Week 6 The Ethics and Cultural Decision Making paper
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ETHICAL THEORY AND STAKEHOLDER- RELATED DECISIONS: THE ROLE OF
STAKEHOLDER CULTURE
THOMAS M. JONES WILL FELPS
GREGORY A. BIGLEY University of Washington Business School
We use convergent elements of major ethical theories to create a typology of corporate stakeholder cultures—the aspects of organizational culture consisting of the beliefs, values, and practices that have evolved for solving problems and otherwise manag- ing stakeholder relationships. We describe five stakeholder cultures—agency, corpo- rate egoist, instrumentalist, moralist, and altruist—and explain how these cultures lie on a continuum, ranging from individually self-interested (agency culture) to fully other-regarding (altruist culture). We demonstrate the utility of our framework by showing how it can refine stakeholder salience theory.
Stakeholder theorists view the corporation as a collection of internal and external groups (e.g., shareholders, employees, customers, suppliers, creditors, and neighboring communities)—that is, “stakeholders,” originally defined as those who are affected by and/or can affect the achievement of the firm’s objectives (Freeman, 1984). A major theme of stakeholder theory is the nature of the relationships between the firm (typically represented by its top managers) and stakeholders, whose interests often diverge con- siderably not only from those of the firm but also from each other. Early stakeholder theorizing was marked by some conceptual confusion, but Donaldson and Preston’s (1995) three-part taxon- omy—normative (How should the firm relate to its stakeholders?), instrumental (What happens if the firm relates to its stakeholders in certain ways?), and descriptive (How does the firm re- late to its stakeholders?)— helped focus and clarify much stakeholder thinking. The norma- tive questions are particularly important be- cause they differentiate stakeholder theory from other prominent theories in organization sci- ence, such as resource dependence, managerial cognition, and institutional theories.
Although we do not take a normative stance per se, we do focus on the ways that firms man- age relationships with stakeholders and handle
trade-offs among competing stakeholder claims based on the ethical foundations of their corpo- rate cultures. Further conceptual development regarding how firms manage stakeholder rela- tionships seems warranted for two reasons. First, several distinct ethical frameworks have been advanced as potential foundations for managerial decision making with respect to stakeholder matters (e.g., Burton & Dunn, 1996; Evan & Freeman, 1988; Wicks, Gilbert, & Free- man, 1994), raising questions about how these ethical frameworks might be used jointly to in- form a more general model. Second, whereas the focus of attention in stakeholder theory mainly has been on top managers, understood as relatively autonomous decision makers, these managers are often profoundly influenced by the organizational context in which they are embedded (Daft & Weick, 1984; Katz & Kahn, 1978; March & Simon, 1958). This suggests a need to identify organization-level factors that could help us predict how firms manage stakeholder relationships.
Our paper addresses these two points. We first review the diverse ethical theories that have been applied to business and identify a convergent theme—a concern for the interests of others, as opposed to self-interest. We note that managers often feel tension between these two sentiments when they make stakeholder-related decisions, a tension frequently linked to and emanating from stakeholder attributes: power and legitimacy. Next, we describe an ethically
We gratefully acknowledge constructive comments on earlier versions of this paper by Robert Phillips, Shawn Berman, and three anonymous AMR reviewers.
� Academy of Management Review 2007, Vol. 32, No. 1, 137–155.
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based organization-level construct—stake- holder culture—that, we argue, helps resolve this tension and, more generally, influences managerial thinking and behavior with respect to stakeholder relationships. We then develop a punctuated continuum of five stakeholder cul- tures, ranging from fundamentally amoral cul- tures based on individual self-interest to limited morality cultures based on the advancement of shareholder interests and then to broadly moral cultures based on concern for the interests of all stakeholders. We explain how ethical theory might be linked, conceptually if not semanti- cally, to the ethical frameworks commonly un- derstood by corporate managers and, thus, to stakeholder cultures. Finally, to illustrate the value of the stakeholder culture construct, we show how it would alter the predictions yielded by Mitchell, Agle, and Wood’s (1997) stakeholder salience model.
ETHICAL FOUNDATIONS
To explore possible elements of convergence in ethical theory, we briefly review the promi- nent perspectives, most of them the work of moral philosophers. We begin with a discussion of egoism, an approach to ethics that is essential to an understanding of ethical theory in general, followed by outlines of the basic tenets of utili- tarianism, Kantian principles, Rawlsian fair- ness, rights, the ethics of care, virtue ethics, and integrated social contracts theory (ISCT). Later, we argue that corporate cultures, although they may not use the precise language of ethical theory, do have core values that roughly match those of these theories. Where available, we present evidence of common language versions of these ethical sentiments among managers and in firms.
A Brief Review of Ethical Theory
Egoism involves acting exclusively in one’s own self-interest. Two forms of egoism are rele- vant to our discussion: psychological egoism and ethical egoism. On the one hand, psycho- logical egoism—a descriptive theory of human behavior—holds that people are innately self- interested and routinely act to advance their interests. Ethical egoism, on the other hand, is a normative perspective that holds that people ought to act exclusively in their self-interest.
This view posits that a person is obligated only to enhance his or her own long-term welfare and that commitments to others are not binding and should be reneged on if they cease to be advan- tageous to the individual (Beauchamp & Bowie, 2004). The welfare of others is relevant to an egoist only if it affects his or her welfare; it has no independent moral standing.
Few moral philosophers endorse ethical ego- ism, and some would deny that it constitutes a normative theory at all (e.g., Barry & Stephens, 1998). As noted below, a great deal of scholar- ship in moral philosophy and applied ethics is devoted to arguing that people (and organiza- tions) ought to take the interests of others into account in their decision-making processes and behavior. Although the foundational principles, the arguments, the conclusions, and the behav- ioral prescriptions vary greatly among these theories, it is not much of an intellectual stretch to say that ethics is about other-regarding, rather than self-regarding, thought and behav- ior. Our focus is on the extent to which an or- ganizational culture adopts self-interest or re- jects it in favor of other-regarding sentiments, as reflected in the following theories.
Utilitarianism, based on the work of Hume (1740/2000), Bentham (1789/1996), and Mill (1863/ 1998), admonishes moral agents to promote over- all human welfare by acting in ways that result in the greatest total beneficial consequences minus harmful consequences. Utilitarian theory applies this “cost-benefit” calculus universally—that is, to all who are affected by the decision, not just an individual (as in egoism) or an organization (as in corporate profit maximization). Utilitarianism takes two forms: act utilitarianism and rule utili- tarianism. Act utilitarianism involves maximizing benefits relative to costs for the discrete decision in question. Rule utilitarianism involves following rules that are established in order to achieve the greatest net positive consequences over time.
Kantian ethics departs significantly from util- itarianism’s focus on consequences; the focus instead is on principles—a deontological ap- proach. Kant argued that human beings should be treated not simply as a means to one’s own ends but also as ends in themselves. This em- phasis on “respect for persons” stems from the view that human beings should be regarded as independent agents, with interests of their own and the judgment to act on them. In other words, they should be accorded the freedom to act au-
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tonomously. Kant gave great importance to mo- tives for acting—making the right decisions for the right reasons being the ultimate goal. Kant was quite explicit regarding appropriate rea- sons for moral actions—that is, moral obliga- tion. An act performed for reasons of personal satisfaction (or the benefit of the firm) carries less moral weight than it would if it were per- formed because of a duty to do so. Kant also argued that the principles ought to be universal- izable; that is, if everyone adopted the principle, it should not be self-defeating. For example, if promise breaking were to become universal law, promises would have no meaning. The idea behind this prescription is that no moral code ought to apply only to oneself. Kant is also cred- ited with the idea that principles ought to be reversible, a notion well-captured by the Golden Rule: “Do unto others as you would have them do unto you.”
