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BASXXX10.1177/0007650318773750Business & SocietyFreeman et al.

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Business & Society
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Tensions in Stakeholder © The Author(s) 2018
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DOI: 10.1177/0007650318773750
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R. Edward Freeman1, Robert Phillips2,

and Rajendra Sisodia3

Abstract
A number of tensions have been suggested between stakeholder theory
and strategic management (SM). Following a brief review of the histories of
stakeholder theory and mainstream SM, we argue that many of the tensions
are more apparent than real, representing different narratives about
stakeholder theory, SM, business, and ethics. Part of the difference in these
two theoretical positions is due to the fact that they seek to solve different
problems. However, we suggest how there are areas of overlap, and we
argue that some of the tensions may, instead, provide interesting ways to
put the two areas of scholarship and practice together. We maintain that
SM and stakeholder theory could mutually benefit from a more pragmatist
philosophy.

Keywords
business ethics, stakeholder theory, strategic management

The years 1979 and 1980 were important years for a field then known as busi-
ness policy. First, a conference and subsequent book (Schendel & Hofer,
1979) that proposed a new “paradigm” got a great deal of attention. Its goal

1University
of Virginia, Charlottesville, USA
2York University, Toronto, Ontario, Canada
3Babson College, Babson Park, MA, USA

Corresponding Author:
Robert Phillips, Schulich School of Business, York University, 4700 Keele Street, Toronto,
Ontario, Canada M3J 1P3.
Email: rphillips@schulich.york.ca
2 Business & Society 00(0)

was to make “Strategic Management” (SM; the new name of the relevant
division of the Academy of Management as of 2017) more closely resemble
a science that attempted prediction and control, rather than a more normative
discipline oriented toward helping executives to make better decisions.
Second, 1980 witnessed the publication of Michael Porter’s Competitive
Strategy (Porter, 1980). Porter’s work was thought to put SM on a more solid
“economic science” footing, even though Porter’s entire framework was nor-
mative to the very core. As a discipline, business policy has yet to recover
from these events.
Of course, there were voices arguing an against exclusively “scientific”
SM paradigm. William H. Newman (1979) prophetically suggested that the
idea of “contributor groups” was left out of the original revisioning of the
field, and the Schendel and Hofer (1979) volume was silent on matters of
ethics and values. Both ideas, stakeholders and values/ethics, had been pres-
ent or at least implicit in the Andrews (1980) and colleagues’ “Harvard Policy
Model” (Freeman, Gilbert, Hartman, & Mauriel, 1988) that dominated the
early days of the field of business policy. Daniel R. Gilbert (1992) argued that
the paradigm was all about verbs; there were no nouns, and hence no moral
agents allowed in the SM paradigm. By focusing on verbs, strategy theorists
took agency away from decision makers and turned them into generic eco-
nomic actors. Jeffrey Harrison co-authored a textbook (Harrison & John,
1988) that tried to make corrections to these problems by making the stake-
holder idea central to how students needed to think about strategy. There
were others who made a host of arguments about what was missing and
lamented the direction of the field, including Charles Hofer, an editor of the
original 1979 Pittsburgh conference volume (Schendel & Hofer, 1979).
Most of these protests fell on deaf ears as business policy courses were
replaced with economics-oriented SM courses, and consulting firms began to
substitute analytical rigor and data for seasoned wisdom and judgment. What
does all of this have to do with the tensions in stakeholder theory?

Stakeholder Theory and SM: A Brief History

Stakeholder theory has been intimately connected to the idea of strategy
from the earliest days. The stakeholder idea was developed at Stanford
Research Institute as well as by Eric Rhenman in Sweden (Freeman,
Harrison, Wicks, Parmar, & De Colle, 2010) as a way of organizing informa-
tion that was increasingly important in strategic planning. Its origins and
early development were clearly aimed at making business policy and strat-
egy more effective. Early applications by Ackoff (1974, 1981) aimed at
assisting a Mexican brewer in understanding the importance of government
Freeman et al. 3

in their business model. Freeman’s (1984) early book, Strategic Management:

A Stakeholder Approach, was written as a textbook for business policy and
strategy courses. Other strands of the now multifaceted area called “stake-
holder theory” were also developing, including one from Eric Trist’s (1981)
work at Tavistock on creating more worker-centric management theories,
and early connections to corporate social responsibility through Abt
Associates’ “Social Audit” (Abt, 1977).
In these early days, the main idea was not merely the narrow scientific
effort to find the underlying causes for why one firm outperformed another.
Rather, it was the explicitly normative idea of helping decision makers make
better decisions. When this “new” field of SM came under the sway of the
theorists who wanted it to more closely approximate the physical sciences
(Khurana, 2010), the normative power of the old business policy concepts
was largely ignored, if not derided. Of course, this new paradigm was itself
normative, but this was not readily recognized. As a result, much of the nor-
mative work relevant to SM emerged under the aegis of stakeholder theory
and was undertaken by scholars in the field of business, ethics, and society.
All the while, there remained pockets of stakeholder-oriented companies that
began to take the ideas of these stakeholder theorists seriously.
In the 1990s, management and strategy scholars rediscovered stakeholder
theory. The watershed can be marked by several articles appearing in
Academy of Management Review (AMR). One of particular relevance for our
purposes tried to show how the theory could be divided into descriptive, nor-
mative, and instrumental kinds of work. Donaldson and Preston’s (1995)
article remains among the most-cited articles in the history of AMR.
Notwithstanding the authors’ claims about the centrality of the normative ele-
ments of stakeholder theory, strategy scholars quickly followed with the
development of workshops, panel discussions, and eventually an interest
group of the SM society devoted to stakeholder strategy. Often focusing on
the descriptive and instrumental, this development did at least create the pos-
sibility of seeing stakeholder theory as part of a more normative SM.
Against this backdrop, some continued to emphasize the importance of
normative concerns within stakeholder theory and strategy. Jones and Wicks
(1999) elaborated a “convergent stakeholder theory” that is “explicitly and
unabashedly moral” (p. 215). Responding to this, Freeman (1999) defended
a “divergent” stakeholder theory, writing,

. . . if we drop the tripartite typology of Donaldson & Preston, then plainly there
is no need for anything like convergent stakeholder theory. There is nothing to
converge—no separate contributions for philosophers and management
theorists. There are just narratives about stakeholders and narratives about
4 Business & Society 00(0)

these narratives—that is, theory. . . The very idea of a purely descriptive, value-
free, or value-neutral stakeholder theory is a contradiction in terms. (p. 234)

Phillips (2003) concurred, writing,

Implicit in Jones and Wicks’s convergent solution, then, is the idea that the two
research streams—normative ethics and social science—were never as far
apart as some scholars would have us believe. Freeman, therefore, has a point.
It is unfortunate that such an article as “Convergent Stakeholder Theory” had
to be written at all. Moral theory with no reference to the world we find around
us is empty formalism; value-free science is impossible. These are not,
however, universally held ideas and stakeholder theory has provided fodder
and a battleground for those who believe in the strict partitioning of knowledge.
(p. 68)

It is against this background that we can begin to assess the issues repre-
sented in the call for papers for this special issue of Business & Society (see
Harrison and Barney’s introduction to this issue for a complete list). We want
to suggest that most of the apparent tensions in stakeholder theory are the
result of the detour into a narrow form of economic theorizing that occurred
in business strategy and policy and that continues into the present. In the fol-
lowing sections, we present a strand of stakeholder theory that we call “Value
Creation Stakeholder Theory” that tries to solve a subtly different set of prob-
lems from the classic “sustained competitive advantage” problem of SM.
Value Creation Stakeholder Theory tries to give insight into three intercon-
nected problems: (a) How is value creation and trade possible in an uncertain
and complex world with little stability? (b) How can we address the problem
of the ethics of capitalism? and (3) What should we be teaching in schools of
business (Freeman et al., 2010)? We argue that several of the apparent ten-
sions in stakeholder theory may be interpreted as emerging from the false
dichotomy between facts and values (Putnam, 2002). Reliance on this dichot-
omy distracts SM from solving the problems that stakeholder theory tries to
tackle. Moreover, we argue that (at its best) stakeholder theory’s connection
with the real world of business has often set it apart from the theoretical
world of SM. Finally, we suggest that there are several challenges to stake-
holder theory that are important to examine and that there is a great deal of
intellectual and practical work to be done. Along the way, we will comment
on what some scholars still see as “tensions” in stakeholder theory. Beyond
merely criticizing the beliefs that led to these tensions, we hope that specifi-
cally and explicitly addressing these apparent tensions will clarify the posi-
tive aspirations we have for stakeholder theory and SM.
Freeman et al. 5

