INTRODUCTION
Shareholders are just one of the multiple stakeholder groups which can affect and are affected by business firms (Donaldson & Preston, Reference Donaldson and Preston1995; Freeman & Reed, Reference Freeman and Reed1983). The shareholder primacy orientation of traditional agency theory assumes shareholders will maximise their individual utility (Jensen & Meckling, Reference Jensen and Meckling1976). Social shareholder engagementFootnote 1 (SSE) poses a challenge to this approach, as shareholders bring the concerns of often voiceless and marginalised stakeholders, such as victims of human rights abuses and environmental degradation, to the heart of corporate decision-making (Dhir, Reference Dhir2012; Hennchen, forthcoming; Kraemer, Whiteman, & Banerjee, Reference Kraemer, Whiteman and Banerjee2013; Lee & Lounsbury, Reference Lee and Lounsbury2011; McLaren, Reference McLaren2004; Proffitt & Spicer, Reference Proffitt and Spicer2006). Yet research suggests that neglecting to consider the ethics of the process of SSE can pose a threat to its legitimacy (Dhir, Reference Dhir2012; O’Rourke, Reference O’Rourke2003).
The role of business firms in addressing social and environmental problems has been discussed widely in the management literature, usually under the rubric of corporate social responsibility (Garriga & Mele, Reference Garriga and Mele2004; Jamali, Reference Jamali2008). Perspectives such as stakeholder democracy (Freeman, Reference Freeman1984; Matten & Crane, Reference Matten and Crane2005; Moriarty, Reference Moriarty2014), corporate citizenship (Moon, Crane, & Matten, Reference Moon, Crane and Matten2005) and political CSR (Scherer & Palazzo, Reference Scherer and Palazzo2007; Scherer, Palazzo, & Matten, Reference Scherer, Palazzo and Matten2014) have defended a much broader set of responsibilities for the business firm in society. Research in the field of law (Freshfields, Reference Freshfields2005; Stout, Reference Stout2012) has also challenged the mantra of shareholder wealth maximisation by focusing on a broader interpretation of fiduciary duty. The growth in responsible investment practice (Eurosif, 2014) and research has demonstrated the plurality of demands made by shareholders and the continuously growing interest in environmental, social, and governance (ESG) issues in investment.
But what of these shareholders who purport to speak for marginalised stakeholders? Despite their oft-stated commitment to voicing unheard stakeholder concerns, and the extensive descriptive research on shareholder engagement, a normative, ethical approach has so far been neglected. Rather, the literature has focused on strategy and tactics (den Hond & de Bakker, Reference den Hond and de Bakker2007; Lee & Lounsbury, Reference Lee and Lounsbury2011; Rojas, M’Zali, Turcotte, & Merrigan, Reference Rojas, M’Zali, Turcotte and Merrigan2009) or identity (Arjaliès, Reference Arjaliès2010; Rehbein, Waddock, & Graves, Reference Rehbein, Waddock and Graves2004). Furthermore, existing research has raised concerns about how shareholders undertake SSE. These include the need to establish legitimacy in the face of a plurality of demands on the firm (Scherer & Palazzo, Reference Scherer and Palazzo2007), the potential for shareholders to actually harm rather than help the local communities they seek to represent (Coumans, Reference Coumans2012; Dhir, Reference Dhir2012), the lack of accountability of engagement behind “closed doors” (McLaren, Reference McLaren2004; O’Rourke, Reference O’Rourke2003), and the use of divestment or threat of disclosure (Goodman, Louche, van Cranenburgh, & Arenas, Reference Goodman, Louche, van Cranenburgh and Arenas2014). In addressing this gap, we provide a benchmark for reflecting on the ethics of the SSE process.
This article explores how shareholders involved in SSE can ensure they engage ethically. We structure our analysis according to the action and constitutional levels identified by Schreck et al. (Reference Schreck, van Aaken and Donaldson2013). In this way we address SSE within existing institutional and regulatory constraints, before going on to consider to what extent and how SSE should challenge the constraints themselves to change the “rules of the game” (North, Reference North1990: 3).
We approach our analysis through the lens of Habermasian discourse ethics (Habermas, Reference Habermas and McCarthy1984, Reference Habermas and McCarthy1987, Reference Habermas1992), which helps examine SSE from a much-needed normative perspective and allows for the mediation of a plurality of ethea. Particularly relevant to SSE is the Habermasian emphasis on the participation of all affected parties in fair dialogues to establish valid, moral norms (Beschorner, Reference Beschorner2006). Another advantage of discourse ethics is that it is process-focused and therefore avoids assumptions of the moral content of norms underlying other ethical theories. Finally, the extension of discourse ethics to deliberative democracy in Habermas’ later work (Habermas, Reference Habermas and Rehg1996) is increasingly used in debates about the political role of business in society (Moon et al., Reference Moon, Crane and Matten2005; Palazzo & Scherer, Reference Palazzo and Scherer2006; Scherer & Palazzo, Reference Scherer and Palazzo2007).
Our analysis of SSE through a discourse ethics lens enables us to develop a normative perspective of SSE, heretofore absent in the stakeholder engagement literature. This analysis identifies three normative questions related to voicing stakeholder concerns, promoting stakeholder engagement, and promoting institutional/regulatory change. The first two questions belong to the action level and the last to the constitutional level. We extend the analysis of SSE beyond most work on political CSR to include the desirability of promoting regulatory/institutional change to ensure marginalised stakeholders a voice in corporate decisions that affect them. In this way we elaborate a deliberative democratic political conception of SSE, which in turn questions the stark separation of the spheres of economics and politics. Our analysis also implies a dilemma for shareholders involved in SSE as to whether they are prepared to yield power in order to ensure the participation of marginalised stakeholders. This dilemma reveals the significance of the often overlooked difference between purely ethically motivated shareholders and shareholders who may also use SSE instrumentally as a means to reduce risk.
We begin by clarifying the concept of SSE and its prevalence in practice. We then review the literature to date on SSE, which reveals the existence of ethical concerns for shareholders in SSE. We next outline discourse ethics, and present and justify this theory as our lens for developing a normative perspective of SSE. The subsequent section presents our multi-level analysis structured around three normative questions and our findings. We then explore these findings and discuss their implications for existing theory on SSE and business ethics, and their relevance to practice. We end with avenues for future research and some conclusions.
SOCIAL SHAREHOLDER ENGAGEMENT
In contrast with shareholder engagement which prioritises financial performance (Chung & Talaulicar, Reference Chung and Talaulicar2010; Gillan & Starks, Reference Gillan and Starks2007), SSE represents the choice by shareholders dissatisfied with a firm’s environmental, social, governance, and ethical performance to use the “voice” rather than “exit” option described by Hirschman (Reference Hirschman1970), or the dynamics between the two, to influence company actions (Goodman et al., Reference Goodman, Louche, van Cranenburgh and Arenas2014). Shareholder engagement can be done through letter writing, asking questions at annual general meetings, filing and voting on shareholder resolutions, as well as dialogue with management or the board, either behind the scenes, or in public confrontation (Lydenberg, Reference Lydenberg2007; Sjöström, Reference Sjöström2008).