Rawlsian fairness considerations also entail a regard for others. In A Theory of Justice (1971a), Rawls regards justice for the individual, not ag- gregate welfare, as the “first virtue” of social institutions. In colloquial terms, he is concerned more with how the pie is divided than with how large it is, a utilitarian concern. Although his arguments regarding distributive justice as fair- ness are intended to apply to social institutions (e.g., governmental policies), they may have im- plications for individuals and firms that make decisions regarding the distribution of economic benefits and burdens. Using the “social con- tract” as a heuristic device, Rawls argues that principles of justice ought to be arrived at by individuals making choices behind a “veil of ignorance”—an imaginary situation wherein the parties are ignorant of their own character- istics (advantages and disadvantages), thus rendering improbable the choice of principles that favor their own strengths and discount their weaknesses. The use of this device, intended to mitigate the effects of inequalities of initial cir- cumstances over which people have no control and are, hence, undeserved, leads individuals to prefer a state of basic equality. This state of equality is then used as a point of comparison for alternative (unequal) states to determine their fairness. If everyone prefers an alternative distributive state to one of equality, it is consid- ered just. Rawls’ difference principle reflects his conclusion that inequalities are just only if they
result in benefits for everyone, with particular emphasis on the least advantaged.
Rights theories have to do with securing or preserving certain liberties (negative rights) or benefits (positive rights) for their holders. The possession of a right by one party implies the existence of a corresponding duty or obligation on others’ part. In the case of negative rights, that duty is to allow the party to act freely (not be interfered with) within the domain covered by the right. In the case of positive rights, the obli- gation is to provide the party with a benefit of some kind. Since rights often conflict with one another and there is no widely accepted hierar- chy of rights, some moral philosophers have concluded that rights should be accorded prima facie validity. That is, rights should be re- spected unless there are good moral reasons for violating them; the moral force of a right de- pends on its “strength” in relation to other moral considerations applicable to the context in question.
The ethics of care derives from “feminist eth- ics” in general and the work of Gilligan (1982) in particular. This perspective focuses on personal relationships and the traits of personal charac- ter that create and sustain them—friendship, compassion, sympathy, empathy, faithfulness, and loyalty, for example. The focus on these human traits, which certainly qualify as virtues (as discussed below), deliberately eschews the emphasis on rules and calculations that charac- terize Kantian and utilitarian thought. Also ab- sent are notions of universality and impartiality; the ethics of care regards actual relationships and the social contexts in which they are em- bedded as valid and important elements of eth- ical decision making. An ethical “dilemma” is not seen as an abstract problem with only one ethically “correct” solution that can be agreed on by impartial observers applying universally accepted principles. Instead, solutions can and should emerge from mutually caring relation- ships and the contexts in which the problems are embedded. Particular human beings in par- ticular settings should generate “caring” solu- tions appropriate to unique situations.
Virtue ethics also focuses on human virtues, albeit a much longer list. For example, Pincoffs, giving new life to the ideas of Aristotle, offers a list of over six dozen virtues (1986: 85). He argues that the development of virtuous character should be a primary goal of the human condi-
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tion, and he identifies four classes of virtues: aesthetic, ameliorating, instrumental, and moral. Virtue ethics is about conditioning one- self to act morally as a matter of habit.
ISCT is a very recent addition to the normative ethics literature. Unlike other ethical theories that must be adapted to business settings, ISCT is intended to apply directly to them. Its most formal and complete articulation is found in Donaldson and Dunfee’s book entitled Ties That Bind: A Social Contracts Approach to Business Ethics (1999). These authors use a social con- tracts perspective to show how individual com- munities can be allowed to develop their own (local) standards, within a “moral free space,” as long as they (1) meet certain standards involv- ing acceptance by community members and (2) do not violate broad, universal standards, called “hypernorms.” As such, the theory attempts to simultaneously allow for a substantial diversity of adaptation to local conditions without allow- ing these developed norms to violate higher eth- ical standards.
In fact, the theory establishes an elaborate set of standards by which the propriety of these local norms should be judged. In order to be authentic, local norms must (1) have the consent of most members of the community, (2) allow exit from the community, and (3) allow “voice” in order to permit change in the norms, thus assur- ing that most members of the community regard them as binding. In turn, authentic norms are judged legitimate if they do not violate any hy- pernorms. Hypernorms are the result of “a con- vergence of religious, political, and philosophi- cal thought” across a broad number of nations and cultures (Donaldson & Dunfee, 1999: 44).
Finally, these authors offer a set of priority rules for choosing between/among competing legitimate norms. Legitimate norms that either do not conflict with or have priority over other legitimate norms are considered binding ethical standards. ISCT is quite different from the other theories described here, but, as discussed in the next section, it shares one important perspective with those theories.
Convergent Elements in Ethical Theory
Although the ethical theories reviewed above differ in important ways, they converge on one essential point—their emphasis on concern for others over self-interest. Because the extent of
concern for others can differ as well, particularly in a corporate context, in a later section we develop a continuum of stakeholder cultures ranging from individually self-interested to ex- clusively other-regarding. Although we are the first to propose such a continuum at the organi- zation level, theories of identity, leadership, and cooperation employ similar distinctions at the micro level. Identity theories posit that people can think of themselves as individuals or as part of larger collectives (Ashforth & Mael, 1989), with only one level being active at a time (Lord, Brown, & Freiberg, 1999). Walzer (1994) makes a distinction between “thin selves,” concerned with narrow, short-term interests, and “thick selves,” embedded in larger historical and so- cial developments. In his view, moral reasoning and behavior are facilitated only by “thick” in- terpretations of self.
Similarly, some models of managerial leader- ship also contain references to collective-level versus self-level concepts. Transformational, charismatic, and visionary leaders may achieve success by activating their followers’ sense of self at the collective level through articulation of a compelling moral mission (Shamir, House, & Arthur, 1993). Shamir, Zakay, Breinin, and Pop- per (1998), Paul, Costley, Howell, Dorfman, and Trafimow (2001), and Sparks and Schenk (2001) provide additional support for this view. Models of cooperation also feature a prominent distinc- tion between self-oriented and other-regarding behavior. Under the rubric of “social value ori- entation” (McClintock, 1978; Messick & Mc- Clintock, 1968), cooperation researchers have identified four profiles in situations involving potential cooperation. Competitors try to maxi- mize their outcomes relative to others. Individu- alists seek to maximize their absolute, not rela- tive, outcomes. Cooperators try to maximize joint outcomes without being cheated themselves. And altruists try to maximize the other party’s outcome with less concern for their own.
Clearly, scholars in other fields have found the contrast between narrow self-interest and a concern for others, narrow or broad, useful in explaining human behavior. We develop an analogous concept at the organization level—a continuum of stakeholder cultures based on the extent to which they are other-regarding. We propose that stakeholder culture is a potent or- ganizational factor, profoundly influencing the way in which managers understand, prioritize,
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and respond to stakeholder issues and, as an example, how they establish stakeholder sa- lience. As an introduction to these arguments, we offer a discussion of the moral tension be- tween self-interest and the interests of stake- holders in managerial decision making.
ETHICS, STAKEHOLDERS, AND MANAGERIAL DECISION MAKING
Decision making with respect to stakeholder relationships can be fraught with tension. Trade-offs between firm interests and stake- holder interests, as well as those between or among the interests of different stakeholders, inherently involve the allocation of benefits and burdens among human beings and, hence, in- volve moral questions. Commonly, the tension that arises in this context is one of deciding whether to act in a self-regarding manner or in an other-regarding manner. Hendry (2004) not only captures this tension quite nicely but also mirrors our points of convergence in ethical the- ory, arguing that managers face two sets of con- flicting prescriptions about how to act: tradi- tional morality (obligation and duty, honesty and respect, fairness and equity, care and assis- tance) or market morality (self-interest).