The Problems That Stakeholder Theory Tries to

Solve and the Resulting Tensions
Many of the tensions in the call for papers for this issue result from attempts
to solve different problems. If you use stakeholder theory to solve only the
classic SM problem of why some firms perform financially better than o­ thers,
there are, in fact, a lot of tensions and disconnects. To solve the three ­questions
posed above, we must reject the narrow scientific view that pervades SM.
These problems are about the whole of human behavior in the context of
business.
The real issue is not shareholder versus stakeholder, but a narrow/reduc-
tionist versus broad/holistic perspective on business. It is the difference
between a value chain (linear and singularly focused on financial value) and
a value network (which includes the importance of shared purpose and val-
ues). A value chain has one end point and one desired outcome for one stake-
holder, the shareholder; all other players in the system are a means to that
ultimate end. In an interconnected and interdependent system, each stake-
holder must be a means and an end. Each contributes to collective flourishing
and each must also benefit for the system to continue flourishing. Every busi-
ness is a system, embedded within a set of larger systems. Because the corpo-
ration is a system, understanding and effectively leading it necessitates
adopting a systems perspective (Kast & Rosenzweig, 1972; Rousseau, 1979).
This must include consideration of all the component elements, their interac-
tions and interdependencies and their long-run viability. A systems view of
the business thus demands a stakeholder perspective.
As pragmatists, many stakeholder theorists believe that our theories solve
problems, and that the nature of the problem in part helps determine the use-
fulness (or not) of the theory. Pragmatists reject many standard dichotomies
that are rampant in business theories such as “fact-value,” “science-non sci-
ence,” “business-ethics,” “justice-efficiency,” “value for all-value for the
firm,” “self-interest-other-regarding interests,” to name but a few. Science for
pragmatists is about creating useful solutions to problems. It is about “know-
ing how” in addition to “knowing that” (Dewey, 1922; Ryle, 1945). Stakeholder
theory is about “knowing how” to engage stakeholders and create value for
them, rather than the technical “knowing that” such and such is the case for all
firms for all times for all problems for all configurations of stakeholders. (e.g.,
creating barriers to entry is a source of sustained competitive advantage across
firms, industries, nations, and history). Pragmatism replaces positivism, but is
nevertheless intimately connected to the empirical.1 Indeed, the early pragma-
tists (e.g., Peirce, James, Dewey) were strong defenders of empirical analysis
against the formalism that still pervades economics and analytical philosophy.
6 Business & Society 00(0)

Far from anti-empirical, pragmatism sees facts, values, and interpretation as

necessarily entangled, with tensions resulting when they are artificially sepa-
rated for specific analytical purposes.
Let us now be more specific about the tensions that have helped frame this
special issue. These tensions were surfaced from a gathering of mainly SM
scholars, interested in stakeholder theory, in Utah in 2015. Many of the ten-
sions arose in the minds of people steeped in the traditions and expectations
of economics. This means that those not so deeply entrenched in those tradi-
tions and expectations may not see these as tensions at all—or perhaps see
them differently.
One theme that will recur throughout our immanent critique is that some
of the tensions are largely self-imposed. Tension relies on at least one fixed
point against which something else is pulling. Our contention is that several
of the fixed points upon which some of the tensions depend are merely appar-
ent; they are assumptions designed for specific theoretical purposes. In many
instances the resulting work has been incredibly useful and insightful and the
assumptions thereby justified (Friedman, 1962). However, there are other
purposes and problems that SM may seek to address. For some of these prob-
lems, the anchor creating the tension is unnecessary and could be discarded
without substantial loss to clarity, parsimony, coherence, insight, and ulti-
mately, managerial usefulness. In short, we have unnecessarily created the
tensions ourselves and we can choose to ignore or reconsider one of the
stakes in the ground that both creates tension and, like a leash, limits stake-
holder theory’s ability to move forward.

  1. Is “stakeholder theory” really a theory or is it merely a perspective? If

it is a theory, what are its essential arguments? If it is not a theory,
then what is it and which problems does it/can it address?