The tradition of SSE in the US can be traced back to the 1970s when regulation changes at the US Securities and Exchange Commission (SEC) allowed social policy topics to be consideredFootnote 2 (Dhir, Reference Dhir2006; Glac, Reference Glac2010; Proffitt & Spicer, Reference Proffitt and Spicer2006). The level of SSE is increasing (Goldstein, Reference Goldstein2011; Lee & Lounsbury, Reference Lee and Lounsbury2011): between 2010 and 2012 over 200 institutions representing $1.5 trillion in assets filed or co-filed shareholder resolutions related to ESG issues at US companies (USSIF, 2012). In a study of 81 of the largest companies in the US between 2000 and 2003, almost 40% of shareholder engagement through shareholder resolutions was socially or CSR-driven (Monks, Miller, & Cook, 2004).
Religious organisations in the US are the most active filers of social policy shareholder resolutions, accounting for around 25% of all shareholder proposals each year (Copland & O’Keefe, 2013; Proffitt & Spicer, Reference Proffitt and Spicer2006). But research has also identified other actors involved in SSE such as NGOs, public pension funds, individuals, and unions (Guay, Doh, & Sinclair, Reference Guay, Doh and Sinclair2004; Proffitt & Spicer, Reference Proffitt and Spicer2006; Sjöström, Reference Sjöström2010; Tkac, Reference Tkac2006).
Driven by principle rather than economic rationality, SSE has a different ideology to conventional market logic (Clark, Salo, & Hebb, Reference Clark, Salo and Hebb2008; Lee & Lounsbury, Reference Lee and Lounsbury2011; McLaren, Reference McLaren2004). One of the largest and most active coalitions of shareholders working on SSE, the Interfaith Center on Corporate Responsibility (ICCR), claims that “it is the impact on people, usually economically vulnerable people, who inspire us to act” (ICCR, 2014c). Research has highlighted the challenge of measuring the impact and success of SSE. Many studies focus primarily on shareholder resolutions in the US and their voting outcomes (Campbell, Gillan, & Niden, Reference Campbell, Gillan and Niden1999; Graves, Rehbein, & Waddock, Reference Graves, Rehbein and Waddock2001; Monks et al., 2004; Rojas et al., Reference Rojas, M’Zali, Turcotte and Merrigan2009). However, this approach can be misleading, as even strongly supported resolutions are not necessarily legally binding (Engle, Reference Engle2006; Levit & Malenko, Reference Levit and Malenko2011; Rojas et al., Reference Rojas, M’Zali, Turcotte and Merrigan2009). Social movement theory frames SSE as a broader movement to effect social change and shape public discourse and norms by framing agendas and raising awareness of social, environmental and ethical issues (Arjaliès, Reference Arjaliès2010; Lee & Lounsbury, Reference Lee and Lounsbury2011; Proffitt & Spicer, Reference Proffitt and Spicer2006; Sjöström, Reference Sjöström2010). However, as SSE moves increasingly towards private dialogue behind the scenes where it is argued to be more effective (Becht, Franks, Mayer, & Rossi, Reference Becht, Franks, Mayer and Rossi2009; Goldstein, Reference Goldstein2011; Goranova & Ryan, Reference Goranova and Ryan2014; Logsdon & Van Buren, Reference Logsdon and Van Buren2009), its impacts and successes on the stakeholders, which SSE claims to represent, remain opaque.
SSE: ETHICAL CONCERNS
While most literature has focused on the success, strategies, and identity of SSE (Ferraro & Beunza, Reference Ferraro and Beunza2014), in this section we highlight some of the ethical concerns which have been raised about SSE.
The motives of SSE come from a moral basis rather than an economic one; however, civil society claims, or shareholders who give voice to them, should not uncritically be assumed to be legitimate. As Scherer and Palazzo (2007: 1109) argue, it is over simplistic to conceive of the corporation as the “bad guy” representing economic interests and civil society actors as the “good guys” representing moral interests. Just as shareholders focusing on economic interests can be divided in their demands (Anabtawi, Reference Anabtawi2007; Barnea & Rubin, Reference Barnea and Rubin2010; Stout, Reference Stout2012; Williams & Ryan, Reference Williams and Ryan2007), there can be different demands coming from SSE, and their legitimacy must be established rather than assumed.
A second concern raised in the SSE literature is whether shareholders are effective representatives of stakeholder interests (Coumans, Reference Coumans2012; Dhir, Reference Dhir2012). These studies focus on the actions of a consortium of socially conscious investors who, in 2008, submitted a shareholder proposal to a Canadian multinational regarding the human rights impacts of its Guatemalan mining operations. Between 2008 and 2010 various civil society and international organisations strongly condemned the mine’s contamination of the local environment and the associated significant health risks posed for the local community. The condemnations called for a suspension of the mine’s operations until the negative impacts could be addressed. The 2008 proposal was withdrawn and the company agreed to its demands for an independent human rights impact assessment. However, the proposal attracted much controversy. Before the Guatemalan government could implement the recommendations of the civil society organisations and suspend the mine’s activities, the company announced its own action plan to address the issues raised. The human rights organisations and affected local communities were highly critical of their exclusion both from the drafting of the shareholder proposal, and from participating in any direct management or oversight of the assessment process. The engagement was seen to have provided a “whitewashing” of the situation for the company and its shareholders while harming and undermining the demands of the local community (Dhir, Reference Dhir2012). Thus, the need for shareholder resolutions to appeal to “the business or affairs of the corporation” (Dhir, Reference Dhir2012: 106) led to the divergence of interests: risk mitigation by investors on one hand, versus the complete cessation of mining operations by the local community. The concern arises as to how SSE can avoid doing harm, albeit unwittingly, to the stakeholders whose interests they strive to defend.
Thirdly, as noted in the previous section, it is behind-the-scenes dialogue which is said to represent the vast majority of shareholder engagement and where much of the real “action” happens. In light of SSE’s purported proximity to stakeholders and civil society, the need for shareholders to gain the trust of those stakeholders, and to report the effectiveness of SSE, it is uncertain whether “closed door” engagement can provide the transparency and accountability demanded of SSE (McLaren, Reference McLaren2004; O’Rourke, Reference O’Rourke2003). Despite its importance, very little research has been done on behind-the-scenes engagement (Rehbein, Logsdon, & Van Buren, Reference Rehbein, Logsdon and Van Buren2013), not least due to the lack of data resulting from the confidential nature of many dialogues.
Finally, from a legal viewpoint, the notion of shareholder democracy has become popular (Anabtawi & Stout, Reference Anabtawi and Stout2008; Bebchuk, Reference Bebchuk2005). Following this approach, greater shareholder equality achieved through empowering minority shareholders, a group which generally includes SSE shareholders (Clark et al., Reference Clark, Salo and Hebb2008), should go hand in hand with a greater shareholder responsibility to both the firm and other shareholders (Anabtawi & Stout, Reference Anabtawi and Stout2008). With more power, questions about how to use it become more relevant. Shareholder tactics such as the threat to “exit” or divest from the company if their demands are not met (Admati & Pfleiderer, Reference Admati and Pfleiderer2009; Goodman et al., Reference Goodman, Louche, van Cranenburgh and Arenas2014) could be interpreted as coercive and therefore raise ethical questions about which are the appropriate tactics for SSE.
