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Social Contract Theory in business - Essay Example

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Social Contract Theory in business

How should a manager look at this
Weiss (2005) describes the Stakeholder Theory (behind Jane's statements) as having become an established framework in identifying and examining the impact of organization action. It posits a model in which "all persons or groups with legitimate interests participating in an enterprise do so to obtain benefits, and there is no prima facie priority of one set of interests and benefits over another" (Donaldson and Preston. In Weiss 2005). It is based on the idea that the enterprise exists to serve the many stakeholders who have an interest in it or who in some way may be harmed or benefited by it. The model rejects the idea that the enterprise exists to serve the interest of its owners, be it maximizing their wealth or some other reason for being in business. The flaws in the conceptual and empirical foundations of theory has cracks that serious questions can be raised concerning the utility and validity of any moral conclusions or prescriptions it offers (ibid).
According to Younkins (1997), the stakeholder theory has merit as a management strategy. As an ethical theory, however, the emphasis on stakeholders is problematic as it erroneously suggests that corporations are possessions and servants of larger society. This theory is said to misinterpret Kant's principle because what Kant actually said was that every human being is entitled to be treated not merely as a means but also as an end in himself. Further, stakeholder theory implies a multi-fiduciary approach that goes against the idea of free markets, property rights, and the special moral responsibility of management to the stockholders.
On the other hand, Social contract theory (which Brett seems to espouse) advocates a free market economy supposed to result in the best product at the best price, serving the common interest. It, therefore, counts every corporation to be bound by social responsibilities and put in the hands of the people the power to permit their operations (Roddy 2005). Social contract theory holds that obedience to law is required of anyone who would enjoy its protections and advantages. An example of this is said to be accepting a court's decision in your favor to mean also accepting the one against your interests. Only in this way will others agree to abide by rulings when the decision of law favors you to their disadvantage. By refusing to sacrifice your own interests in some cases, you risk going it alone in what is called the "state of nature" which is considered a terrible alternative (ibid).
Hasnas (1998) goes back to presenting three current leading normative theories of business ethics as the stockholder, stakeholder, and social contract theories. Accordingly, the stockholder theory is the oldest of the three, but out of favor with many contemporary business ethicists. To them, the stockholder theory represents a disreputable holdover from the bad old days of rampant capitalism. In contrast, the past decades has seen the stakeholder theory gain much popularity that it may be considered the conventionally-accepted position within the business ethics community. In recent years, however, the social contract theory has been cited with considerable acceptance and might accurately be characterized as challenging the stakeholder theory for preeminence among normative theorists.
What is the stand of the manager then Hasnas (1998) presents a contrarian review of these normative theories, ...Show more


Jane blamed management in the Pan Pharmaceuticals debacle, being more concerned about "all the people who were affected.customers hurtemployees lost jobsand the shareholders the whole complementary medicines industry harmed." In other words, she was looking at the problem from the point of view of the Stakeholder Theory…
Author : dschiller
Social Contract Theory in business essay example
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