This question has plagued stakeholder theory almost from its inception.
But the tension suggested here has always been more apparent than real. The
framing suggests that being a “theory” creates some privileged position
(namely, if it is not a theory, it is “merely” something else) and that arguments
from such a position have immutable “essences.” Ironically, the question also
assumes that there is universal theoretical agreement on what makes some-
thing a “theory,” even within positivism.
To take one example, it is common to hear that a theory must be falsifi-
able. By this standard, is Darwinian natural selection a theory? Is it falsifi-
able? Were we to discover a species that existed without having evolved by
natural selection and was, therefore, poorly adapted to its environment, would
this count as falsifying Darwinism? Is there another way to validate (i.e., fail
Freeman et al. 7

to reject the null) natural selection? And if evolution by natural selection is

nonfalsifiable, does that make it a mere perspective? If one of the most pow-
erful ideas in human history is a mere perspective, so much the worse for
“theory.”
What this apparent tension seems intended to do is privilege certain variet-
ies of evidence, method, and argument. It is, of course, necessary to restrict
our scope to say anything deep about a phenomenon, problem, or question.
Stakeholder theory cannot be a theory of everything (Phillips, Freeman, &
Wicks, 2003). But limiting our vision to only those elements that are recog-
nizable to the physical sciences or the highly stylized, quantitative, or formal-
ized methods of late 20th century economics leaves out much of great
relevance to top managers and reduces substantially both the scope of possi-
ble insights as well as practical relevance.
We would argue, therefore, that the distinctive elements of stakeholder
theory include human actors and their interactions in the process of (particu-
larly, but not limited to, economic) value creation and trade in a turbulent
world including the alignment of values, norms, and ethics as mechanisms
for efficient and effective flourishing within and among organizations. It
reflects a coherent worldview of business that reflects a broader awareness
about its role, purpose, and full range of immediate and long-term impacts on
society. It is rooted in a more humanistic conception of business as a vehicle
for human cooperation to realize outcomes not otherwise attainable.

 2. Is the primary role of stakeholder management one of satisfying

stakeholders or is it seeing them as joint partners in co-production?

Only in a post-Porter world—where partners such as customers and sup-

pliers are seen as threats to competitive success—does this tension make any
sense. With this said, there does exist a tension between competition and
cooperation within stakeholder theory and SM more generally. For some—
informed by Competitive Strategy—all business relationships are primarily,
perhaps exclusively, competitive. Stakeholder theory takes a more nuanced
view, recognizing that there are both cooperative and competitive elements to
economic relationships. There have been some “friendly misinterpretations”
of stakeholder theory (Phillips et al., 2003) that we believe are over-inclusive
or overly optimistic about the degree of cooperation possible among stake-
holders. This is precisely the point, however. Rather than assuming some-
thing like “self-interest seeking with guile” (Williamson, 1984) or that
everyone is a stakeholder of everyone and everything else, stakeholder theory
takes the degree and intensity of competition and cooperation among rela-
tionships as one of its core questions. The alignment of values, obstacles to
8 Business & Society 00(0)

such alignment, and the efficiency and effectiveness implications of rela-

tively greater and lesser alignment among stakeholders are other key ques-
tions for stakeholder theory.
We would also add that the relative levels of cooperation and competition
in stakeholder relationships are as much a function of stakeholder behaviors
as firm actions. These relationships are reciprocal (Bridoux & Stoelhorst,
2016; Jones, Harrison, & Felps, in press). Perceptions of fairness among
stakeholders have a powerful impact on the efficiency and effectiveness of
the interactions (Bosse, Phillips, & Harrison, 2009; Phillips, 2003) in both
competitive and cooperative contexts.

  3. Is stakeholder theory primarily aimed at creating value for all involved

or at creating value for the firm?

