Clarkson Principles for Business

The Clarkson principles for business are a set of standards intended to guide the decisions and actions of corporate executives and managers. Recognizing that business leaders exercise significant discretion in their roles as corporate agents, the principles seek to create an ethical context for the exercise of managerial authority. They do so by identifying a core set of moral obligations that are incumbent on managers at all levels of the enterprise. These duties address relations with stakeholders, that is, groups and individuals who are affected, positively or negatively, by corporate decisions and operations (e.g., customers, employees, investors, and communities). In brief, the core obligations include engaging proactively in dialogue with stakeholders; disclosing risks stemming from corporate activities; distributing fairly the benefits and burdens that result from business operations; preventing, minimizing, or redressing harm to stakeholders; avoiding activities that entail unacceptable risks; and addressing openly and appropriately conflicts between managers' self-interest and the interests of stakeholders.

The principles are named after the late Max B. E. Clarkson. Clarkson, a management theorist and former corporate executive, significantly influenced the principles' content, as well as the multiyear, multinational project that gave rise to them. Named Redefining the Corporation Project, this collaborative endeavor was undertaken between 1995 and 2001 by an international group of more than 100 scholars. It sought to improve the quality and quantity of managerial and scholarly attention devoted to the nature, purpose, and governance of the corporation, emphasizing a stakeholder view of the firm. Funded by the Alfred P. Sloan Foundation and hosted by the University of Toronto, the project produced five major publications. Clarkson, Lee E. Preston, Thomas Donaldson, and Leonard J. Brooks served as the effort's leaders and developed the principles for business from participants' comments and suggestions.

The text of the Clarkson principles is contained within a statement titled Principles of Stakeholder Management. The statement opens with a section devoted to introductory definitions and observations. These comments acknowledge the prominent role large, professionally managed corporations play in the contemporary global economy, as well as criticisms of [Page 321]these organizations. They introduce the stakeholder concept, noting that all stakeholders have something at risk because of corporate activities but that the nature of this risk varies from group to group. Shareholders, it is suggested, are distinguished by the fact that risk is inherent to their contractual relationship with the corporation: Whether their investment yields a profit or loss ultimately depends on what remains after all other stakeholder claims have been satisfied. The introductory comments also underscore the need for managers to act transparently and fairly in their dealings with all stakeholders.

The document's second section contains the principles proper. Each of the seven proposed norms is followed by a short explanation. Principle 1 emphasizes managers' responsibility to identify stakeholder groups, actively monitor their concerns, and incorporate these interests appropriately into organizational decisions. Principle 2 directs managers to listen to stakeholders and notify them of any risks that may arise from their association with the firm. Principle 3 urges managers to address stakeholder concerns in a manner that duly considers their differing capacities to understand and evaluate information. Principle 4 calls on managers to recognize stakeholder interdependence and to distribute burdens and rewards fairly among them, given the risks to which the various groups are subject. Principle 5 requires managers to minimize the risks and harms that result from corporate operations. It counsels that partnerships with private organizations and public agencies may be needed to prevent harm or to compensate negatively affected parties. Principle 6 underscores that some corporate activities may entail risks or consequences that are patently unacceptable, for example, loss of life or the impairment of human rights. Managers are called on to modify operations, whether planned or existent, to avoid such possibilities. If this goal cannot be achieved, the operation should be abandoned. Principle 7 requires managers to recognize that they themselves constitute a distinctive stakeholder group. Since their self-interest may conflict with the duties they owe to other stakeholders, managers should welcome and encourage monitoring and oversight. Assiduously implemented, such reporting and review processes help build and sustain managerial credibility.

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