The Contained-Rivalry Requirement and a ‘Triple Feature’Program for Business Ethics

Dominic Martin

Received: 12 July 2011 / Accepted: 30 May 2012 / Published online: 6 July 2012

� Springer Science+Business Media B.V. 2012

Abstract This paper proposes a description of the moral

obligations of economic agents. It will show that a threefold

division should be adopted to distinguish moral obligations

applying to their interactions in the market, obligations

applying to their interactions inside business firms and

obligations applying to their interactions with agents outside

the market. Competition might be permissible in the first

case since markets are special patterns of social interactions

(called adversarial schemes). They produce their benefits

when agents try to satisfy exclusive preferences at the

expense of others. However, moral obligations inside the

firm and moral obligations outside the market are of a dif-

ferent nature. This argument will be developed in the two

first parts of this paper. In the third part, it will outline the

relevant strengths of that account in relation with two pop-

ular views of economic agents’ moral obligations: the

shareholder primacy view and the stakeholder theory.

Keywords Adversarial ethics � Rivalry � Market �Competition � Cooperation � Shareholder primacy �Stakeholder theory

Business ethics might be described as the branch of moral

philosophy interested in the normative implications of

commercial activities. One of its overarching preoccupations

is to provide a description of the moral obligations of eco-

nomic agents (such as corporations). However, providing

such a description often leads to the following tension.

Competition in markets seems to be a good thing insofar as it

increases efficiency in the production and exchange pro-

cesses; yet at the same time, competitive behaviors impose

burdens and harms on individuals inside and outside the

market.

Two of the most popular views in business ethics seem

to be based on these two contradictory facts about com-

petition desirability. Friedman’s shareholder primacy view

suggests that corporations should maximize benefits for

their owners. Among other things, this increases market

efficiency. Another view, the stakeholder theory, starts

from the idea that corporations, or their managers, have

obligations toward all their stakeholders. On this view, they

ought to be more responsive to their stakeholders’ interests

by reducing the harms imposed on them.

Besides these two views, there are not many other the-

ories around. To summarize things with a thematic meta-

phor, one could say that there are few interesting products

in the market for theories. Business ethics supply is pretty

poor when it comes to providing a general view of eco-

nomic agents’ moral obligations.

This paper aims at putting a new, revamped and fully

featured product on the market. It is possible to accom-

modate the tension noted above once we acknowledge that

economic agents’ moral obligations may be heterogeneous.

Different moral obligations apply to an agent’s different

contexts of interactions. This is similar to the different

moral obligations applying to an individual’s different

context of life: at work, in her family, with her partner, as a

public official, and so on.

Markets are an instance of what I will call adversarial

schemes. In the first section of this paper, I will explain

D. Martin (&)

Departement de Philosophie, Universite de Montreal, C.P. 6128,

succursale Centre-ville, Montreal, (QC) H3C 3J7, Canada

e-mail: dominic.martin@umontreal.ca

D. Martin

Instititut superieur de philosophie, Universite Catholique de

Louvain, 14, Place Cardinal Mercier, B-1348 Louvain-la-Neuve,

Belgique

123

J Bus Ethics (2013) 115:167–182

DOI 10.1007/s10551-012-1369-4

what I mean by that. It suggests that markets fulfill their

function through a dynamic of rivalry. Competition in

market, as in other adversarial schemes, is permissible for

that reason. I also want to argue, however, that competition

has to be contained. The desirability of competition is

limited to interactions that are constitutive of the adver-

sarial scheme. It does not apply to interactions inside

business firms and interactions outside the market. Differ-

ent moral obligations apply to agents in these contexts.

Taken together, these three types of moral obligations

generate a threefold division or a tripartition.1 Economic

agents’ moral obligations should be conceived as a com-

bination of adversarial obligations applying to interactions

in the market, more cooperative obligations applying to

interactions inside a firm, and a further set of more coop-

erative, socio-political obligations applying to interactions

with agents outside the market. The argument for the tri-

partition will be presented in the second section. In the

third section, I will outline some of this view’s strengths in

comparison to the shareholder primacy view and the

stakeholder theory.

A scheme, as I use that term here, is a pattern of social

interactions that fulfills a function. In an escalator, slow

climbers may keep their right to leave room on their left for

faster climber. Most residents of industrialized city don’t

throw their garbage on the street. They take them out on a

specific day in a bag of a specific color. To say that a

scheme is a pattern of social interactions means that it is

able to preserve its stability over time. It institutes certain

norms. Agents’ behaviors are somewhat predictable, and so

on. But any random behavioral regularity is not a scheme.

The slow-climbers-on-the-right pattern also fulfills a

function: it allows the slow climber to keep their paste

without significantly affecting fast climber’s paste or the

general flow of people in the escalator. The garbage-

picking-up pattern reduces people’s exposure to domestic

waste and, more generally, improves hygiene.

Some patterns of social interactions exhibit a high level

of rivalry. They take place in situations where two or more

agents want to satisfy a preference that can only be satisfied

by one of them. I call these preferences exclusive. A

preference is exclusive if the possibility of the satisfaction

of that preference for one or more agents excludes the

possibility of the satisfaction of that preference for at least

one other agent. One could think of cases like an athletic

competition, a trial or an election. Two runners cannot win

a marathon, two parties cannot win a trial and two candi-

dates cannot get elected to the same position.

When there is rivalry, agents tend to adopt adversarial

behaviors. They attempt to satisfy the exclusive preference

at the expense of (the possibility of the satisfaction of the

exclusive preference of) their rivals. If a sufficiently high

number of agents rank that preference sufficiently high, a

dynamic of rivalry appears. The expression ‘adversarial’

comes (not surprisingly) from the fact that it describes

behaviors among adversaries. It is also a reference to

adversarial ethics, a branch of ethics that concerns itself

with our behavior in adversarial contexts.2

If a scheme fulfills its function through a dynamic of

rivalry, it is an adversarial scheme. How important does the

dynamic of rivalry have to be? Important to the point where

it is impossible to disentangle it from the scheme’s func-

tioning mechanism. If a marathon’s function is to establish

the fastest runner, one cannot imagine how it would work

without a dynamic of rivalry. On the other side, a doctoral

seminar might aim at helping students understand and use a

series of philosophical concepts. Even if there is a high

level of rivalry (two students want to get all their profes-

sor’s attention) it is not an important part of the scheme’s

functioning mechanism.

A scheme might alternatively be cooperative. Two or

more agents may want to satisfy a non-exclusive prefer-

ence and work together to do it. The classic bucolic

example of such a scheme is a situation where two farmers

agree to help each other to harvest their respective fields.

Even if these two agents are primarily interested in har-

vesting their own field, they might be better off if they pool

their efforts. The job might be done faster. They might

specialize in specific tasks, one of them reaping and the

other tying and bundling, which would make their part-

nership even more productive. They might also enjoy each

other’s company, which would make harvesting less psy-

chologically demanding. In this type of scheme, agents

behave in a way that will increase the chance of satisfying

the same preference for all of them.

No particular expression will be used to refer to a pat-

tern of social interaction that is not adversarial (one in

which agents do not attempt to satisfy an exclusive pref-

erence) or that is not cooperative (one in which agents do

not attempt to satisfy non-exclusive preferences or are not

working together). It is important to remember, however,

that schemes don’t have to be of one type or the other.

They might be neither or both. Finally, agents might adopt

adversarial or cooperative behavior in various contexts of

1 I would like to thank Wayne Norman for having presented me a

first version of this threefold division of economic agent’s moral

obligations. In the hope that he will eventually publish something on

that subject, I present my own formulation of this tripartition.

2 The groundwork on adversarial ethics as been done by law ethicists,

see for instance Luban (1988) and Freedman (1975). Applbaum’s

(1999) work formulates a general criticism of various adversarial

schemes. See also Phillips and de Leon (2005) and Heath (2007).

168 D. Martin

123

social interactions, not only in their respective schemes

(where they will necessarily adopt them).

If an adversarial scheme is properly designed, it might

produce greater benefits than other patterns of interaction

that are characterized by less rivalry—not for all agents

directly involved, but for society as a whole. More will be

said later about adversarial schemes’ advantages (and

problems). But first, it is important to show why a market is

an adversarial scheme and what a cooperative alternative

would look like.