In relationships with stakeholders, firms’ self- interest is often related to the exercise of power, without regard for moral concerns—a “might makes right” perspective. Power is well-defined for stakeholder relationships, by Willer, Lova- glia, and Markovsky, as “the structurally deter- mined potential for obtaining favored payoffs in relations where interests are opposed” (1997: 573). To increase favorable outcomes for them- selves, self-interested firms with power over their stakeholders will wield it with impunity. When confronted with stakeholder power, which may stem from resources that (1) are concen- trated or tightly controlled, (2) are essential to operational performance, or (3) have no viable substitutes, self-interested firms will be respon- sive.
In contrast, traditional (other-regarding) mo- rality may require that firms respond to stake- holders with legitimacy, which many stake- holder scholars consider a fundamentally moral phenomenon. In an integrative review of the legitimacy literature, Suchman (1995) posits the existence of three potential bases of legitimacy: pragmatic (similar to power), cognitive (habit-
ual), and moral (positive normative evaluation). For most authors who address the issue of stake- holder legitimacy, however, the term is morally grounded. Mitchell et al. (1997) found that sev- eral (but not all) authors offered moral bases for stakeholder legitimacy (e.g., Carroll, 1979; Clarkson, 1995; Donaldson & Preston, 1995; Evan & Freeman, 1988; Langtry, 1994). This conclusion is not surprising, since basing legitimacy on power and/or habit would run counter to a cen- tral tenet of stakeholder theory—moral justifica- tions for firm/stakeholder relationships (Donald- son & Preston, 1995; Jones & Wicks, 1999). Indeed, Donaldson and Preston conclude that “the cen- tral core of the [stakeholder] theory is, however, normative” (1995: 183). We highlight the moral foundation of stakeholder legitimacy because, as argued above, not all firms will treat moral claims in the same manner.
Our preferred account of stakeholder legiti- macy is provided by Phillips (2003), whose anal- ysis includes a compelling account of the link between legitimacy and power, a connection that becomes important in our discussion of the impact of stakeholder cultures on stakeholder salience. Phillips bases his notion of normative legitimacy on “stakeholder fairness” (Phillips, 1997), which, in turn, draws on the work of Hart (1955) and Rawls (1964, 1971a,b). In this formula- tion, “obligations of fairness” are created when- ever parties accept benefits of a mutually ben- eficial cooperative arrangement (Phillips, 1997: 57). Phillips (1997) also stipulates that partici- pants make contributions and/or sacrifices to effect the arrangement and that “free riding” by participants is possible. When these conditions are met, stakeholders have normatively legiti- mate claims on the corporation (and vice versa). Although not all stakeholder theorists adopt this particular account of stakeholder legitimacy, al- most all believe that corporations have moral obligations to address, in some way, the norma- tively legitimate claims of stakeholders.
Phillips (2003) also introduces the notion of derivative legitimacy. Derivative legitimacy is generated from a stakeholder group’s power to affect the firm and its normatively legitimate stakeholders, even though that group has no normatively legitimate claims on the firm. Man- agerial attention to derivatively legitimate claims is morally justified by the responsibility managers have to protect the interests of the firm and its normatively legitimate stakehold-
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ers. Derivatively legitimate stakeholders—for example, the media, radical activist groups (ter- rorists, in the extreme case), and competitors— can affect the corporation in either beneficial or harmful ways. Indeed, most firms grant substan- tial salience to their competitors, even though they are certainly not normatively legitimate stakeholders. As Phillips puts it, normative le- gitimacy provides an answer to the question “For whose benefit . . . should the firm be man- aged?” (2003: 30) and is a primary form of legit- imacy. From a moral perspective, the claims of derivatively legitimate stakeholders are sec- ondary and should be addressed only when they affect the interests of normatively legitimate stakeholders. Firms concerned about their moral obligations will attend to the claims of both nor- matively and derivatively legitimate stakehold- ers. Moral obligations are central to our stake- holder culture construct, the topic to which we now turn.
STAKEHOLDER CULTURES
We argued above that when managers are faced with ethical decisions, they experience a tension between self-interest, often bolstered by a “market morality” (Hendry, 2004), and other- regarding sentiments, as reflected in traditional moral principles. This tension is particularly in- tense in firm/stakeholder relationships because they are a critical venue for morally significant interactions. How can the tension be resolved? We contend that stakeholder culture, which, we argue, is a central facet of organizational cul- ture, can provide managers with guidance re- garding how this tension should be resolved. Stakeholder culture represents a firm’s collec- tive reconciliation of these contradictory mo- tives in the past and, as such, consists of its shared beliefs, values, and evolved practices regarding the solution of recurring stakeholder- related problems. Often, the “solution,” found in the firm’s stakeholder culture, is a relatively clear set of prescriptions about whether self- regarding or other-regarding norms will prevail, or whether some compromise between the two will hold sway.
In general, culture is a property of an organi- zation constituted by (1) its members’ taken-for- granted beliefs regarding the nature of reality, called assumptions; (2) a set of normative, moral, and functional guidelines or criteria for
making decisions, called values; and (3) the practices or ways of working together that fol- low from the aforementioned assumptions and values, called artifacts (e.g., Geertz, 1973; Hatch, 1993; Pettigrew, 1979; Schein, 1985, 1990; Trice & Beyer, 1984). Organizational culture reflects a sort of negotiated order (Fine, 1984) that arises and evolves as members work together, express- ing preferences, exhibiting more-or-less effec- tive problem-solving styles (Swidler, 1986), and managing, at least satisfactorily, external de- mands and internal needs for coordination and integration (Schein, 1990). Common experience in this regard can lead people, over time, to form shared and deeply ingrained (Denison, 1996) un- derstandings about the way the organizational world works and the practices and standards that are appropriate and effective within that reality. In effect, culture represents an aspect of the organizational environment that helps mem- bers make sense of their own and others’ behav- ior (Golden, 1992).
Corporate cultures are certainly made up of more than one cultural dimension; formalism, adaptability, and time horizon are prominent examples. However, a firm’s stakeholders are the source of its most critical contingencies (Freeman, 1984). Indeed, Barney links successful corporate cultures to strong core values “about how to treat employees, customers, suppliers, and others”—that is, stakeholders (1986: 656). In addition, although it departs from our model somewhat by omitting employees, “external ori- entation” shows up as a central feature of most typologies of corporate cultures (Denison & Mishra, 1995; Detert, Schroeder, & Mauriel, 2000; Schein, 1990; VandenBerg & Wilderom, 2004). Furthermore, the very inclusive inventory of stakeholders advanced by most stakeholder the- orists—for example, Barney’s (1986) list, plus shareholders and neighboring communities— indicates that stakeholder relationships lie at the core of corporate operations. Consequently, solving stakeholder-related problems will be an important element of a company’s overall cul- ture.
In this paper, our focus is on what we call “stakeholder culture,” which we define as the beliefs, values, and practices that have evolved for solving stakeholder-related problems and otherwise managing relationships with stake- holders. Although the extent to which organiza- tional values and assumptions are widely
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shared and deeply held by organization mem- bers—that is, culture strength—can vary (e.g., Schein, 1985), the following arguments should gain force in proportion to culture strength. In addition, subcultures often exist within organi- zations (e.g., Martin, 2002). However, we focus on the organization-level variable and leave exam- ination of stakeholder subcultures, and possible differential treatment of stakeholders across firm subunits, to future research.
Stakeholder culture is grounded in ethics and is based on a continuum of concern for others that runs from self-regarding to other-regarding. We argue that firms vary with respect to the extent and nature of their moral concern for their stakeholders and that this variation will often be linked, conceptually if not semantically, to the different moral philosophies. Importantly, we do not argue that corporate managers know- ingly subscribe to, for example, utilitarian or Kantian ethical theories. However, many man- agers are aware of and subscribe to common language understandings of these ethical theo- ries—understandings drawn from the norms of society at large and revealed in the ethical log- ics of organizations (e.g., Victor & Cullen, 1988). Hence, these theories may become important sensemaking and sensegiving conduits through which stakeholder culture is communicated. Furthermore, as with cultures in general, stake- holder cultures are simultaneously the products of employee sentiments and reified “social facts” that have an independent effect on man- agerial decision making (e.g., Hatch, 1993).