Research has primarily taken a descriptive and empirical approach to exploring SSE. However, as explained in this section, this research has identified ethical concerns about SSE, such as the need to establish legitimacy in the face of a plurality of demands on the firm, the potential for shareholders to actually harm rather than help those they seek to represent, the lack of accountability of engagement behind “closed doors,” and the use of divestment or threat of disclosure. The following section presents the theoretical lens selected for our analysis and its appropriateness for establishing a normative perspective on SSE.
SSE THROUGH THE LENS OF DISCOURSE ETHICS
In this section we outline a Habermasian discourse ethics approach and argue that it is appropriate for the analysis of SSE for 3 main reasons: 1) it focuses on the participation of affected parties; 2) it focuses on the process avoiding assumptions about moral content and offering a means to include a plurality of worldviews and ethea; and 3) it has recently become popular for exploring new aspects of CSR such as the political role of firms and the notion of corporate citizenship, thus opening up discussion of broader implications of SSE.
Habermasian Discourse Ethics
Habermasian discourse ethics is a normative, process-oriented ethical theory. It is centred on the process of reaching valid, moral norms through participating in fair dialogues (Beschorner, Reference Beschorner2006; Habermas, Reference Habermas and McCarthy1984, Reference Habermas and McCarthy1987). These dialogues offer an opportunity to deliberate a wide variety of worldviews and ethea and to develop a norm, which all participants can accept. Habermas states that for a norm to be valid it must fulfill the principle of universalisation:
“All affected can accept the consequences and the side effects its general observance can be anticipated to have for the satisfaction of everyone’s interests (and these consequences are preferred to those of known alternative possibilities for regulation)” (Habermas, Reference Habermas1992: 65 emphasis in original).
According to this principle, the universal validation of a norm is dependent on consensus achieved through discursive legitimacy rather than solely on individual reflection as other philosophers such as Kant and Rawls have suggestedFootnote 3 (Gilbert & Rasche, Reference Gilbert and Rasche2007; McCarthy, Reference McCarthy1992: viii; Unerman & Bennett, Reference Unerman and Bennett2004). Habermas (1992: 68) states, “the justification of norms and commands requires that a real discourse be carried out and thus cannot occur in a strictly monological form, i.e., in the form of a hypothetical process of argumentation occurring in the individual mind.”
Habermas then develops a second principle, which introduces the ethics of discourse:
“Only those norms can claim to be valid that meet (or could meet) with the approval of all affected in their capacity as participants in a practical discourse.” (Habermas, Reference Habermas1992: 66 emphasis in original)
Habermas argues that only through the process of “communicative action,” whereby a plurality of affected actors seek “rationally to motivate” each other through speech acts can the universal validity of a moral norm be tested (Habermas, Reference Habermas1992: 58 emphasis in original). Communicative action is contrasted to “strategic action” where actors aim to influence, manipulate or coerce others through sanctions or gratification. Strategic action is a concern for Habermas because its objectives are “power, economic efficiency, or other egocentric aims” (Smith, Reference Smith2004: 319) and it seeks to achieve individual success (Habermas, Reference Habermas and McCarthy1984). In contrast, communicative action adopts an attitude “oriented to reaching understanding” (Habermas, Reference Habermas and McCarthy1984: 286). To achieve communicative action, Habermas identifies rules for discourse that characterise an “ideal speech situation” (Habermas, Reference Habermas1992: 88). We summarise these key motifsFootnote 4 below.
Argumentation. The notion of transforming preferences through argumentation, rather than simply aggregating them, is central to Habermasian discourse ethics. The focus is on the process of argumentation rather than making moral claims on the content itself. To achieve intersubjective understanding, it is fundamental that all participants present their own arguments, interests and needs, and that they be free to introduce any assertion into the discourse. In this way arguments remain undistorted by representation by another and participants are open to criticism and questioning by others (Habermas, Reference Habermas1992).
Plural participation. Habermas’s principle of universalisation makes clear that pluralism is an essential criterion for testing validity since “all affected are admitted as participants” (Habermas, Reference Habermas1992: 66). This perspective is formulated into a more specific rule: “Every subject with the competence to speak and act is allowed to take part in a discourse” (Habermas, Reference Habermas1992: 89).
Non-coercion. According to Habermas, “No speaker may be prevented, by internal or external coercion, from exercising his rights” (Habermas, Reference Habermas1992: 89); rights in this case refer to the right of participation and of introducing and questioning assertions and expressing interests. The aim of communicative action is reaching “rationally motivated agreement” (Habermas, Reference Habermas1992: 88) based on the primacy of the best argument rather than any power-related threat or incentive (Lozano, Reference Lozano2001).
Transparency. Communicative action also requires transparency, which in turn demands truthful arguments. Habermas states that with “every intelligible utterance” (Habermas, Reference Habermas1992: 136 emphasis in original) the speaker claims that the utterance is true, is right in a particular normative context, and is truthful with no intention to mislead.
Discourse Ethics Relevance to SSE
While we do not attempt to discount other ethical theories, we present our case for using discourse ethics as a compelling normative perspective to analyse SSE.
Firstly, there have been wide-ranging claims for the use of a participatory dialogue approach, such as that proposed by Habermas, by business firms in their relationships with stakeholders (Brenkert, Reference Brenkert1992; Gilbert & Rasche, Reference Gilbert and Rasche2007; Matten & Crane, Reference Matten and Crane2005; O’Dwyer, Reference O’Dwyer2005; Reed, Reference Reed1999; Unerman & Bennett, Reference Unerman and Bennett2004). Since shareholders in SSE are speaking for stakeholders or addressing issues which can strongly affect the lives of other stakeholders (Goodman et al., Reference Goodman, Louche, van Cranenburgh and Arenas2014; O’Rourke, Reference O’Rourke2003), discourse ethics, with its focus on the participation of all affected by decisions, is highly relevant to SSE. Discourse ethics offers a useful point of entry for analysing concerns pointed out in the previous section: stakeholder participation, transparency in behind-the-scenes engagement and the potentially misguided reframing of stakeholder demands by shareholders in SSE.
Second, discourse ethics focuses on the process of establishing moral norms by rational argumentation. As such, this perspective holds that those affected by decisions are able to reach a reasoned agreement on what outcome they seek to achieve (Dryzek, Reference Dryzek2000) rather than assuming that they are limited to an economic or utilitarian framework. It also avoids making any (culturally restricted) assumptions as to the ethical content of outcomes or “material norms” (Beschorner, Reference Beschorner2006: 127)Footnote 5. If we take this perspective to shareholders involved in SSE, they would be expected to present cogent arguments and to assume that others (managers and stakeholders, including other shareholders) are capable of being convinced. Given that stakeholders can be expected to hold different worldviews (Arenas, Lozano, & Albareda, Reference Arenas, Lozano and Albareda2009), that shareholders have been shown to have differing ethea (Lee & Lounsbury, Reference Lee and Lounsbury2011; McLaren, Reference McLaren2004), and that norms can change in a pluralistic business environment (Stansbury, Reference Stansbury2009), an approach to SSE that avoids specific ethical content and allows for mediation and deliberation of a diversity of perspectives is particularly valuable.
