eds.), Unfolding Stakeholder Thinking, procedures is nonetheless appropriate. All of Vol. 2: 106–127. Sheffield: Greenleaf Publishing. these issues warrant further investigation and Crane, A. and Livesey, S. 2003. ‘Are you talking to me?: stakeholder communication and the risks and shape the research questions for the future rewards of dialogue’. In Andriof, J. and Waddock, development of communicative ethics in organi- S. (Eds.), Unfolding Stakeholder Thinking, Vol. 2: zational contexts. 39–52. Sheffield: Greenleaf Publishing. Donaldson, T. and Dunfee, T. 1999. Ties that Bind: A Notes Social Contracts Approach to Business Ethics. Cam- bridge, MA: Harvard Business School Press. 1. I owe this point to an anonymous reviewer for the Etzioni, A. 1998. ‘A communitarian note on stakehol- Society for Business Ethics. der theory’. Business Ethics Quarterly, 8:4, 679–691. 330 r Blackwell Publishing Ltd. 2004
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