Stakeholder culture is likely to affect how company employees assess and respond to stakeholder issues in two related ways: (1) by constituting a common interpretive frame on the basis of which information about stakeholder attributes and issues is collected, screened, and evaluated and (2) by motivating behaviors and practices—and, by extension, organizational routines—that preserve, enhance, or otherwise support the organization’s culture. To begin with, collective cognitive structures, such as those derived from culture (e.g., assumptions and values), influence what data about the firm’s external environment are noticed and what meaning is given to those data (e.g., Daft & Weick, 1984). These structures filter and shape the enormous amount of stakeholder-related in- formation that comes to bear on organizational participants. Culture helps people avoid infor-
mation overload and make shared sense of (and take coordinated action in) complex and ambig- uous situations. The practices constituting stakeholder culture reflect the collectively learned behavioral responses to problems that the organization has encountered as its mem- bers have worked together to manage complex stakeholder relationships. As such, these prac- tices provide agreed upon heuristics that help managers take action, despite substantial com- plexity and ambiguity. Taken-for-granted ele- ments within the culture give rise to a sort of “automaticity” (e.g., Bargh & Ferguson, 2000) in the enactment of practices and routines in re- sponse to stakeholder issues and attributes.
Furthermore, the assumptions and values making up stakeholder culture may influence the nature and sophistication of the organiza- tional practices used to monitor and interact with stakeholders (Hatch, 1993). For example, people tend to expend more time and effort col- lecting and interpreting data to elaborate on mental models relevant to important matters (Weick, 2004), such as for those directly related to core values of the culture. Consequently, or- ganization members can be expected to (1) focus more specifically on, (2) collect more information about, (3) develop more comprehensive under- standings of, and (4) create more sophisticated response routines around stakeholder issues germane to their firm’s core values.
Stakeholder culture has antecedents in the literature on ethical context in business set- tings. Ethical climate refers to the prevailing perceptions of organizational values and the typical practices and procedures that have eth- ical content or pertain to moral behavior (Cullen, Parboteeah, & Victor, 2003; Victor & Cullen, 1988). Ethical culture consists of the “for- mal” (e.g., policies and procedures) and “infor- mal” (e.g., peer behavior and norms) systems of behavioral control that are capable of promot- ing either ethical or unethical behavior (Treviño, 1990; Treviño & Weaver, 2003). Clearly, ethical climate and ethical culture are related concepts. In fact, much of the research done under one tradition can inform the other, and, in combina- tion, they address many topics of interest to or- ganization scholars. Indeed, until Denison (1996) sorted out some of the key differences—“deep structure” values, beliefs, and assumptions (cul- ture) versus surface-level understandings of or- ganization members (climate), qualitative field
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studies (culture) versus quantitative surveys (climate), sociological basis (culture) versus psy- chological basis (climate)—scholars sometimes conflated organizational culture and organiza- tional climate. For Victor and Cullen (1988), eth- ical climate represents the ethical aspect of or- ganizational culture.
Our stakeholder culture construct differs from ethical climate/culture in two important ways. First, it is simpler. It focuses only on what mat- ters to corporate stakeholders—whether or not the firm takes their interests into account— rather than trying to separate out the precise ethical foundation of that concern. We allow for multiple possible foundations.
Second, unlike previous work, stakeholder culture represents a clearly defined continuum of concern for stakeholder interests. Victor and Cullen (1998) employ a 3 � 3 matrix of catego- ries, with “locus of analysis”—individual, local, and cosmopolitan—on the horizontal axis and “ethical criterion”—egoism, benevolence, and principle—on the vertical axis. Locus of analysis might suggest a continuum of concern for others, but the authors actually mean something quite different: sources of reference for ethical reason- ing within the organization. Individual applies to personal moral standards, local to internal organizational sources, and cosmopolitan to sources outside the organization.
The three ethical criteria have different mean- ings across the three loci of analysis and, when combined with each locus, yield criteria that are quite ambiguous from a stakeholder group’s point of view. While local egoism (“company profit”) and cosmopolitan benevolence (“social responsibility”) seem to be analogous to two of our categories (below), others clearly are not. For example, cosmopolitan egoism suggests a broad concern for stakeholders, but one form of this category is “efficiency,” which, according to economic theory, would mean firm profit maxi- mization without regard for the interests of non- shareholder stakeholders. Similarly, an exam- ple of cosmopolitan principles is “laws and professional codes,” which again may have nothing to do with the interests of many stake- holders. Although these authors offer a credible typology of ethical climates/cultures, its impli- cations for stakeholder relationships are un- clear. Thus, we believe that stakeholder culture offers a better means of understanding firm/
stakeholder relationships from an ethical per- spective.
A Continuum of Stakeholder Cultures
Although concern for others may be a concep- tually continuous phenomenon, we argue that there are critical qualitative differences among firms that make a classification scheme mean- ingful. Our “punctuated” continuum (Table 1) is based on critical differences in the culture- based solutions that firms may use to resolve the conceptual tension between self-interest and concern for others—sometimes made man- ifest by power and legitimacy, respectively.
We posit the existence of five categories of corporate stakeholder cultures, each character- ized by a unique managerial orientation, pre- sented in order of ascending concern for others. First, an amoral culture—agency culture—is based on managerial egoism and involves no concern for others. Next, two limited morality cultures—corporate egoist and instrumentalist (under the umbrella term moral stewardship)— involve concern for the interests of shareholders but not for those of other stakeholders. Finally, two broadly moral cultures (another umbrella term)—moralist and altruist—involve concern for all corporate stakeholders.
