Enhancing Stakeholder Practice, Ten Years Later: Professor Ed Freeman on Community, Technology and Globalization

AN EXCLUSIVE JUSTMEANS INTERVIEW

In the world of organizational management, stakeholder theory addresses the ethics behind running a business.

The concept was originally described by R. Edward Freeman, a professor of business administration at the Darden School of Business at the University of Virginia, in his 1984 book Strategic Management: A Stakeholder Approach.

In 2001, he co-wrote a paper with Laura Dunham and Jeanne Liedtka that would later be published in the journal Business Ethics Quarterly as "Enhancing Stakeholder Practice: A Particularized Exploration of Community.” So in the past decade, what’s changed? I asked him a few questions to find out.

In your 2001 paper, "Enhancing Stakeholder Practice: A Particularized Exploration of Community," you wrote that the "lack of specificity around stakeholder identity remains a serious obstacle to the further development of stakeholder theory and its adoption in actual practice by business managers. Nowhere is this shortcoming more evident than in stakeholder theory’s treatment of the constituency known as 'community.'" Ten years later, where does this "lack of specificity" now stand?

One thing that has changed in the past decade is that it's less important to figure out priorities of stakeholders and more important to figure out what stakeholders have in common, where their joint interest is in terms of value creation.

So if various potential stakeholders have little in common, little joint interest, that's not really a good place to devise a business model?

Right. If you can only make customers better off by making suppliers worse off, I don't think that's a sustainable business model in a free society because no one has to do business with you.

Do sustainable markets necessarily have an ethical underpinning that are manifest in corporate social responsibility?

The idea that markets come out of the air and there's no ethics underneath them is wrong. Markets can't work without some kind of basic moral fabric to them.

How is community defined in stakeholder theory?

When we think about community as stakeholder, there's still some ambiguity about that. What's the theory of community that we have? Is it about place? Is it about communities of interest? In that paper, we discussed communities of practice. The way to attack stakeholder theory was by showing that the idea of community not a very well worked out idea.

In your study, you concluded that "examining companies who have a geographical or an electronic notion of community will equally yield insight.” Do today’s social networking companies like Facebook and Twitter fit that bill?

Yes, that's exactly right. We're pretty ambiguous about what community means in a whole bunch of things. We need to think through this idea of community, because we thought 10 years ago that there were going to be a lot of changes to that, as you just mentioned. Now, we turn on our computer and talk to our colleagues all around the world. So, what's the community here?

How important is technology in defining a community?

Well, I think there are lots of different ways to define community. A bunch will be defined by the technology of the time. In the days before the internal combustion engine, the fact that one could only go so far on horse, and that letter-writing took a long time, defined the sense of community and made it about place. That's still relevant today, but so is the Facebook community. The Internet creates these communities of interest.

How has the idea of place changed because of globalization?

There's a 1996 book by Benjamin Barber called Jihad vs. McWorld. He argued that information technology created a globalization of culture so that the french fries you eat in Jakarta taste just like the ones here in Charlottesville. He thought that was bad. I don't necessarily think that’s bad. But he said that the technology also gives you the kind of fracturing so that if I wanted to find an affinity group, for say, bearded pragmatist philosophers who practice taekwondo, I could find that. So what happens is on one hand, you get this global culture, while on the other hand, you get the most singular, individualized affinity groups. The same technology gives you both those things.

Detractors often say that globalization is turning every major cosmopolitan city into the same city.

That may be so, but I'm not convinced. There is globalization, but the same forces also allow a kind of particularization of culture down to a micro level. I don't think the only impact of globalization is this sort of "flat” world. The other piece of it is now I can appreciate a whole lot of stuff that I never knew existed. National boundaries are less important but we can now experience other cultures in a way we've never been able to do before.

How do you think globalization has affected travel?

For some people, globalization might make travel less interesting; for others, it may be more interesting. But standing on the top of Borobudur in central Java, looking out on the plains and understanding that you are at a Buddhist temple built in the 9th century—you just can't reproduce that feeling anywhere but there.

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Click here for the second part of my interview with Professor Freeman, in which I ask him about crowd wisdom, consumer education and transparency. -- R.L.

ABOUT R. EDWARD FREEMAN

Elis and Signe Olsson Professor R. Edward Freeman teaches business ethics at the Darden School of Business at the University of Virginia. He is also the academic director of the Business Roundtable Institute for Corporate Ethics. From 1987 to 2009 he was Director of Darden's Olsson Center for Applied Ethics, one of the world's leading academic centers for the study of ethics. Freeman is perhaps best known for his award-winning book Strategic Management: A Stakeholder Approach, originally published in 1984 and reprinted 2010 by Cambridge University Press, in which he suggests that businesses build their strategy around their relationships with key stakeholders. In 2001, he was honored by the World Resources Institute and the Aspen Institute with a Pioneer Award for Lifetime Achievement.