Finally, discussion of the political dimension of CSR (Scherer & Palazzo, Reference Scherer and Palazzo2007; Whelan, Reference Whelan2012) and corporate citizenship (Moon et al., Reference Moon, Crane and Matten2005) has used Habermasian discourse ethics to reflect on the direct participation of firms and stakeholders in resolving problems in society, especially global issues that escape the capacities of national governments. As such, the use of a discourse ethics perspective to analyse SSE enables us to extend the analysis of ethical questions to broader, political implications of SSE; that is, to discuss the consequences of SSE for the rules of the game at a regulatory/institutional level. It also enables us to contribute to a political view of the business firm which is concerned with the common good rather than the more frequent focus on power games with egoistic motives (Scherer et al., Reference Scherer, Palazzo and Matten2014).
As stated at the start of this section, we do not dismiss the appropriateness of other ethical theories. We do, however, briefly note some shortcomings of two other well-established alternatives. A utilitarian perspective, in addition to focusing on ethical content e.g. happiness, is perhaps not best placed to deal with the voices of marginalised or ‘unheard’ stakeholders which have been shown to be of concern to shareholders in SSE (Goodman et al., Reference Goodman, Louche, van Cranenburgh and Arenas2014). By emphasising the greatest happiness for the greatest number, the views of marginalised stakeholders may be disregarded. Examples of such stakeholders can be found in the social and environmental impacts on indigenous people who live on land destined for mineral or oil extraction, such as the cases of the Ogoni in Nigeria (Hennchen, forthcoming) and the Dongria Kondh in India (Kraemer et al., Reference Kraemer, Whiteman and Banerjee2013).
A contractarian approach (Phillips, Reference Phillips1997) takes a more instrumental view of stakeholders. By assuming that business firms and their stakeholders act only for strategic reasons and seek mutual advantage, this approach overlooks the ability of individuals to take a position which goes beyond self-interest, and to transform their judgments upon hearing others’ arguments in a deliberation process. Actions taken by shareholders in SSE have been shown to be principle-based or concerned with collective and social benefits (Lee & Lounsbury, Reference Lee and Lounsbury2011; McLaren, Reference McLaren2004), thus indicating that SSE goes beyond instrumentalism. One should not rule out the possibility that shareholders in SSE are open to changing their point of view through arguments presenting better alternatives.
Discourse ethics is not without its critics. Doubts are raised even by Habermas himself about the possibility of attaining an ideal speech situation in practical discourse (Gilbert & Rasche, Reference Gilbert and Rasche2007; Habermas, Reference Habermas1992; Smith, Reference Smith2004). However, advocates have claimed that it is not necessary to achieve full ideal speech to benefit from the positive effects of deliberation and communicative action (Arnold, Reference Arnold2013; O’Dwyer, Reference O’Dwyer2005; Scherer & Palazzo, Reference Scherer and Palazzo2007; Unerman & Bennett, Reference Unerman and Bennett2004). A normative ideal has been argued to improve discursive quality (Scherer & Palazzo, Reference Scherer and Palazzo2007), help develop authentic moral norms for dialogue (Lozano, Reference Lozano2001), and evaluate the interaction between NGOs and corporations (Baur and Arenas, Reference Baur and Arenas2014). In the responsible investment literature, McLaren (Reference McLaren2004) suggests that norms and standards would help investors using an engagement approach assess their effectiveness and quality.
Another possible difficulty is that Habermas himself starkly separates political and economic spheres (Scherer et al., Reference Scherer, Palazzo and Matten2014), seeing deliberation as relevant primarily for “a separate, constitutionally organized political system, but not as a model for all social institutions” (Habermas, Reference Habermas and Rehg1996: 305). However, some supporters of discourse ethics have argued for the application of deliberation in a broader context including the business environment (Gutmann & Thompson, Reference Gutmann and Thompson2004: 32-33; Lozano, Reference Lozano2001). More specifically, scholars have demonstrated the applicability of discourse ethics as a normative frame for business ethics (Scherer & Palazzo, Reference Scherer and Palazzo2007). We thus follow those who suggest that Habermas’s objective of universalization, whereby all participants can accept the consequences of decisions taken through deliberation, is still a valid yardstick by which to judge the moral legitimacy of company and stakeholder actions. In particular, we apply this perspective to shareholders involved in SSE.
MULTI-LEVEL ANALYSIS OF SSE
To get a fuller picture, we divide our inquiry into two different levels, where different ethical concerns emerge. In order to avoid the normativistic fallacy of ignoring the existing practical constraints imposed by the rules of the game, we follow the distinction used by Schreck et al. (Reference Schreck, van Aaken and Donaldson2013) of an action level, where actors face choices within a set of given constraints; and a constitutional level, where choices about the rules of the game are made. According to Schreck et al. (2013: 306) “[e]mpirical constraints cannot entirely disburden the bearer of a responsibility” which “implies the obligation to discover a ‘can’”. This implies examining the constitutional level as well as the action level. By exploring both levels, we are able to examine the choices facing SSE within the given constraints, as well as extending the analysis to consider how shareholders could and should influence these constraints. We identify two normative questions at the action level, and one at the constitutional level. Table 1 pinpoints the ethical concerns and questions at each level and identifies the insights for SSE from a discourse ethics perspective. Figure 1 maps visually the engagement format in response to each of the questions. The figure shows the increasingly participatory nature of business firm decision-making on issues affecting marginalised stakeholders with the arrows representing the structure of communication between the different parties.
Map of the empirical ethical concerns, normative questions and insights provided for SSE
Engagement format in response to each question.
Voicing Stakeholder Concerns
At the action level existing laws, regulations and institutions are taken as given. As highlighted in the “Social Shareholder Engagement” section of this paper, shareholders concerned with a particular environmental, social or ethical issue of company behaviour affecting marginalised stakeholders, choose to engage with managers to express their concerns and bring about change. With its focus on a normative ethical process, discourse ethics prompts us to ask, given that laws and institutions are as they are, in SSE, how should shareholders bring the voice of other marginalised stakeholders to managers?
In answering this question, one needs to take into account the concern of shareholders harming stakeholders whom they claim to represent. Among other reasons, this can happen because of a misalignment of interests. Dhir’s example demonstrates the prioritisation of strategic action over communicative action by shareholders, whereby the desire to reduce risk or perceived risk for the company was paramount. Dhir (Reference Dhir2012) proposes that shareholders involved in SSE establish meaningful and ongoing connections with civil society groups and gain wide community support for engagement initiatives. Shareholders should not only consult the affected communities, but also obtain community consent, when developing the resolution and further related agreements. These steps are in line with understanding SSE as a communicative action process in which stakeholders have participated to put forward their own arguments.
Secondly, shareholders who voice marginalised stakeholder concerns in SSE must be aware that other shareholders may advocate different social issues and different perspectives on these issues. Such differences might include the prioritisation by some shareholders of human rights and environmental degradation while others focus on job creation and reducing poverty (Dhir, Reference Dhir2012). The plurality of demands represents a challenge for both shareholders and management. From a discourse ethics perspective, shareholders should be prepared to deliberate and provide reasoned arguments to explain, question and challenge different perspectives, and should be open to changing their preferences to arrive at the common good. A process following communicative action would provide a means for shareholders and managers to address difficult issues from multiple perspectives in order to establish legitimacy and strive for an outcome that everyone can be satisfied with. In contrast, the aggregation mechanism favours the majority and does not offer the opportunity for marginalised stakeholder perspectives, often the minority, to transform the preferences of other participants.
