We appreciate the opportunity to engage in this dialogue with Weitzner and Deutsch (2019) to clarify the meaning and intent of some of the arguments found in our article, “How Applying Instrumental Stakeholder Theory Can Provide Sustainable Competitive Advantage” (Jones, Harrison, & Felps, 2018). We are grateful for the high praise from the authors regarding the rigor and logic of our applications of resource-based criteria to instrumental stakeholder theory (IST). We begin this response by highlighting a few areas of agreement, followed by some points where we disagree

Felps, Will

Harrison, Jeffrey S.

Jones, Thomas M.

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University of Richmond

University of Richmond UR Scholarship Repository Management Faculty Publications Management 2019 Instrumental Stakeholder Theory Makes Ethically Based Relationship Building Palatable to Managers Focused on the Bottom Line Jeffrey S. Harrison University of Richmond, harrison@richmond.edu Will Felps Thomas M. Jones Follow this and additional works at: https://scholarship.richmond.edu/management-faculty-publications  Part of the Business Administration, Management, and Operations Commons Recommended Citation Harrison, Jeffrey S., Will Felps, and Thomas M. Jones. “Instrumental Stakeholder Theory Makes Ethically Based Relationship Building Palatable to Managers Focused on the Bottom Line.” Academy of Management Review 44, no. 3 (July 1, 2019): 698–700. https://doi.org/10.5465/amr.2018.0442 This Article is brought to you for free and open access by the Management at UR Scholarship Repository. It has been accepted for inclusion in Management Faculty Publications by an authorized administrator of UR Scholarship Repository. For more information, please contact scholarshiprepository@richmond.edu. c c cInstrumental Stakeholder Theory MakesEthically Based Relationship BuildingPalatable to Managers Focused on theBottom LineWe appreciate the opportunity to engage in this dialogue with Weitzner and Deutsch (2019) to clarify the meaning and intent of some of the ar-guments found in our article, “How Applying In-strumental Stakeholder Theory Can Provide Sustainable Competitive Advantage” (Jones, Harrison, & Felps, 2018). We are grateful for the high praise from the authors regarding the rigor and logic of our applications of resource-based criteria to instrumental stakeholder theory (IST). We begin this response by highlighting a few areas of agreement, followed by some points where we disagree.AREAS OF AGREEMENTWe agree with Weitzner and Deutsch that the reason most strategic management scholars orig-inally did not embrace stakeholder theory was because of the perception that a higher level of morality in business would necessarily lead to lower financial performance. In fact, this belief fueled the development of IST as well as the stream of empirical research to which it relates. We also share Weitzner and Deutsch’s noble goal ofattempting to make the world a better place. Inaddition, we support an increased emphasis onstudying relationships between firms and stake-holders, as well as among stakeholders, and thatintrinsic relational motivations are important.Finally, we agree that it would be unfortunateif understanding IST actually discouraged man-agers from ethical behavior.POINTS OF DISAGREEMENTTobegin,we review thebasic logic of our articleas it relates to Weitzner and Deutsch’s mainpoints (a more detailed summary can be found onpage 384 of the original article). In the article weargue, among other things, that firms pursuing acommunal sharing relational ethics (CSRE)strategy can form close relationships withstakeholders and that those relationships havea number of potential benefits, including im-proved reciprocal coordination, better knowledgesharing, attraction of stakeholders that are betterable to contribute to the creation of joint value,a higher level of moral motivation, and lowertransaction costs. Furthermore, for a number ofreasons explained in the article, close relation-ship capabilities are likely to be relatively rareand difficult to imitate. Consequently, firms canenjoy a sustained competitive advantage by pur-suing a CSRE strategy in the contexts we identifyin which the benefits of close relationships shouldoutweigh the incremental costs.Weitzner and Deutsch cite the Freeman,Harrison, Wicks, Parmar, and de Colle (2010)book, which argued that stakeholder theory hasbeen developed over the last several decades tohelp reconceptualize how value is or can be cre-ated and traded in a turbulent global environment,how ethical thinking and capitalism can be in-tegrated, and how managers can address bothof these issues simultaneously and effectively.Weitzner and Deutsch also suggest that ourlogic somehow undermines this purpose. Un-surprisingly, we believe the opposite. Our articlewas, among other things, a concrete and specificresponse to what Weitzner and Deutsch deride as“feel-good cliche´s” about “doing well while doinggood” (2019: 697, citing Stiglitz, 2018). It affirms thatsome businesses have the opportunity to achievehigh economic performance over a sustained pe-riod while simultaneously treating their stake-holders inanethicalmanner. That is, it argues thata Pareto improvement in social welfare can be698 JulyAcademy of Management Reviewmade through communal sharing relationships—shareholders and some stakeholders are better offwithout making any other stakeholders worse off.After all, as the authors point out, “businesses areinstrumental institutions, existing to serve socialpurposes larger than their own perpetuation or thewealth maximization of their shareholders” (2019:695, citing Jones & Wicks, 1999: 211).The authors also suggest that we have takenthe extreme position in our article that the onlyfirms that will benefit from pursuing ethicalstrategies are those that successfully execute aCSRE strategy. While it is true that we argue thatit is possible to achieve sustainable competitiveadvantage through successful execution of aCSRE strategy, it is not true that we claim that thisis the only way to enjoy benefits from treatingstakeholders ethically. Other ethical means tothis worthy end are certainly possible, and ISTremains a promising way to reveal them.This dialogue provides a welcome opportunityto clarify an important point about our theory—namely, all of the concepts in our version