An Adversarial Scheme Called the Market

The word ‘‘market’’ might be used to refer to many types of

social arrangements.3 A market, as I understand it, is a

pattern of exchanges among agents that has four charac-

teristics: (a) these exchanges are made through supply and

demand mechanisms; there is a multiplicity of

(b) exchanges and (c) agents; and (d) there is competition

among them.4 Of course, a market may take many forms,

even when it has these characteristics. Many things might

be exchanged: food, clothes, cell phone services, stock

options, etc. These goods (and the means of productions of

these goods) might be owned publicly, privately, or a

combination of these two modes of property. Agents might

also adopt different supply and demand mechanisms. In the

Canadian food market, for instance, consumers rarely get a

chance to bargain on the prices of their products, but they

might consider offers from various sellers like grocery

stores. The methods of functioning are somewhat different

in an auction for antiques where various buyers are inter-

ested by the same item. They will make increasing offers

and the item will go to the highest bidder.

To say that markets relies on supply and demand

mechanisms means that agents are free, first, to supply or

demand goods and, second, to do so at the price they

choose. According to Friedman (1962, p. 14), economic

exchanges are market exchanges if ‘‘individuals are

effectively free to enter or not to enter into any particular

exchange, so that every transaction is strictly voluntary’’.

That is, he insists on the first of the two aspects mentioned

above. However, it may be difficult to establishing the

actual freeness or voluntariness of exchanges made in the

market.5 For instance, is a poor shoe-shiner free to

exchange his services at his own price? I would like to

leave that kind of questions aside. It suffices to say that the

freeness or voluntariness of exchanges is a matter of

degree. A pattern of exchange would not count as a market

in the lower portion of the spectrum. That is, when agents

are forced to engage in exchanges.

The need for multiples exchanges and agents is also a

matter of degree. The minimal volume of exchanges is hard

to establish. There ought to be more than one. But two are

probably not enough. At the very least, there ought to be

two buyers and two sellers. But, again, is this sufficient?

Will agents have sufficient leverage in negotiating the

value of their exchanges? Again, I would like to leave these

questions aside even if they call for further elaborations.

Finally, a market involves competition. This character-

istic is another name for a dynamic of rivalry. Such a

dynamic appears when agents want to satisfy an exclusive

preference, with a sufficient strength, and are allowed to do

so. The natural scarcity of resources, combined with the

possibility of exchanging goods through supply and

demand mechanisms and the multiplicity of buyers and

sellers (characteristics a and c above) creates these condi-

tions. Sellers might want to exchange more goods and

services than demanded. Buyers might want to get more

goods and services than offered. Or sellers and buyers

might want to exchange their goods and services (or their

monetary equivalent) at a better price for them. Since a

buyer might consider various sellers’ offers and a seller

various buyers’ demands, they are allowed to choose the

most mutually advantageous exchanges for them.

To be an adversarial scheme, a pattern of social inter-

actions must (1) fulfill a function, and (2) do so through a

dynamic of rivalry. Is a market such a scheme? It fulfills a

function: allocating resources. Can its dynamic of rivalry,

competition in this case, be disentangled from its func-

tioning mechanism? This question is different from other

questions raised above. First, is competition a necessary

characteristic of a market? Yes, I suggested. Second, does

competition tends to appear when a pattern of exchanges

has the characteristics (a) and (c)? Yes, I also suggested.

3 Hence, it is difficult to produce a definition that would be applicable

to all of them. It might explain why economists have neglected this

task for so long, as Hodgson (2008) puts it: ‘‘economists have for long

been concerned about market prices, but, despite this ongoing

preoccupation, until recently, there has been little discussion of the

nature and operation of markets themselves’’.4 This definition is more or less equivalent to Hodgson’s (2008)

definition: ‘‘Markets involve multiple exchanges, multiple buyers or

multiple sellers, and thereby a degree of competition. A market is

defined as an institution through which multiple buyers or multiple

sellers recurrently exchange a substantial number of similar com-

modities of particular type’’. He outlines the importance of the four

characteristics mentioned above. However, the description proposed

in this paper is slightly shorter for two reasons. First, it might be

difficult to differentiate, at the most fundamental level, a seller from a

buyer. In a barter scheme for instance (i.e., a system where exchanges

are not mediated by a currency) an agent can occupy these two roles,

yet that scheme would also be described as a market. Second, it might

not be necessary to specify that ‘‘similar commodities’’ are exchanged

since the type of things exchanged in a market might be diversified. 5 On this question, see Peter (2004) and Olsaretti (1998, 2004).

‘Triple Feature’ Program for Business Ethics 169

123

Now, I am wondering about the role of competition in

market functioning. Even if this last question seems

straightforward, it is important to address it explicitly. The

answer will have implications for agents’ moral permission

to compete with each other.

According to most economic models, competition seems

to be an integral part of market functioning. For instance, it

is implied in the model of the competitive equilibrium.

This model is postulated, among other things, to demon-

strate the two fundamental theorems of welfare economics.

The idea of a competitive equilibrium in this case is the

idea that exchanges in a market will keep going on until it

is not possible to increase the well being of one agent

without reducing the well being of another agent or a pa-

reto-efficient outcome.6 This is when exchanges will stop.

If the equilibrium is broken once again, competition among

buyers and sellers will lead to more exchanges.

Even if he doesn’t use that expression specifically,

Heath (2007) considers markets to be an adversarial

scheme. His explanation of market mechanisms leading to

a competitive equilibrium shows the role played by com-

petition in bringing about pareto-efficient outcomes.

If the price the sellers are charging [in the market] is

above the price at the point where supply and demand

curves intersect, then they will wind up with unsold

goods at the end of the day. If they are both charging

the same price, then one can assume that they will

split the sale between them, and so both wind up with

unsold goods. Yet this creates a temptation for both

sellers. By dropping the asking price somewhat, it

should be possible to sell one’s entire inventory. The

loss of revenue caused by the lower price will then be

made for by the increased volume of sales. Of course,

if one seller does this, then the other has no choice

but to respond in kind. The result is lower profits for

both of them. This competition will continue until the

volume of sales at a given price level leaves neither

of them with unsold goods. This is the point at which

supply and demand curves intersect (which is why the

price at that point is known as the ‘‘market-clearing’’

price). The same sort of competition develops among

buyers in cases where the price is lower than the

market-clearing price – some buyers will be left with

unsatisfied demand at the end of the day, and so will

have an incentive to defect, by paying more that the

going rate, in order to guarantee that they secure

enough of the good. (p. 363)

If a market is an adversarial scheme, what would be a

cooperative alternative? One could think of pattern of

exchanges in a bureaucracy or an administered economy.7

In these two cases, the coordination of economic exchanges

is undertaken through administrative means. A central

authority enacts commands, directives, targets, and regu-

lations. For lack of a better expression, I will refer to these

schemes as patterns of administered exchanges.

A pattern of administered exchanges has multiple

exchanges (b), but supply and demand mechanisms (a) are

not necessary; neither than multiple agents (c); or compe-

tition among them (d). In an administered economy, for

instance, an organization like a car manufacturer might not

have the opportunity to choose between various suppliers.

The manufacturer will be forced to accept supplies, let us

say metal, from another organization designated by the

State. This type of scheme can take place among a limited

number of agents (even one seller and one buyer). Finally,

it can fulfill its function without competition. It is expected

that agents will carry on the commands given by the central

authority. Their common non-exclusive preference is the

authority’s objective.

So a market is an adversarial scheme and a pattern of

administered transactions a cooperative scheme. But

nothing has been said yet about the former scheme’s

advantages over the later. According to Heath, competition

does not benefit agents taking part in the market. We

should prefer adversarial over non-adversarial schemes

nonetheless.

Thus, the reason that price competition is desirable is

not that it benefits the people involved, but rather that

it generates external benefits for society at large. In

this respect, it is quite similar to athletic competition.

[…] When suppliers compete with one another it

benefits buyers, and vice versa. Thus the competitive

market works to eliminate ‘‘deadweight losses’’ from

the economy, ensuring that the maximum number of

mutually beneficial economic exchanges take place

(p. 364).

Sellers could clear out their stock much more easily in a

scheme where buyers do not get the possibility to accept

various offers. But, provided that they respect certain rules,

a market will produce benefits at a macro-level. It should

increase the quantity of mutually advantageous exchanges

for a greater number of agents. According to Heath, these

advantages are similar to other adversarial scheme’s

advantages. Such schemes are more efficient than the

6 The two theorems show, first, that ‘‘under certain conditions,

competitive equilibrium is Pareto-efficient’’ and, second, that ‘‘any

Pareto efficient allocation of resources may be decentralized as a

competitive equilibrium’’ (Lockwood 2008). About welfare econom-

ics, pareto-efficiency or the two fundamental theorems, see Feldman

(1980, 2008). For the mathematical demonstration of the theorems,

see Arrow and Debreu (1954).

