Ties that Unwind

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Journal of Business Ethics (2006) 68:283–302 DOI 10.1007/s10551-006-9015-7

Ties that Unwind: Dynamism in Integrative Social Contracts Theory1

ABSTRACT. Social contract theory offers a powerful method and metaphor for the study of organizational ethics. This paper considers the variant of the social contract that has arguably gained the most attention among business ethicists: integrative social contracts theory or ISCT [Donaldson and Dunfee: 1999, Ties That Bind (Harvard Business School Press, Boston)]. A core precept of ISCT – that consent to membership in an organization entails obligations to follow the norms of that organization, subject to the moral minimums of basic human rights – is a reasonable and appealing notion. One potential challenge for those attempting to apply this idea, however, lies in the dynamic nature of social norms. Organizational norms evolve, often through the conscious efforts of community members and leaders. As currently formulated, ISCT offers a framework that under-appreciates the evolving nature of moral norms. In this paper, we extend ISCT by considering the circumstances under which the terms of and parties to social contracts change. We also consider a number of principles that should be considered as the terms and parties to organizational social contracts change. KEY WORDS: social contract, ISCT, ethics, dynamism, stakeholder, organizational change

Donaldson and Dunfee’s (1999) integrative social contracts theory (ISCT), for all of its conceptual sophistication, also provides the reader with a practical and useful set of guidelines for moral decisionmaking. Let us imagine a manager, guided by ISCT, evaluating the morality of a potential action. This manager needs only to answer a brief series of questions: To what community do I belong? Is this course of action sanctioned by the norms of this community? Have those norms been properly authenticated by my community? (In other words,

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Robert A. Phillips Michael E. Johnson-Cramer

does a majority of my community freely subscribe, in word and deed, to this norm?) Is this norm legitimate when compared with the minimal standards, or hypernorms, that govern human society as a whole? Answering these questions, our imaginary manager evaluates the fit between the proposed course of action and two relevant social contracts: one a microsocial contract evidenced by the community’s norms, the other a hypothetical macrosocial contract that all rational people would likely (or already do) accept. These contracts serve as moral longitude and latitude; with them, our contractarian charts a course through the moral free space that is both an empirical fact of life and a hypothetical product of the macrosocial contracting process. Despite the apparent simplicity of this exercise, applications of ISCT are scarce. One possible explanation is that applying ISCT is not nearly as straightforward as we imagine. Indeed, where this exercise breaks down most readily is the assumption that social contracts afford a consistent and stable basis for decision-making. Our manager must act as if longitude and latitude are fixed, but in reality, managers must somehow cope with a normative landscape that is both changing and changeable. The conceptual apparatus offered by ISCT, as currently formulated, provides inadequate guidance for such managers as they navigate a dynamic rather than a static reality. Not even the most committed contractarian can answer any of the questions posed above without further assistance on several fronts. As such, additional elaboration of the ISCT conceptual apparatus must accompany its application, by scholars or managers, to business situations. Nonetheless, we contend that ISCT is an important contribution to the study of organizational ethics and a powerful method for ethical decision-making. In

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this paper, we undertake an interstitial elaboration of ISCT, filling gaps relating to the dynamic nature of social norms. Through this immanent critique we hope to strengthen ISCT rather than disparage it. In what follows we begin by describing a number of challenges the prospect of change presents for ISCT including ambiguities in the definition of community and the process of norm evolution and intentional alteration. After discussing these challenges and ISCT’s current means of addressing them, we go on to propose candidate principles that may better equip ISCT for the dynamic world it is intended to represent.