Another assumption of recent SM scholarship is that we all understand

and agree on just what the firm is. Answering this question is of vital impor-
tance to SM not least due to the implications for the question of competition
and cooperation posed above. Stakeholder theory continues to hold open the
question of firm boundaries (i.e., who is included in the group of “all
involved”) and what this means for values alignment, accountability, in-
group bias, value creation and distribution, and so on. The SM approach is
inextricably linked with a profit maximization mind-set. In the process of
solving certain kinds of performance problems, this mind-set creates other,
potentially larger ones.
The behavior of a system is affected by its constituent parts (i.e., stake-
holders in the case of a business), the relationships between those parts, and
its purpose. Increasingly businesses are recognizing the need to elaborate and
serve their own higher purpose in addition to the necessity of delivering prof-
its. This shared purpose serves the critical function of aligning all the stake-
holders of the business around that purpose. In the absence of an articulated
shared purpose, businesses revert to the default purpose, which has long been
defined as profit maximization.
A system with that as its implicit or explicit purpose will soon find stake-
holders operating at cross-purposes. It sets them up as adversarial claimants
on what is seen as a limited pool of available profit in the system. Each stake-
holder starts to enact its own version of profit maximization: employees want
to work as little as possible while getting paid as much as possible, customers
will seek the lowest price on every transaction, suppliers will seek to maxi-
mize their margins by cutting corners, investors will become speculators and
will exit at the first sign of a profit downturn, and society will seek to tax and
regulate as much as possible. Each stakeholder becomes a taker from the
Freeman et al. 9

system, which inevitably weakens and degrades the ability of the system to
realize its stated goal of maximizing profits.
Taking all stakeholders into account reflects a higher consciousness on the
part of the leaders of the business, through which they are able to see the
interconnectedness and interdependence that those operating with lower lev-
els of consciousness simply cannot see.

  4. From a firm value creation perspective, is it really optimal to treat all

essential stakeholders unusually well (within rational limits)? If, on
the contrary, a firm focuses on a narrower group of stakeholders, to
what extent are the benefits of generalized exchange lost?

The “broad vs. narrow” debate received quite a bit of attention in the mid-
1990s and beyond (Phillips, 2003), including in the influential Donaldson
and Preston’s (1995) and Mitchell, Agle, and Wood’s (1997) articles. How
widely to conceive of the network of stakeholders overlaps significantly with
the question above about how we define the boundaries of the firm and is yet
another question that matters more when addressing some questions and
problems than others. This said, we find the broad versus narrow debate and
the determination of the boundaries of the firm to be the sorts of question that
have a good chance of yielding to the methods of post-1979 SM. Indeed,
there has been interesting work already underway about the possible effects
of being overly “generous” (e.g., Harrison & Bosse, 2013) to stakeholders.
Ultimately, it is not about being overly stingy or generous with stakehold-
ers; it is about achieving balance, fairness, and harmony within the whole
system of stakeholders. Any violation of these would result in destabilization
of the system, as it sets into motion oscillatory forces that could disrupt the
functioning of the whole system.

 5. To what extent are essential property decision rights allocated to

stakeholders ex ante versus do they tend to evolve as stakeholders are
enrolled in coproduction over time?
  6. Are decision rights primarily a function of cash flow consideration or
are they implicit for stakeholders that do not have explicit rights but
are still critical to the creation of value?

Complete contracts are a will-o’-the-wisp. The inevitable ambiguities of

incomplete contracts are said to be clarified by the equally mythical “implicit
contracts.” This is a perfect case of why SM needs an explicit and nuanced
understanding of stakeholder values, norms, and ethics. Even with partially
complete contracts in place, relationships remain defined by mutually shared
10 Business & Society 00(0)

(or not) values and expectations. The greater the extent to which these values,
norms, and ethics are recognized and aligned, the greater the likelihood that
the evolution of relationships will remain productive. As above, we see the
causes and effects of values alignment on firm performance as a potentially
good question for the more scientific (post-1979) methods of SM—with the
aid of (empirical) observations about the sources and coherence of extant
social and organizational norms.

  7. To what extent does stakeholder theory focus on achieving commit-

ment from stakeholders through procedural and distributional justice
versus a focus on instrumentality in the name of efficiency?

Economics has been described as “under-socialized” (Granovetter, 2017)

and much of this undersocialization is paralleled in post-1979 SM. The influ-
ence of behavioral sciences on economics is well-established and “behavioral
strategy” is gaining momentum. Stakeholder theory has long been concerned
with the justice of commercial interactions—both behaviorally and philo-
sophically (Phillips, 1997, 2003), but there is much left to do in examining
the relationships between justice, effectiveness, and efficiency. It is to be
expected that participants in a system of value creation who feel continually
mistreated and disadvantaged will be less motivated to contribute to the
flourishing of the whole, focusing instead on maximizing what they can “get”
from the system.

  8. Is stakeholder theory a theory of ethical decision making or does it

simply promote moral minimums in managerial decisions?

