Business Ethics as Self-Regulation: Why Principles that Ground Regulations Should Be Used to Ground Beyond-Compliance Norms as Well

Theories of business ethics or corporate responsibility tend to focus on justifying obligations that go above and beyond what is required by law. This article examines the curious fact that most business ethics scholars use concepts, principles, and normative methods for identifying and justifying these beyond-compliance obligations that are very different from the ones that are used to set the levels of regulations themselves. Its modest proposal—a plea for a research agenda, really—is that we could reduce this normative asymmetry by borrowing from the normative framework of “regulation” to identify and justify an important range of beyond-compliance obligations. In short, we might think of “self-regulation” as a language and a normative framework with some distinct advantages over other frameworks like stakeholder theory, corporate social responsibility, corporate citizenship, and the like. These other frameworks have been under attack in the business ethics literature of late, primarily for their vagueness and their disappointing inability to distinguish clearly between genuine beyond-compliance moral obligations, on the one hand, and charitable acts that are laudable but not morally obligatory, on the other.

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Notes

I hesitate to provide citations for this claim. Relatively little space in business ethics textbooks and articles is spent explaining why illegal activities like fraud or assassinating competitors are also unethical. Business ethicists tend to devote much more attention to identifying and criticizing the legal activities that seem unethical. But for explicit acknowledgment of (1), see e.g., Eberlein and Matten (2009, p. 242) and Carroll (1991).

For a rather broader sketch of different proposals for a “unified theory” of business ethics, see Donaldson and Dunfee (1999), Heath et al. (2010), and Norman (2012a).

Naturally, as with any normative theory of legal obligation, we would want to have room for the ethical disobeying of certain unjust laws. This may require transparently breaking a law as an act of civil disobedience (see Rawls 1971, pp. 363–368).

Among notable exceptions to this generalization are Heath (2006), McBarnet (2007), Boatright (2011), and Crane and Matten (2010).

For a brief standard economics textbook account, see e.g., Brander (1995, Chap. 3); for a canonical textbook on the economics of regulation, see Viscusi et al. (2005).

Other calls for regulations follow scandals involving corruption, fraud, theft, and other criminal activities by business people. There is probably no reason to draw a direct link between these things and market failures, though sometimes it makes sense.

This reliance on cost-benefit analysis was reiterated by the “regulations Czar” in the Obama administration, the renowned law professor Cass Sunstein. See Sunstein (2009). See also Sunstein (2002).

There are of course very noteworthy exceptions: in particular, Heath (2006), which sketches a novel and promising “market-failures approach to business ethics” that will be discussed at length in the “Self-Regulation as an Institutional Practice” section.

We hesitate to attach citations of particular business ethicists to each of the concepts in this long sentence, since it literally includes most of the approaches that are current in the scholarly field today. Works best exemplifying these approaches can be easily located in recent reference volumes in business ethics, such as Brenkert and Beauchamp (2010) or Bowie (2002), or in textbooks like May et al. (2007), Gibson (2006), or Crane and Matten (2010). Our point here is that each of these approaches has a rich vocabulary of normative and empirical concepts that one would not expect to see in, say, economics textbooks on regulation, such as Viscusi et al. (2005).

It is not clear that it makes sense to call it a “theory,” as even some of its most ardent supporters now seem to admit. In a survey article from 2002, Thomas Jones, Andrew Wicks, and Ed Freeman explicitly use the term “stakeholder theory” to denote not a theory per se, but “the body of research which has emerged in the last 15 years by scholars in management, business and society, and business ethics, in which the idea of ‘stakeholders’ plays a crucial role.” In Norman (2012b), I suggest that we think of “stakeholderism” as more of an ideology than a theory. Or as its proponents sometimes call it, a “mindset” or “attitude.”

For recent critiques, see e.g., Marcoux (2003), Heath and Norman (2004), Heath (2006), Boatright (2006), and Orts and Strudler (2009)—this last article, published in the Journal of Business Ethics by two senior professors at the Wharton School is entitled “Putting a Stake in Stakeholder Theory” and its first line declares that “Stakeholder theory has become a vampire in the field of business ethics….” (!). We have yet to see a spirited and rigorous defense of the theory to the kinds of critiques leveled in these articles, not even in the lengthiest restatement of the theory by its “father,” Edward Freeman and his co-authors in a book called Stakeholder Theory: State of the Art (2010). I discuss this restatement at some length in Norman (2012a, b).

See Evan and Freeman (1988) and Freeman and Evan (1990). The more recent restatements of the “theory,” such as Freeman et al. (2010), have dropped the more radical proposals.

For an emphasis on the political role of corporate citizens, see Néron and Norman (2008a, b), Crane and Matten (2008), Crane et al. (2008), and Néron (2010).

For an illustrative survey of when ethics does and does not pay, and in general for the reasons firms have been “turning to values,” see Paine (2003, Chaps. 1–3) and Reinhardt (2005).

See e.g., Garvin (1983), Braithwaite and Drahos (2000), Scherer et al. (2006), Barley (2007), McBarnet (2007), and Gond et al. (2011).

Heath (2006, p. 550). In this discussion, Heath approvingly cites Arrow (1973, pp. 303–317) for a similar distinction and rationale.

These are the ideas in the passage involving the famous (and only) usage of the “invisible hand” metaphor in Smith’s Wealth of Nations, book IV, Chap. 2, paragraph 9.

As Tyler Cowen and Eric Crampton note, “The term ‘market failure’ is prejudicial—we cannot know whether markets fail before we actually examine them” (2002, p. 24). Put another way, markets with ‘market failures’ in them are not necessarily markets that are failing.

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Acknowledgments

I have incurred an unusual number of intellectual debts in the course of developing the specific ideas and arguments in this article. Most directly I am indebted to the Guest Editors of this issue of the Journal, along with the three anonymous referees, for several valid criticisms and helpful suggestions. I must also thank directly Ed Balleisen for his comments on a very early draft of this paper, but more importantly for his role in creating and launching the “Rethinking Regulation” group at Duke University, which has informed so much of my multidisciplinary understanding of regulation. There is no doubt that the main lines of the theory I defend here would never have occurred to me were it not for a long-running conversation, and occasional collaborations, with Joe Heath. Many of the arguments here have also evolved out of other enduring collaborations I have been fortunate enough to have with Chris MacDonald and Pierre-Yves Néron.

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Authors and Affiliations

1. Duke University, Durham, NC, USA Wayne Norman

1. Wayne Norman