2002) The Stakeholder Concept of Corporate Control is Illogical and Impractical

Abstract

Existing criticisms of the stakeholder concept of corporate governance, centering on the threat to private-property rights that it poses and the distortion of traditional notions of accountability in the firm that it entails, are highly persuasive (Barry 1998; Sternberg 1999). Still insufficiently recognized, however, are the logical flaws in the stakeholder argument. It is a serious defect of stakeholder methods of decision making that were a firm to adopt them, bad decisions would result. However, an equally serious defect is that no decisions at all might result or that the decisions reached might not reflect the values regarded as integral to the stakeholder idea. The whole stakeholder theory is vulnerable to a logical problem that has long been a feature of democratic theory and practice. This paradox was formally demonstrated by Kenneth Arrow (1963) in 1951, although it had originally been identified much earlier by the Marquis de Condorcet, the French Enlightenment thinker who died at the hands of the French revolutionaries. 1 It has perplexed democratic theorists ever since. Business practice and business ethics are subject to intellectual strictures that belong to political philosophy because the predominant motive of much business ethics is to politicize or democratize the corporation—to take power away from the stockholders and to vest it in more inclusive groups. It is no coincidence that supporters of the stakeholder idea frequently use the term constituencies to refer to the groups that they think ought to have an influence on corporate governance (Kuhn Norman Barry is a professor of social and political theory at the University of Buckingham in England. 1. Condorcet’s idea has been revived from time to time. Before Arrow, Lewis Carroll, the nineteenth-century English writer and logician, had rediscovered it.

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