Just asking the question implies that ethics, values, and norms play a key
role in stakeholder theory, a point with which we agree whole-heartedly. We
would hasten to add that moral minimums—often described in terms of basic
negative injunctions or rights—are easier to agree on, but can be less motiva-
tional and action directing. In other words, it is easier to agree on a set of
“thou shalt nots” thereby providing a sort of minimalist values alignment.
But alignment about how not to behave does not provide the sort of shared
vision that stakeholder value alignment views as key.
Phillips (1997, 2003) describes positive “obligations of fairness” created
between and among stakeholders and the firm. He distinguishes these obliga-
tions—arising from active participation in a cooperative scheme—from the
sort of basic human (negative) rights that attach to all as a function of their
humanity. Moral minimums and positive obligations co-exist, but stakeholder
theory is primarily concerned with the latter whereas scholars of business and
Freeman et al. 11

human rights (Ruggie, 2013; Schrempf-Stirling & Wettstein, 2017) focus

more on the former.

  9. Does a stakeholder approach promote primarily cost minimization or

opportunity maximization? Which factors create trade-offs between
these two perspectives?
10. Can firms find common ground among stakeholders with competing
interests versus do such competing interests make finding common
ground unlikely?

Although the degree of tension here can be overstated, this is another

example of questions stakeholder theory is well-positioned to address.
Similarly, the factors demanding trade-offs, the consequences of such trade-
offs, and the whether there is even a need for trade-offs (Freeman et al., 2010)
are questions at the forefront of current stakeholder thinking. Recalling the
prior discussion, the tension between competition and cooperation is real and
presents a variety of questions for stakeholder theory-informed SM. But our
experience shows that having a shared purpose and shared values transcends
and often neutralizes seemingly competing interests.

11. Does stakeholder-based management always lead to greater value cre-

ation? What are the essential moderators in this relationship?

Describing the factors leading to greater value creation strikes us as a fine

rallying question for the next decades of stakeholder-informed SM research.
Having shared values and shared purpose, a long-term orientation, consciously
building trust and fostering agility in the system would be some of the mod-
erators that should lead to greater value creation. Implicit in the question is
also the issue of better-defining “value,” as we address later in this article.
There are many other possible factors both contextual and endogenous that
may lead to effective value creation. For instance, Jones et al. (in press) argue
that a “communal sharing relational ethics” strategy can lead to what they call
a “close relationship capability” which is itself a source of sustainable com-
petitive advantage. This recent work is an excellent example of the sort of
work that is possible at the confluence of stakeholder theory and SM.

12. Stakeholder theory and the resource-based view (RBV) contradict

each other versus these two theories are complementary in some
important ways.

RBV has been remarkably fruitful, insightful, and influential on the way
scholars and practitioners understand firms and firm competitive advantage.
12 Business & Society 00(0)

The only contradiction arises if one believes that there are disembodied
resources floating around that do not involve stakeholders in their acquisi-
tion, processing, and transfer—that is, value creation and trade. All resources
come unavoidably with people attached. Another implication of pragmatism
is that there is no value without valuers. Stakeholder theory puts these people
at the center of the story. There is much to say about the relationships between
and among these people and their resources.
There are two additional tensions that we would like to see become more
apparent than real. The first is the eternal argument among SM scholars about
which theory is more comprehensive, prior, or fundamental to the others. The
questions we find most provocative and intriguing seem to us to be well
within the ambit of SM and yield most readily to the sorts of considerations
described under the aegis of stakeholder theory. If there is comfort in framing
stakeholder considerations as “stakeholder resource dependence” (Frooman,
1999), “stakeholder property rights” (Donaldson & Preston, 1995), or “stake-
holder agency theory” (Hill & Jones, 1992), and so on, we would not deny
scholars that comfort. The scholarship in this special issue attests to ideas that
are becoming more and more informed by considerations of stakeholders. We
consider this an advance to be celebrated.
The second additional “tension” in need of mention is that some see stake-
holder theory as an “essentially contested concept” (Miles, 2012). According
to Gallie (1955), essentially contested concepts are “concepts the proper use
of which inevitably involves endless disputes about their proper uses on the
part of their users” (p. 169). The implication is that there will never be agree-
ment among the contestants about the precise parameters of the concept under
interrogation. This is not an unusual criticism for one of the central ideas
underlying the emerging new story of business (Freeman, 2017b). Fundamental
narratives about who counts as a moral person have evolved over time from
the idea of “women’s rights” in the early part of the previous century to the
still contentious 2010 Citizens United decision, among many other examples.
This apparent tension fits well on this list because for many it implies that
there is an essence for some concepts that can be scientifically discovered (e.g.,
is this substance made of earth, air, fire, or water?) whereas other concepts must
remain forever the subject of disagreement. Essential contestability—as pre-
sumably opposed to scientifically and objectively demonstrable—relies on the
very fact/value dichotomy we have been critiquing throughout. Pragmatists
recoil at the thought of something having an “essence” beyond its understand-
ing among “users” (to borrow Gallie’s language). For the pragmatist, every-
thing is contestable. Contest can be relatively robust or dormant at any given
time or for particular uses, but contingency is a constant feature. Sometimes,
“contested” just means that an idea has different connotations or implications
Freeman et al. 13