An Amoral Culture
Agency cultures are characterized by mana- gerial egoism, the pursuit of self-interest at the individual level, even if the interests of the cor- poration and its shareholders, for whom manag- ers nominally work, must be sacrificed. Agency cultures are essentially amoral, differentiated from other stakeholder cultures by an absence of moral concern for other economic actors. In agency theory, the “agency problem” stems from the separation of ownership and control, first documented by Berle and Means (1932). Self- interest on the part of managers (agents) and shareholders (principals) is assumed, and agency theory (1) helps us better understand and predict the behavior of firms and their man- agers under various circumstances and (2) helps us design incentive structures and monitoring mechanisms that will better control managerial opportunism. Under this view, managers who fail to act in the interests of shareholders are not morally deficient. Rather, they are responding to
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t A
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ip
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ly
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ev a
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ke h
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on ly
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h a
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t ot
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st a
ke h
ol d
er s
a s
m ea
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to sh
a re
h ol
d er
en d
s •
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ru m
en ta
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fu l
st a
ke h
ol d
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n or
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ti ve
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ly
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ee b
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li ta
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n is
m N
ot re
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le u
ti li
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a n
— m
a rk
et ef
fi ci
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le u
ti li
ta ri
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— m
a rk
et ef
fi ci
en cy
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u ti
li ta
ri a
n —
co n
si d
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e in
te re
st s
of a
ll a
ff ec
te d
p a
rt ie
s A
ct u
ti li
ta ri
a n
— co
n si
d er
th e
in te
re st
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a ll
a ff
ec te
d p
a rt
ie s
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n ti
a n
p ri
n ci
p le
s N
ot re
le va
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or th
e w
id el
y a
cc ep
te d
co n
tr a
ct w
it h
sh a
re h
ol d
er s
on ly
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or th
e w
id el
y a
cc ep
te d
co n
tr a
ct w
it h
sh a
re h
ol d
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on ly
; a
d h
er e
to p
ri n
ci p
le s
w h
en in
st ru
m en
ta ll
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d va
n ta
g eo
u s
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a t
st a
ke h
ol d
er s
a s
en d
s a
s w
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a s
m ea
n s;
u n
iv er
sa li
za b
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n d
re ve
rs ib
le p
ri n
ci p
le s;
a d
h er
en ce
to p
ri n
ci p
le s
im p
or ta
n t
a n
d ra
re ly
co n
ti n
g en
t on
co n
se q
u en
ce s
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st a
ke h
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s a
s w
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m ea
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sa li
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n d
re ve
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a d
h er
en ce
to p
ri n
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im p
er a
ti ve
a n
d n
ot co
n ti
n g
en t
on co
n se
q u
en ce
s
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w ls
ia n
fa ir
n es
s N
ot re
le va
n t
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re le
va n
t N
ot re
le va
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l of
ig n
or a
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le va
n t;
a d
h er
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to d
if fe
re n
ce p
ri n
ci p
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es ir
a b
le
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l of
ig n
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p or
ta n
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d h
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d if
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p ri
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h ts
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re le
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h a
re h
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g h
ts on
ly S
h a
re h
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g h
ts on
ly ;r
es p
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st a
ke h
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w h
en in
st ru
m en
ta ll
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d va
n ta
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u s
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m e
fa ci
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sp ec
t fo
r st
a ke
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d er
ri g
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— vi
ol a
te on
ly w
h en
g oo
d m
or a
l re
a so
n s
fo r
d oi
n g
so
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ke h
ol d
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g h
ts of
p ri
m a
ry im
p or
ta n
ce
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ic s
of ca
re N
ot re
le va
n t
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re ”
fo r
sh a
re h
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er s
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re ”
fo r
sh a
re h
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in st
ru m
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a re
” fo
r ot
h er
st a
ke h
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u in
e “c
a re
” fo
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a ke
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d er
s “C
a re
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a ti
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a ke
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d er
s is
p ri
m a
ry
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tu e
et h
ic s
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ru m
en ta
l vi
rt u
es on
ly (p
er si
st en
ce ,
a le
rt n
es s,
ca re
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es s,
p ru
d en
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- h
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es s)
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lt y,
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it y)
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tu es
of co
rp or
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st s
p lu
s a
d d
it io
n a
l in
st ru
m en
ta l
vi rt
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p er
a ti
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ra ct
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l w
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om )
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a l
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of co
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st s
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s h
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ty ,s
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ev ol
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en ce
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d h
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ce to
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it h
h yp
er n
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s im
p or
ta n
t
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h er
en ce
to le
g it
im a
te n
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s on
ly —
m u
st b
e co
m p
a ti
b le
w it
h h
yp er
n or
m s
2007 145Jones, Felps, and Bigley
poorly designed incentive structures, or they are subject to inadequate monitoring mechanisms. “Moral” failures are attributed to faulty corpo- rate governance, not faulty managerial ethics.
Shareholders may benefit from the actions of egoistic managers, but only as by-products of self-interested actions taken under incentive and monitoring regimes that properly align managerial and shareholder interests. Other stakeholders may benefit as well, depending on managerial incentives, but not in predictable ways based on the moral intentions of manag- ers. Managerial egoists may have some instru- mental virtues (Pincoffs, 1986), such as persis- tence, alertness, carefulness, prudence, and cool-headedness, but (in their managerial roles) will lack moral virtues found in managers in other-regarding cultures. Agency cultures are at the purely self-regarding end of our continuum of ethically grounded stakeholder cultures.
Self-interest will certainly play a major role in the stakeholder cultures of many firms, without any support from moral philosophers, perhaps taking the form of an “every person for him/ herself” mentality. Two studies have shown am- ple empirical evidence of individual egoism in organizations (Fritzsche & Becker, 1984; Victor & Cullen, 1988). We now turn to discussions of four other-regarding stakeholder cultures.
Limited Morality Cultures: Moral Stewardship
Moral stewardship (Davis, Schoorman, & Donaldson, 1997) is our umbrella term for two stakeholder cultures—corporate egoist and in- strumentalist—where managers have a limited moral commitment—protecting and advancing the interests of the owners of the corporation, its shareholders—rather than the amoral perspec- tive of agency cultures.
One of the moral foundations of market capi- talism is based on microeconomic models that have economic efficiency, a utilitarian concept, as their underlying goal. Managers who believe in “role responsibility” are implicitly invoking a form of rule utilitarianism under which they, acting in the interests of the firm and its share- holders by maximizing profits (or share value), play their appropriate role in an economy char- acterized by competitive markets, private prop- erty, perfect information, and so on. In short, they believe that Adam Smith’s (1937) “invisible hand” is indeed able to transform self-interest
into collective welfare. Milton Friedman, the No- bel Prize–winning economist, endorses this per- spective in his provocative essay “The Social Responsibility of Business Is to Increase Its Prof- its” (1970). Managers who have made informed judgments regarding the ability of (even highly competitive) markets to produce socially opti- mal outcomes over time will regard moral stew- ardship as morally justified.
Moral stewardship may also be based on com- pliance with the terms of the principal/agent contractual arrangement, a Kantian moral per- spective, wherein corporate managers (agents) are morally bound to advance the interests of their ultimate employers—the firm’s sharehold- ers (principals). Similarly, moral stewards may be concerned with the rights of shareholders and may even exhibit a form of empathetic (though not very proximate) “care” for their shareholders. In addition to the instrumental virtues listed above for egoistic managers, moral stewards, who aim to maximize profits (or shareholder wealth), might be loyal, reliable, diligent, and dependable in protecting and ad- vancing shareholder interests.
Managers in moral stewardship cultures have a conceptually uncomplicated moral posture at the organization level—self-regarding and geared to maximize firm welfare. They are not guided by (1) act utilitarianism, which would require them to take into account possible con- sequences for all stakeholders, (2) the Kantian principles of universalizability, reversibility, or regarding stakeholders as ends as well as means, (3) Rawlsian fairness, (4) stakeholder rights, (5) “care” for stakeholders, or (6) the au- thenticity (let alone the legitimacy) of local com- munity norms. They may consider the interests of nonshareholder stakeholders in an instru- mental sense (depending on the form of stew- ardship involved, as described below) in mak- ing company decisions, but there is no moral commitment to these other stakeholders. Stake- holders (other than shareholders) are seen as means (or impediments) to the ends of the cor- poration. Managerial stewards behave accord- ing to the lessons taught in many business school classes: maximize shareholder wealth.
A concentrated focus on company profitability certainly describes a significant number of firms in modern economies and, hence, de- scribes some corporate stakeholder cultures. Empirical evidence of thinking along steward-
146 JanuaryAcademy of Management Review
ship lines was found in two studies: (1) cosmo- politan egoism—striving for efficiency—and lo- cal egoism—profit maximization (Victor & Cullen, 1988) and (2) rule utilitarianism (Fritzsche & Becker, 1984). We now turn to de- scriptions of the two forms of stewardship cul- tures: corporate egoist and instrumentalist.
Corporate egoists are those firms whose cul- tures stress short-term profit maximization or its more recent manifestation, shareholder wealth maximization. Such firms regard the interests of stakeholders as important only to the extent that these stakeholders can contribute to the firm’s short-term economic success, a perspective in- creasingly in evidence in today’s quarterly re- sults–driven corporate environment. Corporate self-interest without guile may be the best short- hand description of egoistic corporations. Cor- porate egoists aggressively contract with stake- holders (employees, suppliers, creditors, and customers) to compete effectively with other firms in their product markets. Stakeholder groups that can affect the firm’s short-term prof- itability are dealt with in ways that work to the best advantage of the firm, through arm’s- length transacting, zero-sum bargaining, highly specified contracting, litigation of contract dis- putes and ambiguities, opportunistic exploita- tion of contracting failures, and aggressive ex- ploitation of power imbalances. Examples include hard bargaining (including soliciting competitive bids) over the prices suppliers re- ceive for inputs to the firm’s production pro- cesses and/or the prices customers pay for its products. Employees in egoistic cultures will be treated in ways that minimize labor costs, with- out falling too far short of industry norms in order to retain a competent workforce. Such firms will interpret laws in ways that favor com- pany profitability. When the expected value of law breaking is positive, egoistic firms may con- sider law breaking a viable option.