7 A ‘‘planned economy’’ or a ‘‘command economy’’, see Ericson

(2008).

170 D. Martin

123

alternatives.8 But he doesn’t explain why adversarial

schemes tend to produce these positive outcomes in com-

parison to non-adversarial schemes. Three different types

of advantages can in fact be identified.

First, an adversarial scheme might improve agent’s

motivations. In a cooperative scheme, agents cannot

behave in a way that will benefit them directly. They work

together for some common objective. This common

objective will be beneficial to individual participants, but

only indirectly. An adversarial scheme that is properly

designed will align these individual benefit-seeking

behaviors in a way that will lead the scheme to fulfill its

function.

What does that mean in the case of markets? Economic

competition leads agents to be sensitive to the actual var-

iation of supply and demand out of their own individual

interest. In an administered economy for instance, agents

have less of an interest to be sensitive to these variations.

However, it is possible to institute incentives, even in a

non-adversarial scheme. In a bureaucratic organization for

instance, a manager could be rewarded with special

bonuses if she adjust production and demand successfully.

But the amplitude of incentives produced in a market tends

to be bigger. The gains a seller might make are potentially

unlimited. So are his losses. She has to do the right thing if

she wants to receive any payoff. It is rarely the case in a

bureaucratic organization. Furthermore, rivalry might elicit

greater productivity from some agents simply because they

tend to perform better in competitive environment.

The second advantage of adversarial schemes might be

summarized this way: optimal strategies tend to be selec-

ted. The first advantage relates to changes in agents’ psy-

chology. But adversarial schemes also tend to select

optimal strategies even when agents do not have the proper

motivations. If a seller is out in the market to sell the

greatest amount of goods and services at the best price, she

also has to figure out the most effective ways to do it. If

not, she will be driven out of business. She must figure out

good sales techniques, how to pay an acceptable price to

her supplier, how to ship his merchandise faster, how to

adjust to changes in the environment, etc. Furthermore,

agent’s strategies have to improve in relation to other

agents’ strategies. As other agents also become better at

selling goods, she also has to get better. An adversarial

system, says Pogge (2011, p. 121), incentivizes agents to

give their best, ‘‘not relative to their own presumed

capacities but relative to the actual performance of other

agents.’’

In a non-adversarial scheme, this optimization does not

take place automatically. It may be possible to filter-out

suboptimal strategies: if a manager’s sales are not suffi-

cient, she could be fired. But it has to be done on a case-by-

case basis. Also, such filtering thresholds are not set rela-

tive to other agents’ capacities.9

Third, the dynamic of rivalry produces what could be

called positive system effects. Adversarial schemes pro-

duce their benefits less directly, since agents do not try to

maximize the scheme’s benefits. They are focused, instead,

on direct benefit for them. This difference in strategies at

the individual level might produce, at the scheme level,

systemic effects that will help the scheme to fulfill its

function. Heath writes for instance that market competition

stimulates technological and scientific innovation (as a way

for sellers to increase their profit margin). It also ‘‘gives

rise to a set of prices which provide crucial information to

everyone else in society about the relative scarcity of the

various resources, skills, goods and services being

exchanged’’ (Heath 2007, p. 364). That type of information

is particularly useful when governments have to develop

public policies since it provides a price or an exchange

value for specific goods or services the State might want to

provide. It is the type of information that is missing in a

non-market or a command economy (Ericson 2008).

The benefits of markets, as adversarial schemes, are

supported by economic theory. The three advantages of an

adversarial scheme outlined above might be seen as an

explicit formulation of mechanisms implicit in Smith’s

invisible hand hypothesis. And one could see the First and

Second fundamental theorems of welfare economics as a

attempt to prove formally that markets are more effective

or, more precisely, that they produce pareto-efficient

outcomes.10

8 The formulation is purposefully general. The specific benefits of

markets have been stated in various ways. It is not my intention here

to evaluate which claims is the most appropriate. It might be argued,

for instance, that they increase agent’s aggregate utility, well-being,

economic growth, etc. Then, there are various ways to define these

concepts. Utility is sometimes (but not always) understood as well-

being. Well-being is sometimes (but not always) understood as

preference satisfaction. Economic growth might also be defined as the

gross national product or other indicators might be used. Then, it

might simply be stipulated that markets are more efficient in

producing these benefits, that they are pareto-efficient in producing

these benefits, that they maximize the production of these benefits and

so on. Not only are these claims not mutually inclusive, but their

empirical validity is moot. If an example has to be given, Buchanan

(1985, Chap. 2) demonstrates the lack of consensus on the efficiency

thesis of competitive markets, and the lack of consensus on the

validity of efficiency as a measure of markets outcomes.

9 If it were made relative to other agent’s capacities, the scheme

would be adversarial. If the State decides to fire 1 % of its least

efficient managers every year, the preference of every manager (to

keep their job) would be exclusive in the sense described above. That

is, not all managers’ preferences can be satisfied at once. The other

mechanism given as an example (firing managers whose sales are not

sufficient) doesn’t make a scheme adversarial if every manager can

possibly sell enough to avoid being fired.10 On pareto-efficiency and welfare economics, see Footnote 6.

‘Triple Feature’ Program for Business Ethics 171

123

However, adversarial schemes are no panacea. Three

problems tend to be pervasive in all of them. First, they put

agents in a position where they have to harm each other. This

is a harsh and unavoidable reality. It comes from the fact that

each agent wants to satisfy a preference that is exclusive. If

an agent reach his objective, he will always stop (at least)

another agent from reaching his objective. An Olympic ice-

skater cannot win the gold medal without defeating her

opponents. The harm imposed on others may vary greatly in

terms of gravity but all harms cannot be escaped.

The second problem comes from the particular design of

adversarial schemes. They tend to generate contradictory

incentives. The type of behavior expected from those

operating within the scheme is also the type of behavior

that could undermine its benefits. A common example in

the case of markets would be monopolistic competition.

Markets tend to be less efficient when a seller completely

controls supplies. This is why legal rules, like antitrust

laws, punish it severely. Yet, one could say that agents aim

precisely at producing such monopolies. They want to sell

as many goods and services as possible to the greatest

amount of buyers to increase their market’ shares. What

will maximize an agent’s benefits and what will maximize

the scheme’s benefits may be mutually exclusive. Adver-

sarial schemes often generate these tensions.

Another example of a contradictory incentive is the

increased risk of accidents. Competition will put pressure

on agents. They might be encouraged to adopt riskier

behaviors to gain a competitive advantage. The Bhopal

disaster is a simple, yet tragic, example. More than 10,000

inhabitants of this Indian city died after being exposed to a

toxic gas stored in a nearby pesticide plant. Economic

competition is partly responsible since the gas leak took

place after the corporation operating the plan reduced its

safety measures to save on storing costs (Broughton 2005).

The third problem relates to the effects of rivalry on

agent’s morality. One might wonder if it leads them to

adopt an overly permissive morality. This phenomenon

occurs progressively as agents tolerate more and more

harmful adversarial behaviors. As pointed out above,

adversarial behaviors always harm, at least in a minimal

sense, other agents. When agents interact in an adversarial

scheme, it is plausible to suggest that they will come to

tolerate these harmful behaviors. But the fact that harmful

behaviors are tolerated might open the door for adopting

other, more harmful, behavior. If these behaviors become

common, they might also be tolerated. An escalation of the

gravity of the harm would follow in parallel with a general

moral acceptation of the behaviors causing these harms. An

overly permissive morality would be adopted under which

unnecessarily harmful behaviors would be tolerated.

For example, to increase its market share, a cellular service

provider might buy advertisements. These advertisements

would present that provider’s products in a positive light. This

behavior would probably be tolerated. But the provider could

also get to the point where it would produce advertisements

that were outright deceptive. If this first type of advertisement

is tolerated, the second might become common and also be

tolerated.11

Many scholars interested in adversarial ethics have

questioned the gap between moral standards among agents

in an adversarial scheme and the standards outside the

scheme. Professional morality in ‘‘law, business and gov-

ernment typically claim a moral permission to harm others

in ways that, if not for the role would be wrong’’ laments

Applbaum (1999, p. 3). Markets are problematic in that

respect since economic agents tend to develop a role

morality where they would engage in profit maximization

activities that would be completely unacceptable according

to common morality.12 According to legal ethicists like

Luban (1988, p. 56), a lawyer will often appeal to ‘‘insti-

tutional excuses.’’ That is, her role in the legal institution

‘‘to excuse herself from conduct that would be morally

culpable were anyone else do it’’ (p. 56).