As an extension of addressing the plurality of demands, investment funds which represent numerous individual beneficiaries, such as pension funds or mutual funds, should also consider the multiple perspectives which exist among their own beneficiaries (Ryan, Reference Ryan2000). The United Nations Environment Programme (UNEP) Finance Initiative sponsored research into the scope of fiduciary duty is supportive of the inclusion of ESG issues within fiduciary duty not only if they are considered to have a financial impact, but also—and of particular relevance to our argument—when a consensus is formed between beneficiaries which may be values-based (Freshfields, Reference Freshfields2005). However, “[i]n contrast to the democratic ethical deliberation that we might assume would underpin the development of an SRI policy, mutual funds, even SRI-focused ones, generally do not involve investors in their decisions” (Richardson, Reference Richardson2013: 6). This implies the need for fund managers to establish communicative fora for their beneficiaries in order to deliberate and reach a reasoned agreement on the relative importance of different values and financial return.
Communicative action demands transparency and truthfulness in terms of the information available to participants in dialogue. Shareholders therefore must ensure that the information they present, and the arguments they make, are truthful and right, in line with the motifs of communicative action. This is even more necessary since, as shown by Vandekerckhove et al. (Reference Vandekerckhove, Leys and Van Braeckel2007), while management is prepared to engage with shareholders on non-financial issues, it is generally with the objective of denying the truth of the allegations against them.
Further, to ensure the legitimacy of the deliberative and participatory process as required by discourse ethics (Bebbington, Brown, Frame, & Thomson, Reference Bebbington, Brown, Frame and Thomson2007; Cohen, Reference Cohen, Bohman and Rehg1997), transparency should apply to the process itself to gain the trust of other stakeholders (McLaren, Reference McLaren2004). Lack of process transparency was seen as one of the main failings in the damage done to stakeholders in the Guatemalan mining example (Dhir, Reference Dhir2012; Murphy & Arenas, Reference Murphy and Arenas2010). A further example is the recent support of the obligatory reporting of corporate political spending at the SEC by over a million commentators, suggesting that information which is currently confidential is widely considered to be of public interest (Bebchuk, Reference Bebchuk2014; ICCR, 2014b). This can be contrasted with sensitive information that, while pertinent to informed and reasoned argumentation, may also be highly sensitive and fundamental to corporate strategy (e.g., market research, product development and launch, succession plans, and specific product contribution to margins). From a deliberative viewpoint, secrecy in deliberations does not violate the principle of accessibility of information if good reasons can be given for secrecy and if there is an opportunity later on to challenge the information (Gutmann & Thompson, Reference Gutmann and Thompson2004). Even if it is behind closed doors, from a discourse ethics perspective, SSE can aspire to these aspects of transparency.
Another element to consider is that discourse ethics is centred on the strength of arguments rather than incentives and the threat of sanction. However, “exit” or the sale of shares (Hirschman, Reference Hirschman1970), is considered to be a form of sanction in engagement (Admati & Pfleiderer, Reference Admati and Pfleiderer2009). Shareholder resolutions that disclose issues in the public domain, as well as public activism campaigns, could also be seen as threats. However, whether these threats are genuinely an obstacle to reasoned agreement through communicative action is questionable. The threats referred to here are not illegal or violent or of an insulting nature. Rather, threats of exit or disclosure could be a way of drawing attention to an issue to initiate a dialogue (Hebb, Hoepner, Rodionova, & Sanchez, Reference Hebb, Hoepner, Rodionova and Sanchez2014; Logsdon & Van Buren, Reference Logsdon and Van Buren2009; Rehbein et al., Reference Rehbein, Logsdon and Van Buren2013) and do not prevent participants from expressing their reasoned arguments. Alternatively, such measures by shareholders can be conceived as a means to keep the company at the discussion table, and provide motivation to reach a reasoned agreement in keeping with the aims of communicative action.
According to discourse ethics, then, shareholders should bring the voice of other marginalised stakeholders to managers by means such as: consulting communities and obtaining their consent, being open to other viewpoints, understanding investment beneficiaries’ expectations, being truthful about claims and transparent about the process, and using threat of sanctions purely for the sake of keeping parties involved in discourse. Striving to attain, however imperfectly, an ideal speech situation of communicative action would guide shareholders voicing stakeholder concerns and working within the constraints of the rules of the game.
However, a number of problems remain. Firstly, Dhir (Reference Dhir2012) recognises that shareholders’ efforts must be situated within existing legal and regulatory frameworks and that there is an imbalance of power between stakeholders. He further claims, in line with Welcomer et al. (Reference Welcomer, Gioia and Kilduff2000), that power differentials between shareholders and stakeholders can be perpetuated through the engagement process. Secondly, doubts remain as to what mechanisms are available to shareholders in SSE to encourage firms to enter into direct engagement with stakeholders following an ideal speech situation. Finally, one must consider, as we do at the constitutional level, whether regulation favours, or becomes an obstacle to, the alignment of interests between shareholders and the stakeholders they represent.
Promoting Stakeholder Engagement
Maintaining the regulatory, institutional and legal constraints as above, a second normative question emerges. Following the communicative action rule of participation of all affected, we consider whether it is enough to channel stakeholder views through shareholders, or if the goal of SSE should include promoting broader stakeholder participation. Thus, the question is: given that laws and institutions are as they are, in SSE, how should shareholders encourage business firms to engage in dialogue directly with marginalised stakeholders? In contrast to the first question, here the focus is on shareholders creating opportunities for direct stakeholder participation in corporate decision-making.
Through a discourse ethics lens, SSE would have the moral obligation to promote communicative fora so that firms enter into direct dialogue with other stakeholders, especially marginalised ones. Despite arguments that shareholders in the US have more limited power than their counterparts in the UK (Bebchuk, Reference Bebchuk2005), shareholders are usually considered the most powerful stakeholders (Gilbert & Rasche, Reference Gilbert and Rasche2007; Matten & Crane, Reference Matten and Crane2005). In order to address power imbalances and move towards an ideal speech situation, it is essential to ensure the participation of other stakeholders following the motifs of argumentation, plural participation, non-coercion and transparency.
One way for more stakeholders to have access to deliberation is to invite them to participate in behind-the-scenes dialogues. Such participation must be understood with regard to the degree of sensitivity of the relevant information; non-disclosure agreements, or the de-identification of sensitive information, could facilitate such participation without jeopardising confidentiality. If information is time-sensitive, ex-post disclosure can form the basis for deliberation on future practice (Gutmann & Thompson, Reference Gutmann and Thompson2004).
A second way to involve stakeholders is to create broader communicative fora. One such example is the US-based Interfaith Center on Corporate Responsibility (ICCR), a coalition of responsible shareholders committed to engaging on environmental, social, governance and ethical issues with companies. The ICCR holds annual multi-stakeholder roundtable events which bring together shareholders, stakeholders, experts and representatives from multiple companies and sectors affected by issues such as access to HIV/AIDS medication in the pharmaceutical sector, responsible marketing to children in the food and beverage sector, and the protection of water rights with companies from multiple sectors (ICCR, 2014a).