Although egoistic firms exhibit amoral behav- ior to nonshareholder stakeholders, they are guided by the standards of moral stewardship of shareholder interests described above. Moral virtues such as loyalty, reliability, and depend- ability in the pursuit of shareholder interests could also characterize managers in corporate egoist cultures. Adherence to local norms (an ISCT concept), particularly those involving shareholders, may characterize egoistic firms as well.
Instrumentalist cultures subscribe to the doc- trine of “enlightened self-interest”—a voluntar- ily adopted “morality” that extends to those stakeholders that can enhance the firm’s finan- cial well-being.1 Friedman’s (1970) classic arti- cle rejecting a broad social responsibility for corporations allowed for corporate actions pro- viding broader social benefits, as long as these actions are undertaken in the service of share- holder interests. More recently, Jensen and Fuller (2002) wrote of “enlightened stakeholder theory,” an approach that recognizes and advo- cates the management of firm/stakeholder rela- tionships for the long-term enhancement of com- pany economic performance.
Managers in instrumentalist cultures recog- nize that moral behavior (or the appearance thereof) is often beneficial to the firm, and they practice a form of strategic morality where they act “morally,” but only to the extent that it is economically advantageous to do so. Such firms differ from corporate egoists in that they are opportunistic; self-interest with guile character- izes their behavior. Guile is Williamson’s (1985) term for behavior intended to appear moral but with the underlying goal of advancing economic interests—that is, subtlety in the pursuit of eco- nomic gain (Frank, 1988; Quinn & Jones, 1995). Put differently, the instrumentalist firm “in- vests” in longer-term benefits by foregoing the short-term opportunities of self-interested be- havior. In contrast, the corporate egoist exploits short-term opportunities as they arise.
Instrumentalists are strategically “moral” only with respect to nonshareholder stakehold- ers. Like corporate egoists, they do have a moral commitment to the stewardship of shareholder interests and may be cooperative and “practi- cally wise” (Pincoffs, 1986) in support of those interests—instrumental virtues that set them apart from corporate egoists. However, since op- portunism may ultimately involve deceit, the moral virtues of honesty, sincerity, and truthful- ness are unlikely to characterize instrumentalist stakeholder cultures.
1 We present the terms moral and morality here in quotes because, as we explained above, not all moral philosophers (Kant, in particular) would regard “good” actions taken for the wrong reasons as moral.
2007 147Jones, Felps, and Bigley
Broadly Moral Cultures
We also posit the existence of two stakeholder cultures—moralist and altruist—under the um- brella term broadly moral cultures. These cul- tures are extensively other-regarding in their decision making and attempt to adhere to moral principles that apply to all stakeholders, not just shareholders. Although moralist and altruist firms differ in terms of the compromises that sometimes must be considered under extreme circumstances, both try to take stakeholder in- terests into account, even when doing so does not appear to be in their self-interest—short or long term. They value honoring their commit- ments, adhering to the spirit and the letter of contractual obligations, and treating all stake- holders fairly and with respect. One possible way to distinguish instrumentalist cultures (de- scribed above) from broadly moral cultures is that the former may retain practices that explic- itly weigh moral considerations against eco- nomic benefits. A classic example of these “ta- boo trade-offs” is putting a dollar value on human life (Tetlock, Kristel, Elson, Green, & Ler- ner, 2000).
Broadly moral stakeholder cultures may orig- inate with skepticism regarding (1) the ability of competitive markets to provide utilitarian out- comes over time and/or (2) the sanctity of the principal/agent contract. Examples that call the utilitarian results of market mechanisms into question are not difficult to find, but isolated examples do not render profit maximization an inappropriate application of rule utilitarianism, which focuses on costs and benefits over time. However, competitive markets actually create incentives to develop arrangements that allow firms to capture the benefits and force someone else to bear the costs. Ultimately, there can be no assurance that maximal social welfare will result. Managers who reach this conclusion may turn instead to act utilitarianism, where social welfare is pursued directly through discrete de- cisions rather than through obedience to rules. The role of their firms would then be to directly strive for overall economic and social well- being by considering the interests of all corpo- rate stakeholders.
Although relatively few managers are likely to accept utilitarian theory wholesale, it is not uncommon for people to regard consequences for others as important elements in their moral
decision making. That might mean expressing act utilitarian sentiments either at the personal level—“Are benefits for a few (including me) really worth burdens for many others?”—or at the public policy level—“This policy is good for the country, even if some are harmed (perhaps including me).” Therefore, taking the interests of others into account and aiming for the welfare of society as a whole might become elements of a corporate stakeholder culture. Indeed, two em- pirical studies show evidence of act utilitarian ethical sentiments in firms (Fritzsche & Becker, 1984; Victor & Cullen, 1988).
In a similar vein, managers may doubt the overriding sanctity of the contract between prin- cipals/shareholders and agents/managers, where shareholder interests trump the interests of all other stakeholders. Quinn and Jones (1995) have questioned the credibility of this position by arguing that it is logically incoherent and that other moral obligations take precedence over wealth-producing duties to shareholders. For these or other reasons, managers may feel that implicit contracts with other stakeholders are no less binding than the shareholder/ manager contract, and, therefore, they may adopt broader moral standards.
The Kantian notion of treating stakeholders as ends in themselves, as well as means to corpo- rate economic ends, also constitutes a broader morality for corporations. Striving to uphold uni- versally applicable principles (“What if all com- panies acted this way?”), behaving according to the Golden Rule, taking obligations seriously, and not acting as if conventional rules apply only to others are also Kantian notions that might resonate with the managers of broadly moral corporate cultures, as is the idea that wor- thy “principles” cannot be discarded simply be- cause potential consequences to the firm may be negative. Victor and Cullen (1988) found that some managers regarded cosmopolitan princi- ples as important elements of the ethical cli- mates of their firms. Thus, Kantian principles might become a part of a stakeholder culture as well.
Some managers may respond to common lan- guage variants of Rawlsian notions, such as the veil of ignorance (“there but for fortune go I”) or the difference principle (“help those less fortu- nate than yourself”). Many people do believe that the rights of others should be respected, creating the possibility of prima facie stake-
148 JanuaryAcademy of Management Review
holder rights. A genuine “care” for stakeholders, at least in a nonproximate empathetic sense, may also motivate broadly moral managers, as might the importance of such moral virtues as honesty, sincerity, truthfulness, and trustworthi- ness. Hence, Rawlsian notions of fairness, rights, care for others, and certain moral virtues could become elements of a stakeholder culture.
Finally, from an ISCT perspective, although the standards and evidence that would authen- ticate and then legitimize norms are certainly subject to debate (the proponents of ISCT offer many possibilities on both fronts) and are un- likely to be known to managers, a concern for the authenticity and legitimacy of norms is itself a revealing process. Managers may have moral reasons to question either the authenticity of the rules they play by (“Have other community members consented to these norms?”) or their legitimacy (“Are these norms compatible with broader ethical standards?”). Managers who care about the propriety of the norms they ad- here to would seem to have made a major step toward ethical behavior and a greater concern for their stakeholders. In contrast, managers who subscribe to norms simply because “that’s the way things are done around here” have not adopted an other-regarding morality. Thus, a concern for the authenticity and the legitimacy of behavioral norms, like concerns for the broadly ethical perspectives described above, may be important elements of a firm’s stake- holder culture.
Although the language and details of these moral philosophies may not be known to moral managers, the underlying sentiments of at least some of them will be. All of these notions are substantially other-regarding perspectives and involve attempts to “do the right thing,” regard- less of the consequences for the agent or firm. They differ from the stewardship-based cultures where the calculus of corporate self-interest is always present—straightforward in corporate egoist firms and more subtle in instrumentalist firms. Broadly moral firms do not routinely apply this calculus, because other-regarding concerns are paramount in their cultures.