In a cooperative scheme, these three problems are not as

pervasive. Agents’ behaviors aim at satisfying a non-

exclusive preference. Hence, it is easier to do it without

harming other agents. Agents are expected to behave in a

way that will maximize the scheme’s benefits, which also

reduces the conflicting incentives. The lower level of riv-

alry also tends to avoid the phenomenon according to

which agents adopt a permissive morality.

The Contained-Rivalry Requirement

Much more should be said about adversarial schemes, the

type of benefits they produce and the problems they gen-

erate. More should also be said about markets’ specific

characteristics in that respect. The previous section inten-

ded to provide a rough overview of these ideas in order to

suggest two propositions:

(1) An empirical proposition: an adversarial scheme is an

appropriate description of the specific nature of a

market as a form of social interaction, its functioning

mechanism, its advantages, problems, and so on.

(2) A normative proposition: markets’ benefits are suffi-

ciently important to outweigh their negative outcomes,

11 For a similar phenomenon in the cosmetic industry, see Economist

(2011).12 McMahon (1981) also uses the expression role morality to

describe the different morality that appears in a market. He provides

an interesting analysis of the claim that lowering ordinary moral

standards is appropriate or inevitable in the business contexts.

172 D. Martin

123

making them the most preferable institutional setting

in comparison to other patterns of exchanges.

Amartya Sen makes a point similar to proposition (2).

We should choose markets, not because they make people

free to choose or because they are the result of the exercise

of people’s fundamental rights, but for their ‘‘superiority

over other practical alternatives’’ in terms of results and

achievements (Amartya Sen 1985, p. 18, emphasis in the

original).

I would like to use the two propositions above as pre-

mises for the rest of the argument. Together they suggest

that the morality applying to interactions among agents in a

market should be thought of as similar to the morality

applying to interactions in other adversarial schemes.13 If

these schemes are considered desirable, the fact that they

fulfill their function with adversarial behaviors makes these

behaviors permissible to a certain extent. Similarly, com-

petition would be permissible among athletes in a sporting

competition or among lawyers in a trial if these schemes

are considered preferable to other non-adversarial schemes.

The competitive behavior exhibited by economic agents

is part of a mechanism that produces benefits for society as

a whole. It contributes to a better allocation of resources in

society by increasing productivity, stimulating innovation

and creativity, reducing waste, etc. It follows that agents’

adversarial behavior should be permitted. For instance, a

corporation can negotiate with its suppliers to obtain a

better price for its products. It can adopt similar behavior

with its consumers (by attempting to sell them more

products at a higher price). Consumers, on their side, can

choose a corporation that offers better products, at the best

price and so on.14

Should economic agents adopt, however, a similar

adversarial behavior in all their interactions? Should a

corporation interact with non-governmental organizations

the same way it would act with its suppliers? Should a

manager treat her employees the same way he would treat

her competitor’s employees? It does not seem possible to

infer that conclusion from the two previous premises.

Roughly, we can say that adversarial behaviors are

acceptable if they produce more benefit than harm. But an

adversarial scheme’s capacity to produce these benefits

depends on limiting the adversarial behavior to interactions

among specific groups of agents. Let us call this the con-

tained-rivalry requirement. It imposes limits on the per-

mission to adopt adversarial behaviors. I will now present

the two most important of these limits.

To begin with, one must distinguish interactions within

groups taking part in an adversarial scheme from interac-

tions with members of groups not taking part in the

scheme. Even if one accepts premises (1) and (2) above,

one cannot conclude that the same adversarial behaviors

can be adopted for interactions with outside groups. Here I

refer to groups of agents like regulatory agencies, com-

munities, non-governmental organizations, political par-

ties, or governmental organizations, in general. These

groups are parts of the peripheral environment of a market.

Agents taking part in the market might interact with them

in various ways. There might even be economic exchanges

with these groups. But such interactions are of a different

nature than strictly market interactions. They are not con-

stitutive of the adversarial scheme.

Not making the distinction between constitutive and

non-constitutive market interactions would be like arguing

that a hockey player can adopt adversarial behaviors with

the referees, the crowd or even the managers of the arena

where a game is taking place, simply because these

behaviors are permitted vis-a-vis players from the other

team. One could think of a similar example involving a

lawyer and a court case. Even if adversarial behaviors are

permitted while interacting with the other parties to the

case, a lawyer cannot adopt such behaviors with regard to a

judge or the Minister of Justice.

In the case of markets, the various economic hypotheses

regarding market efficiency only take into account eco-

nomic agents such as firms, competitors, suppliers, cus-

tomers, creditors, etc. Proving the empirical validity of

these hypotheses’ is already hard enough.15 But at least

such hypotheses involve only a limited number of kinds of

agents. Demonstrating the benefits of extending competi-

tion to other agents not taking part in the market would be

even more difficult. And this demonstration has yet to be

produced. One would have to show that a generalized

scheme of competitive practices involving, not just

13 Heath (2007, p. 359) writes: ‘‘a significant portion of the issues

traditionally dealt with by business ethicists, viz. those that pertain to

market transactions, fall into the domain of adversarial ethics’’, its

main objective should be the ‘‘preservation of healthy competition,

even when the law fails to offer sufficient guarantees’’. It might be

interesting to point out that, besides him, Phillips and de Leon (2005),

Paine (1990), and Carr (1968) defended a similar position. The latter

famously compared business practices with a poker game, suggesting

the same moral standards should apply in both.14 This type of moral prescription is common in the literature on

commercial strategies. Porter, to name one popular example, claims

that an enterprise ought to take advantage of five competitive forces:

the rivalry among existing firms; the bargaining power of suppliers;

the bargaining power of buyers; the treat of new entrants; and the treat

of substituted products or services (Porter 1980, p. 4). The compet-

itive nature of a market ‘‘is rooted in its underlying economic

structure and goes well beyond the behavior of current competitors’’

(p. 3). The financial return a company will be able to achieve depends

on its capacity to ‘‘defend itself against these competitive forces’’ and

‘‘influence them in its favor’’ (p. 4). 15 See Footnote 8.

‘Triple Feature’ Program for Business Ethics 173

123

corporations, but also governments, NGOs, or community-

based organizations, is also desirable.

Hasnas makes a similar argument. Laissez-faire might

be justified in theory, he argues, since various economic

hypotheses demonstrate its tendency to maximize utility.

However, it is not necessarily justified in practice since

firms often tend to seek a competitive advantage with

agents not taking part in the market. This type of behavior

does not foster the common good.

Regardless of the adequacy of the stockholder theory

in a world of ideal markets, business may gain

competitive advantages by obtaining government

subsidies, tax breaks, protective tariffs and state-

conferred monopoly […]; having health, safety or

environmental regulations written so as to burden

small competitors; and otherwise purchasing gov-

ernmental favor. In such a world, it is extremely

unlikely that the pursuit of private profit will truly be

productive of the public good. (Hasnas 1998, p. 23).

Hasnas’ claims are different than this paper’s claims. He

is mostly interested in criticizing laissez-faire arguments.

That is not the position defended here (even if Hasnas

might be right). But one of his claims is the same. If they

are given too much liberty, economic agents will adopt

adversarial behaviors with groups outside the market.

Business will try to get tax subsidies from government for

instance. And nothing proves that these behaviors with

these groups will lead to beneficial outcomes. On the

contrary, says Hasnas, they will likely have negative

outcomes.

If there are no grounds to conclude that adversarial

behaviors are permitted for extra-market interactions, what

moral obligation ought to apply? Economic agent’s inter-

actions with groups outside the market raise questions

about one’s role in the political sphere. They imply ques-

tions like: what is a corporation appropriate level of

involvement in the political processes? How should they

react to requests from NGOs? How much ought they to

give back to the community? Neron makes a similar claim.

He argues that when corporations enter the political arena

to lobby for a given policy (that is, when they attempt to

influence their regulatory environment), they should be

seen as ‘‘political actors’’ that are not ‘‘simply doing their

job in competitive markets’’ (Neron 2010, p. 11). He adds:

‘‘This distinction is important from a normative point of

view because it refers to different kinds of relations

between firms and other social institutions, and it also

suggests that we might want to apply different normative

tools or language to think about these relations’’ (pp.

