Ethics: Why Do a Stakeholder Analysis?

This summary is based on material from Brown University (May 2013). A Framework for Making Ethical Decisions. (See the link in the list of business ethics sources included in this lesson.)

One of the standard pieces of advice given in discussions of business ethics is this: analyze the effects of alternative decisions on all significant stakeholders. Why? Arent some actions simply right or wrong (It is right to tell the truth, it is wrong to lie), not matter what the consequences are for stakeholders?

Shouldnt we instead ask ourselves, What is the right thing to do according to my beliefs, or what would an ethical person do? Many systems of ethics in fact start from questions like these for example:

• Most religions have ethical systems built into them: ethical principles that followers of a religion must practice.
• Some prominent philosophers of ethics have laid out universal ethical principles. For example, Immanuel Kant said that we can use logic to discover our ethical duties (which he called categorical imperatives); one of Kants imperatives tells us not to lie under any circumstances. John Rawls claims that just ethical principles are those that would be chosen by free and rational people.
• Other philosophers, such as Confucius and Aristotle, in effect say that an ethical action is one that would be taken by a virtuous person.

All of these ethical principles are seen as universal: in other words, we should follow them no matter what the consequences are for us or for anyone else. We can call this type of ethics absolutist the principles are absolute.

Another type of ethics is relativist sometimes called consequentialist because this type insists that ethical decisions are relative they depend on circumstances. Most often, these circumstances are the effects that any decision will have on the person making the decision and on other people. For example:

• Utilitarians such as John Stuart Mill say that the ethical decision is measured by how much pain or pleasure (or happiness) it will produce when you add up the effects on everyone.
• Egoistic philosophers such as Ayn Rand says that an ethical decision is one that produces the greatest good for the person making the decision.

A relativist making a decision must ask about its effects (on everyone involved, or only on the decision-maker, depending on whether they take a utilitarian or egoist approach).

So, why do textbooks on business ethics emphasize the need to do a stakeholder analysis? Why dont some of these texts take an absolutist approach and simply publish a list of actions that will be ethical in any circumstances? And, if you are an absolutist if you base your decisions about right and wrong on your religious beliefs, or a set of beliefs based on your own study and thought, or the beliefs that you learned from your parents or your culture why should you take the time to do a stakeholder analysis when you need to make an important decision on an issue that involves ethics?

Even if you wont use your stakeholder analysis to help you make the decision, you will need to do the analysis to give you an idea of what the consequences of your decision will be. Businesses and professions arent independent they are part of a larger society. As well, businesses and professions are societies in themselves: they are webs of interconnected people. When you make a decision, other people and organizations will be affected. Added to this, you as a professional may have duties towards various people and organizations: your company, clients, etc. As with any business decision, you need to consider what the effects of an ethical decision might be so you can deal with them.

Imagine your manager has assigned you to work on a financial analysis of a competitor that your company is considering buying. She said that she needed the information by July 15, when she would include it in a presentation to your companys senior management. Its now July 12, and its clear to you that you wont be able to finish your analysis on time.

Whats the problem? You asked your assistant to complete an important part of the analysis by July 10; he has just told you that personal problems have been interfering with his work and that he wont have the information until July 14, which wont leave you enough time to include his results in your analysis and get your report to your manager by July 15. When you asked what the problem is, he told you that his oldest daughter had been critically ill; he had been spending a lot of time at the hospital and was unable to concentrate on his work. He apologized for not telling you earlier, but he had thought that he would be able to get the work done on time. Thankfully, his daughter is recovering.

You need to tell your manager that you wont have your analysis done until July 18. Your manager is the kind of person who will want to know the reasons, and you know that she doesnt tolerate what she sees as poor performance. You must make a choice: do you tell her about your assistants issues, or do you take the blame on yourself in effect, do you tell the truth or do you lie?

In making this decision, you will need to consider the effects of the decision on everyone involved your manager, yourself, and your assistant (and perhaps his family). You need to do this no matter what your general approach to ethics is:

• If you take an absolutist approach to ethics some things are always right or always wrong you will not make your decision based on the effects of your decision. You will follow what you believe is the appropriate universal ethical rule: perhaps, always tell the truth. But you still need to understand these effects to plan for the results of your decision. In this case, you may believe that you should always tell the truth, so you wont lie or conceal the truth, but you need to understand how your manager will react so you can plan to deal with any consequences for you and your assistant.
• If you take a relativist approach to ethics ethical rights and wrongs depend on the situation you will use your analysis of these effects to make your decision. In this case, you will need to decide whether the circumstances justify lying (or at least concealing the truth), or not. You would need to consider the consequences
  • For you: Will your manager think less of you because you havent delivered the report on time? If you dont tell the truth and your manager finds out, will this destroy her trust in you?
  • For your assistant: Will you seriously damage his career if you tell your manager it was his fault? If you dont tell the manager, will your assistant think that you will cover up future problems?
  • For your manager and the company: If you establish a precedent that lying or at least, not telling the whole truth is permissible, what will that do to the managers ability to manage, or the companys ability to function?

1. Who are the stakeholders?
2. What realistic actions might you take?
3. How would each of these actions affect each stakeholders interests?

Write a brief answer (250 words) for this question: Name one possible action you could take, and analyze its effects on any two stakeholders