Some firms do seem to have broadly moral cultures. Kotter and Hesket (1992) concluded that the managers of several highly successful firms tended to have a strong and genuine concern for such stakeholders as employees, customers, and suppliers, as well as shareholders. Post,
Preston, and Sachs have noted that “stakehold- er-oriented firms often seem to be motivated by normative considerations that underlie a perva- sive organizational commitment to humanistic values for their own sake” (2002: 79). In addition, empirical work has identified elements of social responsibility and respect for laws and profes- sional codes (Victor & Cullen, 1988), along with respect for rights and justice or fairness (Fritzsche & Becker, 1984) among corporate man- agers. We now turn to descriptions of the two broadly moral cultures themselves: moralist and altruist.
Moralist cultures share the characteristics of broadly moral cultures: concern for all stake- holders and adherence to principles regardless of economic temptations to discard them. They will violate their moral standards only when it is necessary to ensure firm survival. In sharp contrast, instrumentalist firms will violate such standards whenever it is economically advanta- geous to do so. Whatever their source—act util- itarianism, Kantian principles, Rawlsian fair- ness concerns, respect for rights, “care” for stakeholders, ICST considerations, or a desire to be morally virtuous—ethical standards come first for moralist firms and are not trumped by economic considerations, except under the most dire circumstances.
When moralist firms make moral compro- mises in the face of financial crises, they do so for moral reasons. Tetlock et al. (2000) call the weighing of conflicting moral considerations a “tragic trade-off”—unfortunate, but necessary. These firms understand that the failure to re- spond to problems that threaten corporate sur- vival will imperil all their stakeholders, whose well-being depends on the firm’s economic via- bility. Moralist firms are moral, but pragmatic.
Altruist cultures are included for the sake of completeness. In altruist cultures other-regard- ing concerns are dominant. Moral principles trump all other decision-making criteria, even when firm survival is at stake, setting such firms apart from moralist firms. Altruist firms will honor obligations, explicit and implicit, and will always treat all of their stakeholders fairly and with respect. Moral standards—be they based on utilitarian, Kantian, Rawlsian, rights, care, virtue, or ISCT foundations—are decisive and not subordinate to pragmatic considerations. These firms are likely to regard as worthy the virtues of benevolence, altruism, selflessness,
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and forgiveness, in addition to the virtues found in other cultures. Adherence to moral principles alone, regardless of threats from powerful stake- holders, might be considered the “most moral” of our stakeholder cultures. However, our dis- cussion of derivative legitimacy (above) clouds this conclusion; responding to derivatively legit- imate stakeholders (powerful, but with no moral claim on the firm) when the interests of legiti- mate stakeholders are threatened may consti- tute a higher morality. We are agnostic on this issue.
The altruist culture completes our continuum, which now extends from fully self-regarding to fully other-regarding. As a practical matter, con- ditions of economic competition make signifi- cant growth or proliferation of fully other- regarding companies improbable.
We have now discussed the characteristics of five stakeholder cultures based on variation in the extent to which their moral standards are other-regarding. As in Table 1, adjacent cultures differ in terms of moral regard for an increasing number of stakeholder groups or a change in the subtlety with which their managers advance stakeholder interests. To illustrate the value of our general theory, we turn to a discussion of stakeholder salience (Mitchell et al., 1997).
STAKEHOLDER SALIENCE REVISITED
Mitchell et al.’s (1997) stakeholder salience theory is an attempt to “get inside the heads of corporate managers” to determine what they really pay attention to as they weigh stake- holder concerns in their corporate policy de- liberations— colloquially, “who or what really
counts.” In this typology the three principal determinants of salience—power (the ability of the stakeholder group to bring about out- comes that it desires, despite resistance), le- gitimacy (the extent to which the stakeholder group’s relationship with the firm is socially accepted and expected), and urgency (the de- gree to which the stakeholder group’s claim is time sensitive and of critical importance to the group)— combine linearly to produce seven different types of stakeholder groups, each with a predicted level of salience for manag- ers of the firm in question. The left side of Table 2 presents the same information as Mitchell et al.’s (1997) Venn diagram; the right side represents our modification of their stake- holder salience theory.
Table 2 makes the additive nature of the model apparent; the more attributes possessed by the stakeholder group, the greater the sa- lience for managers. All three attributes (defin- itive stakeholders) result in high salience. Two attributes (dominant, dangerous, and dependent stakeholders) result in moderate salience. One attribute (dormant, discretionary, and demand- ing stakeholders) results in low salience. Groups with none of these attributes are not considered stakeholders and possess no sa- lience.
Incorporating Stakeholder Culture into the Salience Model
This model is parsimonious and has intuitive appeal. Nevertheless, a closer look at its impli- cations suggests some possibilities for exten- sion and refinement. As noted above, managers
TABLE 2 Comparison of Stakeholder Salience Models
Stakeholder Attributes Mitchell et al. (1997) Stakeholder Type
Mitchell et al. (1997) Stakeholder Salience
Stakeholder Culture Type
Power Legitimacy Urgency Corporate Egoist Instrumentalist Moralist
Yes Yes Yes Definitive High High High High Yes Yes No Dominant Moderate Moderate Moderate Moderate No Yes Yes Dependent Moderate None Moderate High Yes No Yes Dangerous Moderate High High Moderate Yes No No Dormant Low Moderate Moderate Low No Yes No Discretionary Low None Low Moderate No No Yes Demanding Low None None None No No No Nonstakeholder None None None None
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of firms with different stakeholder cultures may prioritize power and legitimacy differently, sug- gesting the value of an extended model of stake- holder salience that includes the effects of stakeholder culture. In our extension we retain the three-attribute structure—power, legitimacy, and urgency— developed by Mitchell et al. (1997). However, the moral nature of legitimacy, developed above, is given more prominence here. We also agree with these authors’ conten- tion that stakeholder salience is the result of managerial perceptions—psychological con- structions of reality by managers, based partly on features of their environments. However, we classify these psychological constructions more specifically in terms of stakeholder culture.
In the following sections we describe how stakeholder cultures differentially influence the perceptions of managers regarding the ascrip- tion and subsequent weighting of the three at- tributes (power, legitimacy, and urgency) of the claims of stakeholder groups. In general, our analysis posits that responding to power is sim- ply rational self-regarding behavior, whereas responding to legitimacy derives from other- regarding (moral) sentiments. We focus on the three “central” culture types—corporate egoist, instrumentalist, and moralist—for two reasons. First, the agency culture, grounded in the prin- cipal/agent relationship and its assumption of self-interest, is extensively described in the fi- nancial economics/agency theory literature. The salience of stakeholder claims will depend on the incentive structures faced by managers as individuals and will be unpredictable at the or- ganization level. Other than placing agency cul- tures on our stakeholder culture continuum, we have nothing to add. Second, altruist cultures, those that take uncompromisingly principled moral positions in stakeholder relationships, will play a small role in a competitive economy. The three central culture types, because they place differential importance on the three at- tributes, have stakeholder salience hierarchies that differ from one another and from those of the original model, as shown on the right side of Table 2.
Corporate Egoist Cultures and Stakeholder Salience
As noted above, the defining ethical feature of the corporate egoist culture is the primacy of
short-term shareholder wealth maximization. Since powerful stakeholders are most able to adversely affect corporate outcomes, power will be the primary driver of stakeholder salience for corporate egoists. Shareholders with large hold- ings, workers with strong unions, high-volume customers with alternative sources of supply, and governmental agencies with relevant reg- ulatory powers are likely to be salient to these firms. Corporate egoist firms are likely to have sophisticated mechanisms in place dedicated to gathering and processing information re- lated to powerful stakeholders. Consequently, they will understand power considerations quite well. If their stockholders include insti- tutional investors with large holdings, then routines and systems, such as an office of in- vestor relations, will be created to manage and influence these investors. However, dif- fused stock ownership represents less power and will warrant less attention.