11–12).

The argument presented here does not allow specifying

moral obligations of agents for extra-market interactions.

Such specification would have to stem from an argument

on the social and political role or economic agents.16

However, we might suspect two things. First, agent’s moral

obligations for extra-market interactions won’t be the same

as intra-market obligations. Second, they will also be more

cooperative.

The second limit on the permission to adopt adversarial

behaviors implied by market competition rests on a dis-

tinction between agents’ interactions in markets and

agents’ interactions within firms. Again, endorsing pre-

mises (1) and (2) above doesn’t make adversarial

behaviors permissible within firms. A sport analogy might

again be useful to illustrate that idea. Not making the

distinction between intra and extra-firm interactions

would be like applying the same morality to a hockey

player’s interactions with his team members and another

team’s members.

To explain why this second limit is important, more has

to be said on the distinction itself between intra- and extra-

firm interactions. This distinction was introduced by Ron-

ald Coase (1937) in a well-known paper, The Nature of the

Firm.17 Coase’s paper can be summarized as an attempt to

explain the emergence of firms in a competitive environ-

ment. If a market allocates resources efficiently, every

individual should work for himself and exchange the fruit

of his labor in exchange for other goods. Competitive

pressures should push these exchanges to an equilibrium

point where every individual supplies services at the best

price. This situation would make it unnecessary to create

other structures where individuals must work for others.

Briefly put, it should always be less costly to contract than

to hire.

Nonetheless, firms appear in markets. Does it increase

efficiency? Coase’s answer is based on the nature of the

contract involved in all these exchanges. Market exchanges

force agents to establish definite contracts. Even if this

process is often implicit, it imposes costs called transac-

tions costs. One must gather information on all available

products, negotiate the terms of the contract, take risks

(since the contract might not be respected), make sure that

all the clauses of the contract have been honored and so on.

If individuals in a market made such contracts for every

16 For instance, corporate citizenship theories in business ethics focus

on the similarities between corporations’ rights and responsibilities

and citizen’s rights and responsibilities. This discourse on the socio-

political moral obligations of corporations has arisen primarily within

corporate circles as a way of describing and praising businesses that

‘‘did a little more’’, that ‘‘gave back to community,’’ or that

‘‘recognized the interdependence of businesses and the community

in which they operate’’ (Neron and Norman 2008, p. 5). However, the

argument presented here does not allow endorsing or rejecting

particular theories of corporate citizenship.17 Although it could be traced back to Commons (1931,

pp. 652–654), see also Backhouse (2002, p. 199).

174 D. Martin

123

exchange of goods and services, transaction costs would

significantly reduce the system’s efficiency.

A firm’s advantage lies in its capacity to make a smaller

set of indefinite contracts to cover multiple exchanges of

goods and services: ‘‘For this series of contracts is substi-

tuted one […] whereby the factor, for a certain remuner-

ation (which may be fixed or fluctuating), agrees to obey

the directions of an entrepreneur within certain limits’’

(Coase 1937, p. 391, emphasis in the original). By ‘factor’,

Coase is referring to an individual being hired. Hence,

firms appear in the market as a mechanism to reduce

transaction costs related to hiring individuals. It exchanges

goods and services internally outside the price structure of

the market: ‘‘Outside the firm, price movements direct

production, which is co-ordinated through a series of

exchange transactions on the market. Within a firm, these

market transactions are eliminated and in place of the

complicated market structure with exchange transactions is

substituted the entrepreneur-co-ordinator, who directs

production’’ (p. 388).

This explanation suggests a distinction between two

types of transactions: administered transactions and market

transactions. Agents’ interactions outside the firms are

market transactions. They cover a definite set of goods,

they are mediated by the price structure and they follow a

competitive logic. Agents adopt adversarial behavior

through these transactions. Intra-firm interactions are

administered in the sense that they are mediated by the firm

hierarchical structure. They are transactions between what

Coase would call an ‘‘entrepreneur’’ and a ‘‘factor of pro-

duction’’. They cover indefinite sets of goods, for instance,

all the fruits of the labor of one individual. According to

this view, a firm is a group of economic agents interacting

through administered transactions. It yielded, in corporate

law, to a definition of firms as network of contracts.18 The

term ‘‘contract’’ would refer in this case to the indefinite

contracts (in terms of goods exchanged) covering admin-

istered transactions instead of the definite contracts cov-

ering market transactions.

Coase’s argument does not say much about the type of

moral obligations that should apply to agents’ interactions

within a firm. But his argument suggests that firms are

patterns of administered transactions. Groups of agents like

employees, managers, shareholders, unions—even if they

are still exchanging goods in a market—do so in accor-

dance with a different logic. Their behavior is mostly ori-

ented toward the satisfaction of common non-exclusive

preferences: the goals and objectives of the firm. A firm is

not an adversarial scheme but more of a cooperative

scheme inside a larger adversarial scheme. Hence, there is

no ground to conclude that adversarial behaviors should be

permitted inside the firm the way they are permitted in the

case of extra-firm transactions. Firms require a much

higher level of cooperation to fulfill their function in

markets. Furthermore, intra-firm interactions take the form

of principal–agent relations.19 Agents have a fiduciary

obligation to promote the principal’s interests. According

to Heath:

In market transactions, the checks and balances built

into the system of commercial exchange are such as

to permit more instrumental (or ‘‘self-interested’’)

forms of behavior. In administered transactions, by

contrast, these checks and balances are absent

(indeed, managers often wield great power over the

lives of subordinates), and thus the institutional

context calls for much greater exercise of moral

restraint. (Heath 2007, p. 360)

Treating intra-firm groups as adversaries might have the

effect of reducing the competitive advantage of the firm.

According to Rodin (2005, p. 568), if managers and

workers are viewed as ‘‘competitively external to the firm,

that is to say as contractual suppliers of labor and man-

agement to an entity which is fundamentally in a stance of

competition toward them, then it is unlikely that they will

perform with maximal commitment and energy’’. How-

ever, as soon as an agent is not part of a firm anymore, or if

she interacts with an agent outside the nexus of contracts of

the firm, she is then justified in returning to the same

adversarial pattern of behavior.

This description of agents’ moral obligations fits with

the norms governing a firm’s hiring processes. If an agent

is applying for a job, it is expected that she will adopt an

adversarial behavior during the hiring process. She will try

to make herself an attractive candidate, she will negotiate

for better working conditions (let’s say a higher salary or

more vacation time), and she might even use offers she has

received from other firms as leverage to get a better con-

tract. But as soon as the contract is signed, she will have to

exhibit a higher level of commitment and loyalty. Once she

is part of the firm, she will have to behave in a way that will

promote the firm’s interests—the same objective every

employee should pursue.

The instantaneous shift in moral standards can be

explained by the corresponding shift between two types of

interactions. Before signing the contract, the individual was

a free agent in the market interacting through market

transactions. Once the contract has been settled, her inter-

actions with agents in the firm are administered transactions.

18 See, for instance, Boatright (1996).

19 A principal–agent relation defines a relation where an agent, the

principal, hire another individual, the agent, to promote his interests.

The expression ‘‘agency theory’’ refers to the challenges and various

normative implications generated by that type of relation, see Danley

(1999) and Heath (2009).

‘Triple Feature’ Program for Business Ethics 175

123

Here, one must not be confused by the ontological status of

the ‘contract’. An agent might never physically sign a piece

of paper stipulating her working conditions. A contract

might only refer to a tacit agreement with her employer. The

fact that she accepts to be employed by the firm means that

she makes such an agreement, whether it is explicit or not.

The argument presented so far, including Heath’s or

Rodin’s formulations, does not describe in detail just what

the relevant intra-firm moral obligations are. It only pro-

vides ground to say that they are not adversarial, the way

extra-firm moral obligations are, but are instead more

cooperative in nature. To further examine these ideas, one

would need to examine the literature on organizational

ethics, including for example various theories of workplace

democracy. Such theories tend to be interested in the moral

standards that should apply inside economic organizations.

They deal with questions like the reduction of agency

costs, promotion of the fidelity of workers, preservation of

good working conditions, and so on.

I have argued in this section that adversarial behaviors

are permitted within the market. However, two limits have

to be respected. If these two limits are correct, this suggests

that three different types of moral obligations apply to

agents’ behaviors depending on the scheme in which they

take part. Adversarial behaviors are permitted when agents

interact outside a firm but within the market. The appro-

priate behavior inside a firm, even if it remains undefined at

this point, should be of a nature that is more cooperative. It

should be derived from an appropriate theory of organi-

zational ethics. The appropriate behavior for interactions

with agents outside the market is also left undefined here.