An important challenge in addressing this second normative question occurs when marginalised stakeholders themselves reject communicative action, fearing it is a “strategy of co-optation” by the company (Welcomer, Gioia, & Kilduff, Reference Welcomer, Gioia and Kilduff2000: 1193). This challenge is significant because true communicative action requires the participation of all affected by the decision in order to achieve legitimate outcomes. Understanding the reasons why marginalised stakeholders do not participate becomes fundamental here. Welcomer et al. (Reference Welcomer, Gioia and Kilduff2000) highlight a case where the local community rejected the dialogue process as “window dressing” where they would have no true power to veto the planned site. Lack of power and insufficient capacity and skills are argued to be key reasons for marginalised groups’ lack of success or unwillingness to participate in deliberation (Dryzek, Reference Dryzek2000; Gutmann & Thompson, Reference Gutmann and Thompson2004). Welcomer et al. (Reference Welcomer, Gioia and Kilduff2000) draw on Beck (Reference Beck1994) to underscore the importance of making all participants aware that key decisions are yet to be made and that all potential outcomes will be reasonably considered—in line with a discourse ethics perspective which seeks understanding rather than the strategic pursuit of individual interests.
These motifs offer opportunities for SSE to turn the business firm into a more participative and deliberative arena focusing on communicative action and the common good. Such stakeholder participation could be seen as a political space, and approaching some form of stakeholder democracy. The translation of the political concept of democracy into the economic sphere to create the notion of stakeholder democracy (Matten & Crane, Reference Matten and Crane2005) is challenging, not least because democracy is a term disputed even in politics (Moon et al., Reference Moon, Crane and Matten2005). In the context of SSE, a deliberative democratic approach, which some Habermasians also advocateFootnote 6, offers a particular opportunity for marginalised stakeholders to voice their concerns. Further, while democracy, understood in a more classical sense, would assume that preferences are fixed and can be determined through voting, a deliberative approach recognises that preferences can be transformed through reasoning, given time and space (Dryzek, Reference Dryzek2000; Elster, Reference Elster1998). In this way, deliberative democracy goes beyond the majority’s imposition of its social preferences and existing power (Gutmann & Thompson, Reference Gutmann and Thompson2004: 16). Rather, it allows the minority a chance to voice their arguments, address questions and criticism, and potentially change the minds of other participants. If SSE is morally obliged to promote such deliberative democratic spaces rather than merely voicing the grievances of affected stakeholders, this suggests SSE assumes a “quasi-political role” (Baur & Arenas, Reference Baur and Arenas2014).
Some real-life examples show practical concerns in answering this normative question. The ICCR acknowledges that although roundtables are effective and can encourage rapid responses, they are also complicated to organise and therefore undertaken infrequently (ICCR, 2014a). SSE should also consider that not all firms or all stakeholders have the resources, the desire, or the capacity to participate in this type of voluntary dialogue. Similarly, O’Rourke (Reference O’Rourke2003) concludes that SSE within the rules of engagement, on an issue by issue basis, is not enough, for engagement is limited to those with resources of time and money, and legal constraints limit a more fundamental critique of corporate behaviour. The result is an incremental approach rather than transformative change. This leads us to consider whether working within the given regulatory and institutional context and using the existing institutionalised channels (Lee & Lounsbury, Reference Lee and Lounsbury2011) is sufficient for the SSE mandate.
Promoting Regulatory/Institutional Change
We expand the view of SSE from a discourse ethics perspective to raise a normative question at the constitutional level. Should SSE promote changes in regulations and institutions so that marginalised stakeholders have a voice in corporate decision-making? If so, how?
Despite the popularity of theories of the political role of corporations, few have specified which regulatory and institutional changes are necessary to ensure that firm managers hear the voices of affected parties. The regulatory environment can affect SSE directly, for example, the issues which shareholders can file on, requirements of minimum holdings over a certain time and minimum voting requirements (Clark et al., Reference Clark, Salo and Hebb2008; Logsdon & Van Buren, Reference Logsdon and Van Buren2009). The question is whether shareholders in SSE should not only promote voluntary stakeholder dialogue, but regulatory and institutional reforms to ensure that marginalised voices are heard. Indeed, it is hard to see what deliberative stakeholder democracy means if there are no effective institutions in place that oblige the inclusion of these voices according to the motifs specified above.
Although Habermas’ work on deliberative democracy focuses on the formal political sphere rather than the economic sphere (Habermas, Reference Habermas and Rehg1996), we build on work arguing that the economic and political divide is often blurred (Scherer et al., Reference Scherer, Palazzo and Matten2014), and suggest that shareholders concerned with social, environmental, and ethical issues affecting stakeholders also have a moral obligation to work towards the empowerment and participation of all affected stakeholders according to new institutions and the rules of the game concerning business and society relations. This reform would really be in the spirit of discourse ethics and communicative action. Rather than promoting stakeholder democracy on a voluntary basis, striving for change at the regulatory/institutional level implies some form of binding stakeholder democracy.
While much of the research in SSE focuses on the UK and US, examples of more participative corporate governance arrangements can be found in contexts such as Germany and Japan (Hendry, Reference Hendry2001; Kang & Moon, Reference Kang and Moon2012). According to some scholars, these countries’ institutions demonstrate a concern for stakeholder interests reflecting a consensus “that businesses exist to serve the interest of society and not just to make a profit” (Hendry, Reference Hendry2001: 167). In Germany, sometimes referred to as a “stakeholder economy,” a system of codetermination exists whereby the supervisory board, which oversees the management board, has both shareholder and employee representatives. This supervisory board holds a veto for certain types of transactions, determines the remuneration of the management board, and requires frequent reports on the firm’s status, changes to business policy, and key issues regarding future conduct, thus providing indirect influence on executive directors (Gorton & Schmid, Reference Gorton and Schmid2004; Hendry, Reference Hendry2001; NortonRose, 2011). This is a possible step towards increased stakeholder participation at the board level, which serves the purpose of deliberating on company issues. Furthermore, in Germany, the legal responsibility of managers is to the firm rather than to shareholders (Allen, Carletti, & Marquez, Reference Allen, Carletti and Marquez2009). The German system could thus be considered as further along the “continuum towards the theoretical ideal speech situation” (Unerman & Bennett, Reference Unerman and Bennett2004: 702). However, this system continues to exclude the voices of marginalised stakeholders in its governance structure. Advancing deliberative democracy in corporate decision-making would also require access for citizens including marginalised groups, transparency of justifications and reasoning, and a commitment to the common good (Gutmann & Thompson, Reference Gutmann and Thompson2004; Habermas, Reference Habermas and Rehg1996).
Soskice (Reference Soskice, Kelly, Kelly and Gamble1997) warns that stakeholder democracy should not be transferred from Northern Europe to an Anglo-Saxon model of governance due to “deeply entrenched rules and rituals of participation” in each country’s democratic model. However, we argue that while taking into account each country’s tradition, attempts at institutional, legal, and regulatory change should also be a goal for SSE. While this is undoubtedly a daunting objective, this does not mean that it is an invalid one (Arnold, Reference Arnold2013).
