COMSATS Institute of Information

Technology, Sahiwal

Topic
Business Ethics and Stakeholder Theory
Author(s): Wesley Cragg
Submitted To:
Muzhar Javed

Submitted By:
Mr. Abusufian Rasheed

Program:
Masters in Business Administration

Course:
Corporate Social Responsibility

Registration:
SP16-MB1-007
Submitted Date:
October 31, 2016

BUSINESS ETHICS AND STAKEHOLDER THEORY

In this article first Wesley cragg discussed business ethics and investor
own companies. In which he discussed that business ethics revolve around
two questions, why be ethical? and What does ethics require of people
engaged in the business of business? Practically individual and groups
encounter challenge posed by question Why be ethical?" whenever they
are faced with situations where the "efficient" way of accomplishing their
goals and objectives clashes with moral values. In medicine or new
technology and politics are the area where fact or not clear are companion
to second question. Why be ethical, Thrasymachus asks, if one discovers
that he or she can reap all the social benefits of a good reputation for
ethical behavior and all the benefits of breaking ethical rules and
principles at the same time.
Business people and organization face the challenge of deciding whether
their activities will be guided by ethical principles when ethics and selfinterest appear too diverse in significant ways. And they face the
challenge of applying moral values in Complex environments where their
application is neither clear nor straightforward.
The dominant view of the modern corporation in management literature is
that the exclusive obligation of the corporation is to maximize shareholder
return, constrained only by an obligation to obey the law and (on
Friedman's interpretation) respect conventional morality.
Secondly he discussed The Appeal of Stakeholder Theory that why should
investor-owned corporations be managed ethically and what does this
mean for the way business is conducted? The tools it brings to this task
are both empirical and normative. Empirically, stakeholder theory rests on
an observation or what we might call a fact. Corporations have
stakeholders. That is to say, the activities of corporations impact on
individuals and collectivities whose interests are thereby affected both
negatively and positively.
Charles Taylor describes as the fundamental moral insight of Western
civilization, namely, "the universal attribution of moral personality." This
means that:
In fundamental ethical matters, everyone ought to count, and all ought to
count in the same way. Within this outlook, one absolute requirement of
ethical thinking is that we respect other human agents as subjects of
practical reasoning on the same footing as ourselves. Applied to the
activities of investor-owned corporations, this principle requires that

managers acknowledge that all corporate stakeholders have equal moral

status and acknowledge that status in all their activities.
In Stakeholder Theory and the Business Case for Business Ethics Thomas
Donaldson and Lee Preston point out, empirical studies have shown that
"many managers believe themselves, or are believed by others to be
practicing stakeholder management." "Managers may not make explicit
reference to 'stakeholder theory,'" they claim, "but the vast majority of
them apparently adhere in practice to one of the central tenets of
stakeholder theory, namely, that their role is to satisfy a wider set of
stakeholders, not simply the share owners" (Donaldson, 1998, 184).
Max Clarkson's studies stakeholder theory is not normative but rather
descriptive in intent, explanatory value, and practical application. This
puts stakeholder theory in the mainstream of what Annette Baier
describes as "genuine and useful theories" of a sort found primarily in
science (1989, 33). the second thrust on which the business case for
business ethics stakeholder theory rests, namely the instrumental value of
ethical business conduct, that is to say, its usefulness in achieving
conventional business goals like increased market share or enhanced
share value.
In Shareholder Theories, Prescriptively, and the Law have two things in
common. They yield prescriptions and the prescriptions they yield have
moral content. Shareholder theories yield prescriptions. If they did not,
they would not be management theories. Their goal is to guide managers
in fulfilling their role as managers. They yield prescriptions because they
give management a purpose, namely, profit maximization. This ascription
of purpose is in fact a description. Seen from a management perspective,
it is a description of the role of managers as managers. Seen from a
general business perspective, it is a description of the purpose of private
sector, for profit corporations.
The description of the function or role of managers is persuasive for
several reasons. First, it appears to describe accurately why investorowned corporations are created and why investors invest in them. The
theory asserts that the purpose of for-profit corporations is to generate
profit.
Second, the view that the function of the managers of investor-owned
corporations, private sector corporations and the corporations they
manage is to maximize profits fits easily into the theoretical framework of
both management and economic theories.

In Artifacts, Legal Artifacts y and the Concept of a Corporation

Understanding the relation of corporations and law rests on two things.
First, corporations are legal artifacts. That is to say, they exist because the
law creates the conditions for their existence and operation. Second, as
legal artifacts, corporations have an unconditional obligation to obey the
law. It is this second factor that necessitates an examination of the claim
common to shareholder theories that corporations should obey the law.
Corporations are legal artifacts, artifacts created using tools provided by
law. Artifacts are things (entities) created by agents with some goal or
purpose in mind. Tools are a paradigm example of artifacts. The purpose
of a hammer, for example, is to drive nails. All artifacts have a function.
And no artifacts exist as artifacts naturally without the intentional
intervention of an agent who either creates the artifact or identifies or
shapes a natural object for a particular use.
Investor-owned corporations are legal artifacts. That is to say,
corporations, specifically investor-owned corporations, could not exist
without the active agreement and intervention of governments and the
societies for which they speak. Therefore, the creation of corporations
involves a kind of partnership between the governments that create the
legal space that makes the kind of activities that corporations are formed
to engage in possible and the corporations that are created and operate in
that legal space.