However, it should also be more cooperative and it should

be derived from an argument about the social and political

role or economic agents. For the sake of simplicity, I will

refer to this threefold division of moral obligations as a

‘‘moral tripartition’’ (see Table 1). It suggests that the three

aspects of economic agents’ moral obligations should be

expressed with three different arguments rooted in different

disciplines. In other words, it suggests a ‘triple feature’

research program for business ethics.

One further point has to be made. This concerns the

nature of business firms and the morality that would follow

from it. Even if firms are patterns of administered

exchanges and intra-firm behaviors need generally to be

more cooperative, do they need to always be cooperative?

A ‘‘firm’s relations to its employees will always be mixed,

combining elements of competition’’ and ‘‘elements of

cooperation’’ says Rodin (2005, p. 568). There is no

question that agents within a firm will occasionally adopt

adversarial behaviors with regard to each other. Two

employees might have exclusive preferences, for whatever

reason. If they rank these preferences high enough (com-

pared to their preference for the success of the firm, for

example), they will adopt adversarial behaviors. Two col-

leagues might both want to bring the same client in; they

might want the same promotion; they might both covet

another colleague’s heart; and so on. The difficult question

concerns the acceptability of and limits on these behaviors.

Adversarial behaviors could be permissible within a firm if

such behaviors are constitutive of an intra-firm adversarial

scheme. In principle, schemes of any kind can be incorporated

within each other. A firm is already a pattern of administered

exchanges incorporated into an adversarial scheme, namely a

market. A market may also be incorporated into a pattern of

administered exchanges. In administered economies like the

one characterizing soviet economies, black markets would

often appear for certain goods (currencies, medicines, etc.).

Similarly, an adversarial scheme might be incorporated into a

firm. A corporation might decide to give exclusive bonuses to

its best salespeople. Those salespeople would then be in

competition with each other for those bonuses. If the adver-

sarial scheme is desirable, because, for example, it boosts

productivity, then adversarial behaviors among the salesmen

should be permitted. Of course, it doesn’t follow that such

behaviors would then be permitted when salesmen interact

with other agents out of the sales department.

Table 1 A moral tripartition

Interactions constitutive of (or among agents taking part in) a market Interaction not constitutive of (or not

among agents taking part in) a marketConstitutive of (or among agents

taking part in) a firm

Not const. of (or not among

agents taking part in) a firm

Type: Administered transaction

Groups: employees, managers,

shareholders, unions, etc.

Type: Market transaction

Groups: competitors, suppliers,

customers, creditors, etc.

Type: Other (like social or political)

Groups: regulatory agencies, communities,

non-governmental organizations, political

parties or governmental organizations, etc.

Applicable morality: Undefined

(but more cooperative, to be derived

from a theory of organizational

ethics)

Applicable morality: Permission

to adopt adversarial behavior

Applicable morality: Undefined

(but more cooperative, to be derived from a

theory of socio-political role of economic

agents)

176 D. Martin

123

Finally, it is worth mentioning briefly the need for

caution in designing intra-firm adversarial schemes. If they

become too much like a market, they might in fact be

dissociable from the firm. For instance, a corporation could

decide to pay its salespeople by commission only, without

offering any wage-related guarantees or other amenities

(e.g. office space or supplies). The nature of the contract

between these salespeople and the firm would then be

similar to the kind of contract covering market transac-

tions. The salespeople’s status would revert to the status of

an agent in the market. In that capacity, they would be

permitted to adopt adversarial behavior with the

corporation.

Tripartition, Shareholder Primacy, and Stakeholder

Theory

It should be emphasized right away that the tripartition

presented in the last section does not yet provide a detailed

account of economic agents’ moral obligations. It only

specifies the way that appropriate behavior of economic

agents varies in different contexts. More detail about that

will be given in the conclusion.

Now, I would like to compare the tripartition with the

shareholder primacy view and the stakeholder (SkH) the-

ory. Many variations of these two theories have been

developed. It is not possible to consider them exhaustively.

Instead, I will outline four relevant strengths of the tri-

partition, in contrast to shareholder and SkH theory. The

first strength relates specifically to some variations of the

shareholder primacy view. The three other relates more

specifically to some variations of the SkH theory. But I

begin with a brief sketch of shareholder and SkH theory.

The shareholder primacy view20 draws upon the idea, in

corporate governance, that a corporation should assign first

priority to its shareholder’s interests. As a view about

economic agents’ moral obligations, this idea may be

broken up into many different claims. Friedman asserts, for

instance, that corporate executives have direct responsi-

bilities to their employers, the shareholders. This respon-

sibility is ‘‘to conduct the business in accordance with their

desires, which generally will be to make as much money as

possible while conforming to the basic rules of society’’

(Friedman 1970, p. 33). But elsewhere, he also writes:

‘‘there is one and only one social responsibility of business

— to use its resources and engage in activities designed to

increase its profits’’ (Friedman 1962, p. 133). Which sug-

gest, among other things, that the view’s main claims could

be about manager’s moral obligations, shareholder’s moral

obligations, or both. It could be that managers ought to

respect the shareholder desires. Or it could be that man-

agers and/or shareholders ought to increase profits.

The SkH theory takes as its point of departure the idea

that ‘‘corporations have more extensive duties to key SkH

groups like employees, communities, customers, suppliers

and so on’’ (Heath and Norman 2004, p. 249).21 A SkH,

broadly understood, may be any individual or group

affected by an organization’s activities. Edward Freeman

was one of the first to introduce this view in the 1980s as a

critique of the traditional definition of managers’ duties

embodied in (some variations of) the shareholder primacy

view. The ‘‘notion that managers have a duty to stock-

holders’’ he wrote, should be replaced ‘‘with the concept

that managers bear a fiduciary relationship to stakeholders’’

(Evan and Freeman 1988, p. 97).

Broader in Scope

The tripartition suggests moral obligations for all groups of

economic agents. In comparison, most variations of the

shareholder primacy view focuses on two types of eco-

nomic agents, namely managers or shareholders. They do

not specify moral obligations for other types of agents like

employers, creditors, suppliers, consumers, etc.

In the secondary literature, the shareholder primacy

view is likewise interpreted as putting an emphasis on one

type of agent or another. Hasnas, for example, emphasizes

the obligations of managers. According to him, the view

claims that ‘‘managers are obligated to follow the (legal)

directions of the stockholders, whatever these may be’’

(Hasnas 1998, p. 21). When there are no clear indications,

managers should act in a way that will advance the

shareholders’ interests. Schaefer interprets the shareholder

primacy as a view about shareholders’ moral obligations.

Friedman’s main claim would then be that ‘‘shareholders

never have a duty to direct management to exercise social

responsibility’’ (Schaefer 2008, p. 300). It is true that most

variants of the shareholder primacy view could easily be

extended to the owners of other kinds of organizations. It

could apply to worker in a worker cooperative for instance.

Let us call this wider view the ‘‘owner primacy view’’. But

20 Also referred to as the shareholder or stockholder theory. Friedman

is seen as one of the most prominent proponents of the shareholder

primacy view. However, most of the business ethics views attributed

to him come from an article published in the New York Time

Magazine (Friedman 1970). Earlier formulations of his ideas might be

found in a longer text on the relation between capitalism and freedom

(Friedman 1962, specially Chap. VIII). For a critical perspective on

the shareholder primacy view, see Macey (1991), Hasnas (1998), and

Schaefer (2008). For a critical perspective of the libertarian justifi-

cation of the shareholder primacy view, see Nunan (1988).

21 On the foundation of SkH theory, see Freeman (1984), Evan and

Freeman (1988), and Freeman et al. (2010). For a critical perspective,

see Gibson (2000), Heath and Norman (2004), Boatright (2006), and

Heath (2007).

‘Triple Feature’ Program for Business Ethics 177

123

even under this variation, the view’s scope would be lim-

ited to specific types of economic agents.

A narrow scope is not necessarily a decisive argument

against the shareholder primacy view. It is not problematic

for Friedman or other shareholder theorists to formulate

claims for specific economic agents. But it makes that

theory less suited for formulating moral obligations for all

economic agents. The SkH theory shares this strength with

the tripartition. Any agent taking part in a market can be

subjected to the theory’s prescription. The three following

strengths of the tripartition, however, relate more specifi-

cally to some variations of the SkH theory.