A further challenge in responding to the question posed at this level is the criticism that deliberative democracy privileges a certain way to present one’s views and involves some degree of self-restraint, discipline or formality which favours more advantaged groups in society (Dryzek, Reference Dryzek2000; Gutmann & Thompson, Reference Gutmann and Thompson2004). An obligation to participate in decision-making may compound concerns of cooptation held by marginalised, and often disadvantaged, stakeholders. One way to overcome this concern would be to extend our response in the previous section, to the constitutional level, in the sense that shareholders in SSE advocate rules of the game that guarantee veto power for marginalised stakeholders over decisions that affect them. In parallel, marginalised stakeholders who choose to contend this direct deliberation could be provided with resources or institutional support.
A further option for shareholders in SSE would be to promote institutions such as national ethics councils (Richardson & Cragg, Reference Richardson and Cragg2010). These councils should include a broad range of participants to ensure the representation of different perspectives who could then deliberate to set standards for ethical investment. Ethics councils already exist in Sweden and Norway to advise their national pension funds and have led to divestment recommendations in some companies for ethical motives (Richardson & Cragg, Reference Richardson and Cragg2010).
Finally, in addressing our third question of obligations of shareholders involved in SSE, we consider their role in specific public policy debates on responsible investment and marginalised stakeholder participation. It has been argued that “legal reforms must aim to create conditions for participatory ethical deliberation underpinning SRI decisions” (Richardson, Reference Richardson2008: 25). Recent discussion in the US (Stout, Reference Stout2012) and UK (Freshfields, Reference Freshfields2005) about the definition and nature of fiduciary duty indicates that ESG issues are entering the legal sphere. This has led to a broader concept of fiduciary duty as reported in our response to the first question and highlights the potential for different actors, including shareholders in SSE, to stimulate discussion at the societal level and reframe deeply entrenched assumptions.
DISCUSSION AND IMPLICATIONS
The identification and analysis of three questions through a Habermasian discourse ethics lens enabled us to develop a normative perspective of SSE heretofore absent in the stakeholder engagement literature. By dividing it into different levels, we have further extended the analysis of SSE to include the regulatory/institutional implications, contributing to a deliberative democratic political conception of SSE and going beyond the work to date on political CSR. Our analysis has a number of theoretical implications for business ethics as well as practical implications for SSE, shareholders more broadly, and managers.
Implications for Theory
The work of Habermas on deliberative democracy has been extended, taking into account the increasingly political role played by powerful business firms in the face of weak nation states (Scherer & Palazzo, Reference Scherer and Palazzo2007; Scherer et al., Reference Scherer, Palazzo and Matten2014). Alternative conceptions of deliberative democracy to analyse the role of the business firm have also been called for (Mäkinen & Kourula, Reference Mäkinen and Kourula2012). The discourse ethics approach to SSE, when extended to the regulatory/institutional level, reveals the desirability of addressing imbalances of power and moving towards more democratic organisational structures. In other words, the moral obligation of SSE includes reflection about its ultimate role and the type of society it envisions. By suggesting that some shareholders are compelled to promote participation of various stakeholders at the firm level, and reforms in the rules of the game to make this participation possible, we echo the work on political CSR, which suggests that the boundaries between the political and economic spheres have become blurred. However, while previous work has considered the political role of the firm in global governance (Scherer & Palazzo, Reference Scherer and Palazzo2007), or politics in the sense of power games with egoistic motives within the firm using an applied psychology perspectiveFootnote 7, we build a normative theoretical argument for a political role for shareholders in SSE in pursuit of the common good. This perspective challenges the underlying assumptions in much of management literature that shareholders should confine themselves to purely economic matters. It follows that new approaches to understanding SSE, including deliberative theory and other ethical and political approaches, should take into account the reconceptualisation of shareholders as political agents working for the common good.
Research on political CSR has been both endorsed and criticised. A limitation noted by Scherer and Palazzo (2007: 1112) is that business firms in a political role “are neither elected nor democratically controlled by the public,” thus raising questions about the legitimacy of their political activity. Rather than portraying the business firm as a monolithic and homogenous entity, by demonstrating the plurality of demands and the political role played by shareholders in SSE we provide insights into the often neglected motivations and influences on corporate decision-making (Holzer, Reference Holzer2008; Whelan, Reference Whelan2012). The deliberation of multiple perspectives, including those of marginalised stakeholders, according to the motifs of communicative action reinforces the view that corporations are political fields, and not only from a strategic perspective. This in turn reveals that accounts of the corporation’s political role inspired by deliberative motifs need to include an internal as well as an external dimension, and the interconnections between the two, as the example of SSE demonstrates. Since they have to go through the filter of deliberation, this process also provides a means to address the concerns raised by Scherer and Palazzo (Reference Scherer and Palazzo2007) about the legitimacy of claims of civil society actors mentioned above.
By drawing on Schreck’s (Reference Schreck, van Aaken and Donaldson2013) action and constitutional level analysis, we go beyond existing theorising of political CSR (Scherer & Palazzo, Reference Scherer and Palazzo2007) and suggest that a discourse ethics perspective inevitably pushes reflection beyond voluntary agreements towards regulatory and institutional change to strengthen the participation of stakeholders, including marginalised ones. These changes would approximate what some call stakeholder democracy and would in turn limit shareholders’ power in management decisions.
Shareholders in SSE face a clear dilemma: either to continue with their behind-the-scenes engagement which has been shown to be effective (Goodman et al., Reference Goodman, Louche, van Cranenburgh and Arenas2014; Hebb et al., Reference Hebb, Hoepner, Rodionova and Sanchez2014), and would in fact perpetuate their position of power as well as entailing the ethical concerns we have reported; or, to yield power to other affected stakeholders—either voluntarily, as shown in the analysis of the second question, or by promoting institutional and regulatory change. This dilemma, exposed through a discourse ethics lens, reveals a fundamental theoretical difference between SSE based on issues affecting marginalised stakeholders regardless of the instrumental returns, and the SSE of shareholders who engage with business firms on ESG issues as strategic action in order to reduce risk. This is an important distinction often overlooked in the responsible investment literature (Richardson & Cragg, Reference Richardson and Cragg2010; Woods & Urwin, Reference Woods, Urwin and Hebb2012). Introducing a deliberative democratic forum in business firm decision-making would make these distinctions evident as each party provides reasoning for their different arguments. Instrumentally motivated shareholders, even if they do SSE, are unlikely to voluntarily cede power to stakeholders (Whelan, Reference Whelan2012), whereas purely ethically motivated shareholders would be more accepting of such a proposal. This distinction reinforces an underlying tension within the responsible investment movement and scholarship, which has focused mostly on how responsible investors gain influence or mobilise, rather than on what they base their legitimacy and what their ultimate social and political goals are.
