Shareholders vs. Stakeholders: How Liberal and Libertarian Political Philosophy Frames the Basic Debate in Business Ethics

Posted: 22 Dec 2011 Last revised: 2 Oct 2013

Date Written: December 22, 2011

Abstract

The 'basic debate' in business ethics between shareholder and stakeholder theory has underlined the field since its inception, with wide ranging normative, descriptive, and instrumental arguments offered on both sides. We maintain that insofar as this is primarily a normative debate, clarity can be brought by elucidating how it is framed by the political philosophies of liberalism and libertarianism. With liberalism represented by John Rawls’ theory of justice and libertarianism represented by the ideas of Milton Friedman and Robert Nozick, and (separately) Edward Freeman, the paper shows that both liberalism and libertarianism can be interpreted to justify shareholder and stakeholder theory respectively. The debate between shareholder theory and stakeholder theory is framed by liberal and libertarian justifications that hinge primarily on whether and to what extent one should have exogenous or endogenous safeguards on corporate behavior. Accordingly, political philosophy turns out to be highly relevant to both business ethics and corporate governance, not because the corporation resembles the state, but because of the potential safeguards placed on the corporation by the state.

Suggested Citation

Ronnegard, David and Smith, N. Craig, Shareholders vs. Stakeholders: How Liberal and Libertarian Political Philosophy Frames the Basic Debate in Business Ethics (December 22, 2011). INSEAD Working Paper No. 2011/132/INSEAD Social Innovation Centre. Available at SSRN: https://ssrn.com/abstract=1975752 or http://dx.doi.org/10.2139/ssrn.1975752

David Ronnegard

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

N. Craig Smith (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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