Groundings in a Politically Comprehensive View

of Society

This point relates to an argument made by Heath, Moriarty,

and Norman (2010). They argue for business ethicists to

develop what they call a ‘‘unified normative theory’’.22

That is, a description of economic agents’ moral obliga-

tions consistent with a comprehensive political view of

society. By ‘‘unified’’ they mean that there should be ‘‘a

fair degree of consistency or compatibility among the kinds

of normative concepts and principles used to justify rights,

duties, and institutions in’’ the following realms: ‘‘markets

and the regulation of domestic and international markets’’,

‘‘corporate law and governance’’, and ‘‘the ‘‘beyond-com-

pliance’’ norms, and principles of self-regulation, that

businesses and those interacting with businesses ought to

adopt’’ (p. 429).

A comprehensive political view of society may go as far

as being a theory of justice, although such views might not

be explicitly cast in such terms. The expression ‘‘theory of

justice,’’ commonly used by political philosophers, refers

to a description of how the main social institutions ought to

be organized in a given society, the weight and burdens

society can impose on its members, how it ought to

redistribute wealth, and so on. Rawls’ (1999) popular book,

A Theory of Justice, is a canonical example of such a

theory.

A satisfying answer to typical business ethics questions

must be grounded in a politically comprehensive view of

society. Every consideration in the field of business ethics

will eventually generate a regress to these more funda-

mental questions. For instance, business ethicists want to

say something in response to questions about what indi-

viduals in the world of commerce (such as entrepreneurs,

CEOs, employees, consumers) ought to do. But they cannot

answer these questions without knowing what type of

contracts these agents have with the organizations or firms

they are involved with. They must also know the type of

laws and regulations that applies to these contracts and to

the organizations’ practices. Raising these questions pushes

the problem to a more fundamental level. We also need to

see the type of justifications that lies behind the regulatory

framework. Different views of corporate law will lead to

different interpretations of their respective features.

Choosing between these interpretations will have huge top-

down implications for what a manager ought or ought not

to do. Finally, arguing for the desirability of one view of

corporate law over another raises questions ‘‘about the

ultimate purposes or objectives of firms and of the markets

they operate within’’, and, as Heath, Mortiarty, and Nor-

man (2010, p. 441) conclude, ‘‘once we begin posing these

latter kinds of questions we are firmly in the territory of

political philosophy’’. Thus we are in need for a politically

comprehensive view of society.

If a business ethicist endorses a libertarian position, for

instance, then limiting the constraints on individual liber-

ties will be his main preoccupation.23 If instead he endorses

a utilitarian position, constraints on individual liberties

could be justifiable if they improve aggregate well-being. A

utilitarian theory of justice often leads to various types of

welfarism.24 If a business ethicists starts from a liberal

egalitarian position (such as Rawls’ position), he will be

more likely to define corporate law in a way that preserves

basic liberties, and, in addition, allows major social insti-

tutions to redistribute wealth to the least well-off. These

archetypical cases are just three examples among a wide

spectrum of possibilities. In addressing these issues, one is

not required to develop one’s personal theory (not that one

can’t). However, one ought to be clear on the view one

endorses. It is difficult to engage a specific argument about

economic agents’ moral obligations in specific cases

without grounding it in a politically comprehensive view of

society. A business ethics argument not grounded in a

comprehensive view of society may suffice for casual or

popular debate, but is likely, upon closer examination, to

be found to suffer from the type of inconsistencies con-

demned by Heath, Moriarty, and Norman.

22 A similar point is developed in a later paper by Norman (2011,

p. 43): the ‘‘concepts, principles, and normative methods’’ used ‘‘to

set the levels of regulations’’ for economic agents should also be used

in ‘‘identifying and justifying beyond-compliance obligations’’.

23 Here, a just society would be described as a society that minimized

the constraints on individual liberties. Many thinkers have been

associated with that view. Nozick and Hayek are two popular

examples. A more systematic formulation of the main libertarian idea

might be found in Steiner’s (1994) work. Under his view, some

constraints to individuals’ liberties are acceptable if they intend to

protect some core libertarian principles like the property of the self,

free circulation of persons and goods and just acquisitions of goods,

see also Kymlicka (2002, Chap. 4).24 See, for instance, Kaplow and Shavell (2002) and Kymlicka (2002,

Chap. 10).

178 D. Martin

123

Even if it has not been specified at length in this paper,

the moral tripartition is clearly consistent with a particular

politically comprehensive view of society. Briefly put, it is

grounded in welfarist and egalitarian considerations. An

adversarial scheme is the best way to organize economic

activities to increase the production of wealth. Even if such

a scheme might increase socio-economic inequalities, the

gap between the least and the most well-off might be

corrected through various ex post redistributive measures.

These kinds of groundings are also to be found in the

shareholder primacy view. Friedman claims to argue from

a libertarian or utilitarian position.25 The second utilitarian

position is similar to the justification for the tripartition.

Unfortunately, it is difficult to find similar groundings

when examining most of the variations of SkH theory.26

They typically start from the idea that corporations have

extensive duties to their SkH. However, there is no

agreement as to why this ought to be the case. Furthermore,

it is difficult to see how Skh theory might be consistent

with the kind of politically comprehensive view presented

above. If a SkH theorist were to claim to argue from a

Rawlsian perspective for instance, he should accept that

corporations could prioritize some SkH interests if a sys-

tem of Rawlsian liberties is respected and if such prioriti-

zation benefits the least well-off.27 If a SkH theorist claims

to be a welfarist, his main concern should be wealth pro-

duction. If he claims to be a libertarian (rare though this

case may be), he would argue that a corporation should be

allowed to engage in all sorts of competitive practices as

long as the core libertarian principles are respected (see

Footnote 23).

Another possibility would be to ground SkH theory in a

Kantian perspective on social justice. Leading SkH theo-

rists (starting with Edward Freeman himself), often claim

that their theory offers a Kantian approach to business

ethics. However they have not sought to bolster their case

by providing a Kantian interpretation of, for example,

corporate law. As Heath, Moriarty, and Norman empha-

size, it is a ‘‘rather striking omission’’, since ‘‘there are

well-established Kantian interpretations of the criminal

law, public law, and the law of tort’’ (p. 442).

Less-Controversial Empirical Premises

The tripartition rests on a fairly uncontroversial premise:

markets allocate resources more efficiently than patterns of

administered exchange (which leads to the second propo-

sition in the beginning of ‘‘The Contained-Rivalry

Requirement’’ section). It is important to be clear here.

There are plenty of controversial questions about the ben-

efits of markets. For instance, what level of state regulation

will increase market’s efficiency? Or can all goods be

efficiently exchanged in a market? Should we include

health services, organs, public airwaves or sexual services?

But the general idea that a market economy is more effi-

cient than an administered economy is much less contro-

versial. And it is the most important question in regard to

the specific morality applying to agents in the market.

In comparison, some of the SkH theory’s empirical

premises are much more controversial. Further variations of

the SkH theory have to be introduced to explain this idea.

Some variations of the SkH theory deal specifically with

questions of economic agents’ moral obligations. It argues

that a corporation should be ‘‘managed to the benefit of its

stakeholder’’ and that management must act ‘‘in the interest

of the stakeholders as their agent’’ (Evan and Freeman 1988,

p. 105). It claims, for instance, that each of a corporation’s

SkH ‘‘has a right not to be treated as a means to some end,

and therefore must participate in determining the future

direction of the firm in which they have a stake’’ (p. 97).

These variations are sometime labeled the ‘Deontic SkH

Theory’. That theory suggests that economic agents ought to

‘‘determine the legitimate interests and rights of various

stakeholders’’ and it ‘‘uses these as a way of determining

corporate and managerial duties’’ (Heath and Norman 2004,

p. 249). Other variations are strategic or instrumental.

Practice benefiting SkH are presented as beneficial strate-

gies for the corporation itself. Devoting sufficient attention

to SkH ‘‘will tend to lead to positive (profitable) outcomes

for corporations’’ (p. 249). A strategic SkH theorist would

not necessarily argue that a corporation ought to adopt SkH-

benefiting practices, only that they might be profitable.

25 Three different arguments are put forward to justify the share-

holder primacy view. The first justification is libertarian. Shareholders

should be allowed to use the firm’s assets however they want to. Not

granting them these rights would be an infringement of their

individual liberties. Friedman (1962, p. 12) writes: ‘‘As liberals, we

take freedom of the individual, or perhaps the family, as our ultimate

goal in judging social arrangements’’. According to second justifica-

tion, economic competition is the best way to maximize wealth or

well being. And this is why corporations should be free to manage

their assets how they want. Hasnas (1998, p. 22) labels this

justification the ‘‘utilitarian argument’’. The third argument is

deontological in the sense that it focuses on the duties—or fiduciary

obligations—of a corporation’s management toward the shareholders.