One way to navigate this dilemma is to reconceptualise the role of shareholders in SSE through the theory of stewardship, which has been applied to the role of managers in business firms (Davis, Schoorman, & Donaldson, Reference Davis, Schoorman and Donaldson1997; Hernandez, Reference Hernandez2008, Reference Hernandez2012). In contrast to the traditional agency approach, “stewardship theorists focus on structures that facilitate and empower rather than those that monitor and control” (Davis et al., Reference Davis, Schoorman and Donaldson1997: 26) and prioritise the collective interest over individual interests (Davis et al., Reference Davis, Schoorman and Donaldson1997; Hernandez, Reference Hernandez2012). Stewardship is used to refer to shareholders both in practice and research. The UK Stewardship Code understands shareholders as stewards of business firms encouraging purposeful dialogue on a number of corporate governance and risk management issues (FRC, 2012) or ESG concerns (Eurosif, 2013); more specifically, shareholders involved in SSE have been shown to see themselves in a stewardship role (Clark et al., Reference Clark, Salo and Hebb2008; Lee & Lounsbury, Reference Lee and Lounsbury2011; Van Cranenburgh, Goodman, Louche, & Arenas, Reference Van Cranenburgh, Goodman, Louche and Arenas2012). The new role for shareholders that we have suggested could also be seen as that of stewards of the process of SSE; as champions and facilitators of a deliberative and democratic forum for corporate decision-making on issues of social, environmental and ethical concern.
Implications for Practice
As SSE continues to evolve, Habermasian discourse ethics and the rules of communicative action can provide a valuable benchmark to strive towards (Dhir, Reference Dhir2012; McLaren, Reference McLaren2004). In response to the three questions we pose, we have highlighted some steps for shareholders which each have practical implications; this section draws on the most significant.
Firstly, we review the steps that SSE should follow according to our analysis. Our first question identifies the importance of community consultation and consent, keeping an open mind to diverse perspectives, and better understanding beneficiaries’ expectations. Also key are truthfulness about claims, transparency about the process, and using threat of exit or sanctions purely to keep parties involved in discourse. In response to our second question we explore the inclusion of affected stakeholders in behind-the-scenes dialogue, the use of communicative fora, and the importance of being open to all potential outcomes. At the constitutional level of analysis, the actionable steps include promoting regulatory change for a stakeholder democracy, establishing institutions such as ethics councils, stimulating societal discussion to address and reframe broader issues, and conferring veto power upon marginalised stakeholders in some cases.
Almost all of the responses to the ethical challenges we discuss would imply a considerable investment of time and money by shareholders. For example, at the action level, building ongoing links with local communities, to understand their perspectives, to consult with them and to gain consent implies a long-term involvement and commitment. Expertise may be required in community liaison and local knowledge, as well as in education to prepare stakeholders to deliberate and represent themselves in an informed and rational way (Gutmann & Thompson, Reference Gutmann and Thompson2004; Unerman & Bennett, Reference Unerman and Bennett2004). The inclusion of marginalised stakeholders in behind-the-scenes engagement would imply possible costs for transport and dissemination of information. The organisation of communicative fora also poses a challenge for shareholders with limited resources and skills. At the constitutional level, the promotion of institutional and regulatory change, and educating marginalised stakeholders in deliberative democracy (Gutmann & Thompson, Reference Gutmann and Thompson2004), also suggests a commitment of time and money and a long-term perspective . This would require political skills and legal expertise as well as reflection on ethical policy. These costs could lead, as O’Rourke (Reference O’Rourke2003) suggests, to engagement being limited to those with time and money, especially considering the resource constraints faced by marginalised stakeholders and shareholders involved in SSE (Goodman et al., Reference Goodman, Louche, van Cranenburgh and Arenas2014).
Our analysis supports the need for reflection by mutual funds and other investment vehicles on their internal deliberative practices. As argued by Richardson (2013: 13), ethical deliberation within funds “could help inspire a critical reassessment of what a truly socially and ecologically sustainable investment portfolio should provide”. Such action requires significant changes in behaviour for fund managers as well as beneficiaries.
Our analysis also has implications for business firms. Managers need to be cognizant of the diversity of shareholder demands and the extent of their potential reach. A rebalancing of power through multi-stakeholder and shareholder alliances and a growing political role for shareholders makes for a complex and challenging environment. Communicative fora based on the motifs of communicative action could be a valuable means of detecting, contemplating and addressing this range of voices. Furthermore, reforms at the regulatory/institutional level would have implications not only for publicly owned companies who deal directly with SSE at the action level but also for those business firms which do not have public ownership and are not accountable to shareholders. SSE aimed at influencing the rules of the game would want to ensure these companies are also held to account to stakeholder demands.
FUTURE RESEARCH
In developing a normative perspective to SSE, we offer an alternative view of the role of shareholders in society. Our analysis poses both empirical and theoretical challenges, and may raise many more questions than it answers. However, by developing a structured normative ethical perspective, we provide insights for future research and analysis.
First, future research should address some of the empirical issues at an action level; for example, whether an attitude of reaching reasoned agreement is present among participants in SSE and, if not, how this can be instilled. Further, to what extent do existing communicative fora promote the motifs of discourse ethics and communicative action? How much do shareholders in SSE currently promote the participation of marginalised stakeholders in their engagement?
This analysis has been undertaken from the perspective of the engager rather than the business firm. Future research into the company perspective is essential to gain insights into how the SSE process is perceived and implemented by firms. The firm is highly relevant for ethical SSE processes in terms of the importance of selecting and restricting participants, and providing truthful and accurate information and transparency, without which ethical SSE is not attainable.
The use of discourse ethics does not exhaust the ethical discussions concerning SSE; further research should explore alternative approaches such as other ethical perspectives and stewardship theory. Further consideration of power is also needed; for example, does SSE perpetuate or remedy power imbalances among different stakeholders? Regarding political CSR, an examination of the potential for deliberative democratic spaces including shareholders, other traditional stakeholders and marginalised stakeholders in corporate decision-making would be valuable to assess the legitimate basis for the firm to engage in global political deliberations.
Finally, the unresolved tension in the responsible investment literature between instrumental and ethical motivations needs to be explored in future research. There is great scope to differentiate between the types of investors involved in responsible investment that could reveal different underlying approaches currently aggregated under the umbrella of shareholder engagement.
CONCLUSION
By using a discourse ethics lens to examine the phenomenon of SSE, we have provided a normative, multi-level analysis which extends the current conversation on responsible investment and on political CSR to conclude that shareholders involved in SSE should take a political role, which goes beyond merely representing stakeholder voices to companies, and actually cede power to marginalised stakeholders and regulators in order to achieve their morally motivated goals.
The implications of our analysis are both theoretical and practical. Theoretically extending the existing debate on political CSR to include SSE provides a deliberative democratic political view of actors seen traditionally as economically rational. This also opens the frequently overlooked subject of conflicting motivations of shareholders in responsible investment. Practically, our analysis identifies steps for shareholders in SSE, as well as management, to practise communicative action, providing a benchmark for the inclusion of stakeholders in SSE and an important guideline for establishing standards in shareholder engagement.
While SSE does not represent the majority of shareholders, it does provide a fascinating entry point for opening up debate on the ethical responsibilities of shareholders. This debate is not only relevant to SSE but to all shareholders whose actions as owners of powerful multinationals impact countless marginalised individuals around the world. Seen in this way, an ethical consideration of shareholder engagement has not only been overlooked but is long overdue.
Acknowledgements
The authors would like to thank the editor and the three anonymous reviewers for their invaluable comments and guidance on earlier versions of our manuscript.
This work was funded in part by grant 2014FI_B2 00144 (Goodman J.), DEC SUR Government of Catalonia.