Furthermore, powerful stakeholders with time-sensitive and critically important claims (urgency) merit special consideration, since they are the ones most likely to place intense de- mands on the firm. Thus, urgency is a booster of salience based on power. Claims combining power and urgency (i.e., definitive and danger- ous stakeholders) are predicted to be highly sa- lient to corporate egoists. Since powerful stake- holders can hinder the pursuit of profit maximization on grounds other than urgent claims on the company (Frooman, 1999), power without urgency (dominant and dormant stake- holders) will generate moderate salience. Legit- imate claims are irrelevant in the corporate ego- ist’s culture, as are urgent claims in the absence of power. Hence, dependent, discretionary, and demanding stakeholders will not merit atten- tion, because neither they nor their claims are particularly valued or well-understood. Manag- ers in egoistic cultures are “blind” to these is- sues because of (1) a clear prioritization of pow- erful stakeholders and (2) underdeveloped systems for dealing with them.
Proposition 1: Managers in corporate egoist cultures will always regard the interests of powerful stakeholders as at least moderately salient; they will regard these interests as highly sa- lient when the claims are also urgent.
2007 151Jones, Felps, and Bigley
Instrumentalist Cultures and Stakeholder Salience
Instrumentalist firms place preeminent value on the pursuit of corporate self-interest with guile. Other terms used to convey this orienta- tion are enlightened self-interest, pragmatic mo- rality, and strategic morality. Instrumentalist firms will try to capture the benefits of moral behavior (Frank, 1988; Jones, 1995) without aban- doning their fundamental self-interest. Conse- quently, power will be a primary driver of sa- lience, because corporate self-interest lies at the heart of the firm’s instrumentalist posture. How- ever, because the firm sees moral behavior as instrumentally useful (up to a point), it will re- gard legitimacy as a secondary determinant of salience as well. Again, urgency is a booster of salience generated from either power or legiti- macy. Hence, definitive and dangerous stake- holders will certainly be highly salient to man- agers of instrumentalist firms because of their power and urgency.
Unlike corporate egoists, however, firms with instrumentalist cultures will regard the claims of dependent stakeholders (legitimate and ur- gent) as moderately salient as well and may pay some attention (low salience) to discretionary (legitimate, but not urgent) stakeholders, simply because of the perceived long-term benefits as- sociated with moral behavior. These benefits might include currying favor with other power- ful groups that have a strong preference for trustworthy companies (e.g., customers, govern- mental agencies) or, conversely, avoiding the negative public relations that might come from treating legitimate stakeholders poorly. In a sense, instrumentalist firms may grant legiti- mate stakeholders a form of “derivative power,” analogous to derivative legitimacy as discussed above.
Proposition 2a: Managers in instru- mentalist cultures will always regard the interests of powerful stakeholders as at least moderately salient; they will regard these interests as highly salient when the claims are also ur- gent.
Proposition 2b: Managers in instru- mentalist cultures will always regard the interests of legitimate stakehold- ers as at least somewhat salient (low
salience); they will regard these inter- ests as moderately salient when the claims are also urgent.
Moralist Cultures and Stakeholder Salience
Moralist firms have a genuine concern for stakeholder interests, making legitimacy the primary driver of salience for their managers. However, moralist firms are also sensitive to power issues, since power may give stakehold- ers derivative legitimacy (discussed above), a secondary driver of salience. Since urgency pro- vides impetus for stakeholders and firms alike to deal with legitimate concerns, it is a booster of salience generated by either legitimacy or power. Combinations of legitimacy and urgency (definitive and dependent) will be highly salient to moralist firms. Stakeholders with these at- tributes include shareholders, when profitabil- ity is threatened; customers affected by product quality; local communities affected by plant op- erations; and employees, when threats to their livelihood are present. Legitimacy without ur- gency still carries moral weight, so dominant, dependent, and discretionary stakeholders will be viewed as moderately salient. Note that if instrumentalist firms (above) are good at strate- gic “morality,” their behavior may be similar to that of moralist firms for a time. Both are likely to be responsive to power and legitimacy, albeit from different sources—self-interest/opportun- ism in the former case and a moral concern for legitimacy (normative or derivative) in the latter.
Proposition 3a: Managers in moralist cultures will always regard the inter- ests of legitimate stakeholders as at least moderately salient; they will re- gard these interests as highly salient when the claims are also urgent.
Proposition 3b: Managers in moralist cultures will always regard the inter- ests of powerful stakeholders as at least somewhat salient (low salience); they will regard these interests as moderately salient when the claims are also urgent.
The right-hand side of Table 2 pulls all of these revised predictions together for corporate egoist firms, instrumentalist firms, and moralist firms and summarizes our theoretical contribu-
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tions to stakeholder salience. A simple overview of this part of the table is as follows. Acting alone, attributes that are of primary importance to a firm (power or legitimacy), based on its stakeholder culture, generate moderate sa- lience. Derivative attributes (legitimacy or power) are secondary drivers and, acting alone, generate low salience. In either case, urgency acts as a booster of salience (low to moderate; moderate to high), determined by primary or derivative attributes, but generates no salience by itself.
It is clear from this table that our predictions of stakeholder salience are significantly af- fected by stakeholder culture and that they dif- fer substantially from those advanced in Mitch- ell et al.’s (1997) original work. Particularly noteworthy are the differential responses to power by corporate egoist firms and moralist firms. Without power, no stakeholder group can expect to be at all salient to the corporate egoist, whereas two stakeholder groups without pow- er—dependent and discretionary—can expect high and moderate salience, respectively, from moralist firms, based on their legitimacy.
DISCUSSION AND CONCLUSIONS
There are three major contributions of this pa- per. First, we identified and developed a frame- work that highlights points of convergence— self-regarding versus other-regarding—in several otherwise diverse approaches to busi- ness ethics. Second, we used this framework to create a continuum punctuated by five corporate stakeholder cultures— organization-level phe- nomena that guide managerial thinking and de- cision making with respect to stakeholder rela- tionships. Third, as an illustrative example, we applied our stakeholder culture construct to stakeholder salience theory and noted the emer- gence of significantly revised predictions of sa- lience.
With respect to contributions of specific inter- est for stakeholder theorists, the combination of points one and two above represents an impor- tant integration of normative and descriptive elements of the theory. That is, the way a firm’s managers actually respond to stakeholder is- sues is interwoven with notions of how they should respond. Also, with a firm-level perspec- tive on salience, we can understand how a col- lection of managers in a firm will think about
and respond to different stakeholder issues, moving us beyond the individual values of CEOs, as used in previous research (Agle, Mitchell, & Sonnenfeld, 1999). In addition, our approach explains an empirical result discov- ered by these authors; urgency is really a sec- ondary attribute that merely provides the “extra push” needed to make already salient issues more so. While power and legitimacy both have their champions—corporate egoist and moralist firms, respectively—urgency does not. In sum- mary, this theoretical contribution, especially in conjunction with subsequent empirical work, could be an important element in the larger cause of understanding ways for stakeholders and firms to cooperate for mutual gain (Free- man, 1984).
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Thomas M. Jones ([email protected]) is the Boeing Professor of Business Management at the University of Washington. He received his Ph.D. from the Univer- sity of California, Berkeley. His research interests include business ethics and com- petitive strategy, stakeholder theory, corporate social performance, and alternative objective functions for corporations.
Will Felps ([email protected]) is pursuing a doctorate in organizational behav- ior at the University of Washington. His research focuses broadly on how to build better organizational theories and includes the role of moral identity in organizational decision making, the asymmetric effects of “bad apple” teammates, and the perfor- mance implications of stakeholder cultures.
Gregory A. Bigley ([email protected]) is an associate professor of human resource management and organizational behavior at the University of Washington. He received his Ph.D. from the University of California, Irvine. His research focuses on trust, motivation, leadership, the self, and the social psychological foundations of high-reliability and high-performance organizing.
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