It is based ‘‘on the observation that stockholders advance their money

to business managers on the condition that it be used in accordance

with their wishes’’ (p. 22). Not respecting these wishes would be like

a breach of contract or, more broadly, like breaking one’s word or

promise.26 Goodpaster (2010) makes a similar point when he claims that SkH

theory, despite being an evolution over stockholder theory, is not a

sufficient account of corporate responsibilities. It does not provide a

‘‘comprehensive moral thinking’’ of the corporation’s responsibilities,

that should also include the implications of a corporation’ s decisions

for ‘‘cooperation among sectors to achieve a common good and social

justice’’ (pp. 128–129).27 In other words, as long as Rawls’ two principles of justice are

respected, see Rawls (1999, Chap. 2). For an overview of the theory,

see Freeman (2003, Chap. 1) and Kymlicka (2002, Chap. 3).

‘Triple Feature’ Program for Business Ethics 179

123

Many SkH theorists endorse another variation however.

Let us call it hybrid SkH theory. A corporation ought to

adopt SkH-benefiting practices because it will be profit-

able. It is claimed, for instance, that Friedman’s share-

holder primacy view (in the interpretations where the view

recommends to be profit seekers) ‘‘is compatible with

stakeholder theory’’ since ‘‘the only way to maximize value

sustainably is to satisfy stakeholder interests’’ (Freeman

et al. 2010, p. 12 and chap. 4). A corporation can increase

its profit by producing ‘‘good products and services that

customers want’’ and by establishing ‘‘solid relationships

with suppliers’’ (p. 11).

It is not clear that the empirical premises underlying a

hybrid SkH theory can be sustained. To which extend SkH-

benefiting practices are profitable? There is a significant

literature on the relation (and lack of relation) between

SkH-benefiting practices and profit.28 To give just one

example, Kaler (2006, p. 258) concludes that it is impos-

sible to say if ‘‘a society is worse off or better off when it

runs its economy on stakeholder as opposed to stockholder

lines’’. This is consistent with my argument in the first

section. I pointed out the high level of rivalry in a market.

This comes from the exclusive nature of agent’s prefer-

ences. It also suggests that a corporation can hardly survive

while never adopting behaviors that will harm its com-

petitor and other SkH like suppliers, customers, and so on.

The tripartition, in comparison, remains agnostic about

the type of practices that are beneficial for a corporation. If

one accepts the description of markets as adversarial

schemes, this only suggests that it is desirable, from a

social point of view, for agents to adopt adversarial

behaviors. It does not assume that it benefits corporations

directly. In fact, many organizations would be better off in

an economy that is less competitive.

Clear Normative Stance

The tripartition is a normative theory. It says how eco-

nomic agents ought to behave, based on how economic

institutions ought to be designed. In comparison, neither

the normative nor the descriptive stance of hybrid SkH

theory is clear. Consequently, it can be difficult to interpret

the theory’s implications29 in situations where practices

beneficial to SkH won’t be profitable for a corporation.

Which practice would have to take priority: SkH-benefiting

or profitable ones? If SkH-benefiting practices are profit-

able. If a corporation ought to adopt SkH-benefiting prac-

tices for that reason. Should it stop from adopting SkH-

benefiting practices when they are not profitable? Or not?

Donaldson and Preston (1995, p. 65) makes a similar

argument: SkH theorists should clarify the bases on which

it is developed: ‘‘descriptive accuracy’’, ‘‘instrumental

power’’, or ‘‘normative validity’’. They conclude, however,

that these three aspects are mutually enforcing. But the

Kaler’s arguments and the argument in the first section

provide grounds for questioning that conclusion.

Some variations of the SkH don’t mix normative and

descriptive claims. Although he is not a proponent of the

theory, Kaler offers such a variation.30 What is worth

noting about the proposed variation is its similarity to the

tripartition proposed here. The optimally viable version of

the SkH theory, Kaler writes, is one ‘‘in which only

employees are on par with shareholders as stakeholders in

business’’ while other non-shareholder groupings like

customers, suppliers and lenders are ‘‘admitted to stake-

holder status at the most minimal level possible’’ (Kaler

2009, p. 298). For him, this version is the only one to meet

two key conditions. First, it is implementable (as demon-

strated by the fact that something very close to that form of

SkH management is practiced within Germany). Second, it

confers full SkH status to groups (only employee in this

case) that can contribute to the economic functioning of a

business given their exposure to risk. Although it is the best

available version of the SkH theory, he concludes, ‘‘it may

not be the best of all possible ways of running a business’’

(p. 297). Hence, on this view the only two groups of agents

whose mutual interests should be sought are groups inside

the firm. The tripartition likewise claims that the interac-

tions inside the firm are more cooperative than interactions

with other market actors.

28 On the broader question of the relations between ethical and

profitable practices, see Paine (2003), Margolis and Walsh (2003),

and Vogel (2005). According to Margolis and Walsh, it is difficult to

draw any clear conclusion.29 Some SkH theorists have branded the imprecision about the

normative or descriptive stance of the theory as an advantage. About

the variations between normative, descriptive and instrumental SkH

theory, Freeman et al. argue that these distinctions are not useful for

every purposes. The type of Rortian philosophical pragmatism they

want to endorse incite them to be open to all the possible argument

Footnote 29 continued

one can make with the concept of SkH, as long that it creates ‘‘a

context for thinking about how organization studies might move

forward in a way that makes ethics, science and other disciplines

central and essential players’’ (Freeman et al. 2010, p. 78). More

specifically, they write: ‘‘There has been a great deal of discussion

about what kind of entity ‘‘stakeholder theory’’ really is. […] Others

have suggested that there is just too much ambiguity in the definition

of the central term for it ever to be admitted to the status of theory.

[…] As philosophical pragmatists we do not have much to say about

these debates. We see ‘‘stakeholder theory’’ as a ‘‘framework,’’ a set

of ideas from which a number of theories can be derived.’’ (p. 63).30 This variation is presented in the last paper of a four-paper series

were he deals with various issues around the SkH theory, see Kaler

(2002, 2003, 2006, 2009).

180 D. Martin

123

Conclusion

In this paper, I took seriously the following idea: agents’

moral obligations vis-a-vis particular agents should depend

on the type of social interactions they engage in with those

agents. A market is, in that respect, a special pattern of

social interactions called an adversarial scheme. If one

agrees that adversarial schemes are preferable as a way to

organize economic activity, one ought to allow that agents

within these schemes to adopt adversarial behaviors—

another way of saying that they will pursue their own

interests at the expenses of others. Nevertheless, a con-

tained-rivalry requirement has to be met. The permissibil-

ity of adversarial behaviors is limited to interactions inside

the market and outside the firm, which leads to the so-

called tripartition presented at the end of the second section

above. The tripartition also suggests a three-part research

program in business ethics.

Heath has already defended the idea that competition

is desirable in markets but not inside business firms.

Considering solely the distinction between intra- and

extra-firm interactions would suggest that the same type

of moral obligations applies to interactions outside the

firm and interactions with agents outside the market.

That would be problematic in my view. If one accepts

that competition is permissible in markets, it does not

indicate that it is also permissible with regard to

groups outside the market, because such competitive

behavior would not produce the same kind of social

benefits.

Finally, it is important to emphasize that the triparti-

tion presented here does not immediately reveal the full

range of moral obligations to which economic agents are

subject. It provides only an indication of the type of

behavior that should be tolerated within markets, within

corporations and outside of the market. Much work still

has to be done to outline a detailed theory of the moral

obligations attached to all these interactions between

economic (and in some cases, non-economic) agents.

However, the argument presented here accomplishes an

important preliminary step. If one accepts that similar

moral standards should be applied to individuals in var-

ious kinds of adversarial schemes, it then becomes pos-

sible to draw from one context (let’s say, sporting

competitions) moral standards that should apply in all of

them. To qualify as a good product in the market of

business ethics theories, the tripartition now has to tackle

that challenge.

Acknowledgments I am very much indebted to Axel Gosseries,

Jeffrey Moriarty, and Chris MacDonald for their valuable and help-

ful comments. I would also like to thank Matthew Hunt for his

revisions.

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