in different circumstances (Crary, 2009; Schrempf-Stirling, Palazzo, & Phillips,

2016). Sometimes, it is leveled against the failure of an idea to solve all poten-
tial problems in an area. There is nothing “essential” to the stakeholder con-
cept leading to disagreement among stakeholder scholars. It is a novel concept
in the post-1979 world of SM and novel (even, well-established) concepts
require cycles of assertion, critique, reformulation, comparison with extant
concepts, refinement, and so on—precisely the sort of work featured in this
special issue.
Even accepting the pragmatist interpretation of “contestability” and con-
tingency (namely, that some concepts, at particular points in time, are rela-
tively more susceptible to intersubjective agreement than others), there is still
some question about the value of dissent and dissonance among stakeholder
values within and among stakeholder networks. For both practical and theo-
retical purposes, the deep values alignment stakeholder theory seeks to exam-
ine and engender within firms requires an element of open contest. What
other way is there for alignment or consensus? Thus, even if we accept that
some concepts within stakeholder theory remain subject to contest, we take
this as a feature rather than a defect. Friction can be beneficial, as it points to
further opportunities for value enhancement between stakeholders. Viva
Contest!!

Stakeholder “Theory” in the Real World

Here things are much clearer. Many scholars have asked us how we know
that stakeholder theory is applicable, or have said, “great theory but it will
never work.” We find such comments generally amusing. Stakeholder theory
was developed by observing the business world and the overall process of
value creation. Every business has always created and sometimes destroyed
multiple kinds of value (e.g., financial, intellectual, social, emotional, spiri-
tual, cultural, and ecological) for customers, suppliers, employees, communi-
ties, and financiers. We have come to believe that one of the hallmarks of
stakeholder theory is that it pushes the reset button for most of business the-
ory. It says that the most useful unit of analysis for business is the stakeholder
relationship and its interconnections with others whereas the most common
unit of analysis is the “economic transaction,” which are ultimately summed
to measure business success. But relationships are not the summation of a
group of transactions. Focusing on the value created for investors is far too
narrow a focus for building a great company.
Books such as Strategic Management: A Stakeholder Approach (Freeman,
1984), Stakeholder Theory and Organizational Ethics (Phillips, 2003),
Conscious Capitalism (Mackey & Sisodia, 2014), and Firms of Endearment
14 Business & Society 00(0)

(Sisodia, Sheth, & Wolfe, 2014) were all constructed based on a combination
of original clinical cases, interpretations of the business press, the ideas of
business and philosophical thinkers, and the analysis of global companies.
The central ideas of systems thinking, interdependence, and interconnected-
ness resonate deeply with 21st-century executives. They understand that hav-
ing shared values and shared purpose, a long-term orientation, consciously
building trust and fostering agility in the system lead to greater value cre-
ation. It is not stakeholders versus shareholders, or economic versus social
value. In today’s business world, “and” is the most important word.

Where Do We Go From Here?