of ISTshould be interpreted as continuous rather thancategorical. It seems tobe rhetorical convention tospeak of the RBV criteria in categorical terms: aresource is valuable or it is not, it is rare or it is not,it is inimitable or it is not. In fact, these conceptsare more realistically considered as continuous.Similarly, sustainable competitive advantage issimply the most positive point on a continuum,with the endpoints being (a) performs better thanall competitors forever versus (b) permanentlyperforms worse than all other competitors. Thereality is that while managers can work to obtainsustainable competitive advantage, they maynever be expected to reach it. In the same sense, aperfect CSRE strategy may not be obtainable, butfirms pursuing this strategy may still be able toenjoy many of the benefits of close relationshipsin spite of imperfections. Also, althoughwe arguein our article that firms approaching the moralistprototype aremost likely to find apositive benefit/cost relationshipwhen pursuing aCSRE strategy,it seems plausible that more modest returns canbegained fromprogress toward anethical culturein other firms as well. This relationship may belinear or nonlinear. These are really empiricalissues to be addressed in future research.Moving on,Weitzner and Deutsch suggest thatour gloomy and cynical theory precludes man-agers from attempting to build ethical relation-ships with their stakeholders for their own sake.The logic underlying this claim seems ques-tionable. No other rationale for building ethicalrelationships with stakeholders is affected bythe conclusions reached in our article. Whywould a manager bent on developing closestakeholder relationships for their own sake bedeterred if the financial effect of doing so ispositive?Consistent with Freeman and colleagues’ ar-gument that “stakeholder theory needs to beseen as a theory about how business actuallydoes and can work” (2010: 3), we believe man-agers often do things for more than one reason.They can be motivated to pursue close stake-holder relationships for both intrinsic and ex-trinsic reasons (Gerhart & Fang, 2015). In manycontexts identified in our article, intrinsic andextrinsic motives for developing close relation-ships with stakeholders are likely to beconsistent and mutually supportive. Thisconsistency makes building close relationshipswith stakeholders a palatable strategy even formanagers who are obsessed with bottom-lineperformance. However, as acknowledged in theoriginal article, there may be situations whereclose relationships harm firm financial perfor-mance andwhere theymay threaten firm survivalin competitive market economies. In such situa-tions, we believe it would be irresponsible forscholars to encourage managers (or policymakers) to naively ignore this reality. Fortunately,few managers would listen to such bad advicebecause they are sensitive to extrinsic motivesand financial performance—underscoring thepractical importance of IST.Finally, Weitzner and Deutsch argue that “ifrelationship building is viewed through a re-lational lens, then it becomes something that cantruly help all managers, at all firms, address theproblem of ethics . . . [and] capitalism” (2019: 696).While a purely relational lens may addressmany ethical issues well, we fail to understandhow it addresses the objectives of capitalism,which, by definition, pertain to (at a minimum)the creation, possession, and growth of capital.In contrast to a purely relational lens, our argu-ments demonstrate how ethically based strate-gies leading to close relationships can be usedto achieve growth in capital. As Weitzner andDeutsch remind us, stakeholder theory is intendedto address the issue of how value is created(Freeman et al., 2010), and capital is an importantpart of that value.2019 699DialogueA PARTING COMMENTWhile we do not believe IST research should beretired, we recognize and support what appearsto be the driving motivation of Weitzner andDeutsch—that the Academy should have moreinterest in the value firms create (and destroy),beyond that which is purely economic. In fact,in other work we have argued that the objectiveof the firm should be broadened to include ele-ments associated with stakeholder relation-ships (i.e., Harrison & Wicks, 2013; Jones & Felps,2013). So while we disagree with many of theconclusions reached by Weitzner and Deutschand find fault in elements of their logic, we ap-plaud their focus on stakeholder relationships.REFERENCESFreeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B., & deColle, S. 2010. Stakeholder theory: The state of the art.Cambridge: Cambridge University Press.Gerhart, B., & Fang, M. 2015. Pay, intrinsic motivation, ex-trinsic motivation, performance, and creativity in theworkplace: Revisiting long-held beliefs. Annual Reviewof Organizational Psychology and Organizational Be-havior, 2: 489–521.Harrison, J. S., & Wicks, A. C. 2013. Stakeholder theory, value, andfirm performance. Business Ethics Quarterly, 23: 97–124.Jones, T. M., & Felps, W. 2013. Stakeholder happiness en-hancement: A neo-utilitarian objective for the moderncorporation. Business Ethics Quarterly, 23: 349–379.Jones, T. M., Harrison, J. S., & Felps, W. 2018. How applyinginstrumental stakeholder theory can provide sustainablecompetitive advantage. Academy of Management Review,43: 371–391.Jones, T. M., & Wicks, A. C. 1999. Convergent stakeholdertheory. Academy of Management Review, 24: 206–222.Stiglitz, J. E. 2018. Meet the “change agents” who are enabling in-equality. New York Times, August 20: https://www.nytimes.com/2018/08/20/books/review/winners-take-all-anand-giridharadas.html.Weitzner, D., & Deutsch, Y. 2019. Why the time has come toretire instrumental stakeholder theory. Academy of Man-agement Review, 44: 694-698.Jeffrey S. Harrison (harrison@richmond.edu)University of RichmondWill Felps (w.felps@unsw.edu.au)University of New South WalesThomas M. Jones (rebozo@uwashington.edu)University of Washingtonhttps://doi.org/10.5465/amr.2018.0442700 JulyAcademy of Management Review

Instrumental Stakeholder Theory Makes Ethically Based Relationship Building Palatable to Managers Focused on the Bottom Line

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Instrumental Stakeholder Theory Makes Ethically Based Relationship Building Palatable to Managers Focused on the Bottom Line

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