Although there are many challenges in shifting the main narrative about busi-
ness to move value creation for stakeholders to the center, we believe that
there are at least five substantial ones that stakeholder theorists need to
address (Freeman, 2017a).
The first is to address whether the current methods of analyzing the perfor-
mance of a company are adequate. Does “profit” adequately measure the total
performance, and total value created by a business? We believe that it does not
and that we need to explore a set of functions such as the following:

Total Value Created ( TVC ) = f (Customer TVC, Employee TVC,

Supplier TVC, Community TVC, Financier TVC),

where the terms of “f” refer to the total value created for those stakeholders.
We are certain there are other fruitful ways to explore this issue, and we need
more research here.
The second major challenge is related and that is around the issue of how
we do accounting. Our accounting systems are targeted to investors and how
managers can create value for them, not other stakeholders. If we put stake-
holder theory at the center of the narrative about business, how should we
think about accounting for stakeholders? Mitchell, Van Buren, Greenwood,
and Freeman (2015) begin some thinking on this issue but there is much more
research to be done.
The third challenge is to take seriously the idea that stakeholders are fully
human, not narrowly economic. Thus, we need a full-fledged behavioral
stakeholder theory that examines the actual behavior of stakeholders in situ-
ations of high consequence. Keevil (2014) has begun this project, and other
stakeholder theorists such as Parmar, Keevil, and Wicks (2017) have also
contributed.
Freeman et al. 15

When we change the narrative of business to be more oriented to creating

value for stakeholders, we must examine the linkages with other societal
institutions. What would a stakeholder-oriented public policy look like? Can
we conceive of government as facilitating value creation for stakeholders?
Are our current political processes conducive to such a view or do they erect
barriers based on the old “shareholders, profits, only money matters” view of
business?
Finally, we need to reexamine ethical theory itself. As it has developed
with the old narrative, there is great suspicion about whether business can be
a morally good institution. For most of ethics concerned with political theory,
the first question is always, “how can the state be justified?” However,
humans have been value creators and traders for millennia, long before there
was the modern nation state. Perhaps a better starting point is to ask how
value creation and trade are possible, especially in a turbulent world. The
answer may well point us in some new directions.
All of these challenges require our best thinking, and an entanglement of
facts, values, and interpretation of a broad range of human problem solving.
The outcome should be in the words of Nelson (2006) an “economics for
humans,” and a better and more practical idea about how we create value for
each other.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research,
authorship, and/or publication of this article.

Funding
The authors received no financial support for the research, authorship, and/or publica-
tion of this article.

Note
1. It is regrettable that many business scholars today conflate “empirical” with
“quantitative.” Empirical is more properly juxtaposed with “formal” or a pri-
ori (the latter commonly confused with ex ante) rather than “conceptual” or
“theoretical.”

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Author Biographies
R. Edward Freeman (PhD, Washington University) is university professor and
Olsson professor of business administration, academic director of the Business
Roundtable Institute for Corporate Ethics, and an academic director of the Institute
for Business in Society at the Darden School, University of Virginia. He is co-
author of Stakeholder Theory: The State of the Art and Managing for Stakeholders.
He is the author or editor of over 20 volumes and 100 articles in the areas of stake-
holder management, business strategy, and business ethics. He is perhaps best
known for his award-winning book Strategic Management: A Stakeholder
Approach where he traced the origins of the stakeholder idea to a number of others
and suggested that businesses build their strategy around their relationships with
key stakeholders.
Robert Phillips (PhD, University of Virginia) is George R. Gardiner professor in
business ethics and professor of strategic management at the York University’s
Schulich School of Business. His work has appeared in Academy of Management
Review, Business Ethics Quarterly, Strategic Management Journal, and other jour-
nals. He is the author of Stakeholder Theory and Organizational Ethics. He is Special
Issues editor at Journal of Business Ethics and was previously associate editor at
Business & Society. He is affiliated with the Center of Excellence in Responsible
Business (COERB) at Schulich and is senior fellow at the Olsson Center for Applied
Ethics at the Darden School.
Rajendra Sisodia (PhD, Columbia Univeristy) is the FW Olin Distinguished
Professor of Global Business and Whole Foods Market Research Scholar in Conscious
Freeman et al. 19

Capitalism at Babson College in Wellesley, MA. He is also co-founder and chairman

emeritus of Conscious Capitalism Inc. He is co-author of Conscious Capitalism:
Liberating the Heroic Spirit of Business. He has published over 100 articles in publi-
cations such as California Management Review, Harvard Business Review, Journal of
the Academy of Marketing Science, Journal of Business Research, Journal of Business
Strategy, Journal of Marketing, Journal of Public Policy & Marketing, and Marketing
Management. His work has been featured in Financial Times, Fortune, The Economic
Times, The New York Times, The Wall Street Journal, The Washington Post, and
numerous other publications, along with radio shows and television networks such as
CNN, CNBC, and Fox.