ISCT and the challenges of change To attribute an entirely static view of reality to ISCT is to misread Donaldson and Dunfee’s work. The normative landscape featured in Ties That Bind is, without question, a turbulent one. Donaldson and Dunfee talk at length in the first chapter about change as the impetus for social contracts (1999, p. 7ff). Firms today often find themselves ensnared in evolving microsocial contracts that change the rules of engagement in the global economy. Such changes in stakeholder expectations concerning business behavior can have important social and economic consequences. As observers of this business reality, Donaldson and Dunfee find their eyes naturally drawn to the shifting normative patterns that characterize a dynamic business environment. To begin, therefore, we should look to the ways in which Donaldson and Dunfee address dynamism and stasis. The mainsprings of change in ISCT are voice and exit. Changes to the terms of the social contract arise first from the efforts of community members to change the microsocial contract through the exercise of voice. Donaldson and Dunfee, relying on Hirschman’s (1970) categories, suggest that the exercise of voice plays a key role not only in authenticating norms but also the change process by which illegitimate norms are replaced by legitimate ones. They write: What, then, are the options available to the dissenting employee? The first is to exercise ‘‘voice’’ to try to bring about a change in the authentic norm with-

in the community. The term ‘‘voice’’ is broadly defined to include any means of communication that may influence the attitude and behaviors of other community members. Some actions have the effect of influencing changes in extant norms; others defend the status quo. Voice plays a critical role in the emergence and evolution of authentic norms. Voice helps to clarify understandings concerning the specifics of authentic norms. (1990, p. 163)

However, the effects and effectiveness of voice may also be limited by second dynamic, a social selection mechanism that eliminates non-conformity in microsocial communities. Drawing again on Hirschman, Donaldson and Dunfee focus on exit as the most likely, perhaps morally preferred, option for those resistant to norms that are otherwise widely accepted (authentic) within the community and consistent with macrosocial (legitimate) hypernorms. Donaldson and Dunfee point to occasions in which exit may not be the most appropriate response to egregious violations of hypernorms. They suggest, too, that failure to exit cannot always be taken as a sign of acquiescence, due to constraints on exit. But, they contend: ... if the only factor constraining exit is financial and personal to the community member, then it should not be considered sufficient to affect the obligation to comply with legitimate norms. The fact that an employee would have to take a pay cut to escape the authentic norm supporting donations to Planned Parenthood [an example from the prior page] does not represent a restriction on exit sufficient to undo the community’s capacity for generating obligatory authentic norms. (1999, p. 165)

A community that enforces its norms and allows those who disagree with them to exit is likely to experience conformity to existing norms more so than dynamism. Those who refuse to behave consistently with strong norms are more likely to leave the organization, thereby increasing the relative level of conformity among those who remain. The mechanisms of voice and exit represent the primary sources of dynamism for ISCT. However, these separate processes – vocal minorities pressing for change and social selection pressing for conformity – prompt more rather than fewer questions for our imaginary contractarian manager. These questions cluster around three issues:

Dynamism in Integrative Social Contracts Theory 1. The definition of community – Given that the obligation to act consistently with the norms of the community is central to ISCT, then community membership becomes the first and, perhaps, most pressing concern in ensuring ethical and consistent economic behavior. The load borne by community definition in ISCT magnifies this challenge considerably. Of which communities am I a member and therefore subject to their norms? How much consistency and conflict exist among the communities to which I belong? Who else is a member of this community? 2. The evolution of norms – It is tempting to see in ISCT a general trend of improvement in the legitimacy of local social norms. As perhaps authentic, but illegitimate norms are weeded out, the evolution of microsocial contracts may be seen as involving the replacement of illegitimate norms with legitimate ones. Contrary to this assumption, however, the most common evolution of microsocial norms, in light of extensive moral free space, may be the evolution from legitimate to legitimate. This evolutionary pattern not only leaves our manager facing the choice ‘‘between right and right’’ (Badaracco, 1997) but also prompts new thinking about how to deal with those still subscribing to the former norm. What happens to community members who subscribe to legitimate but no longer authentic norms? What happens to the old contract (its terms and parties) when the new one comes into force? 3. Mechanisms for revising contracts – At any decision point, our manager confronts the choice of whether to press for the community to revise the existing norms. If this manager elects to press for change, when is it permissible to engage in behavior consistent with the aspired-to but as yet inauthentic norms? How far is one obliged to act inconsistently with her own beliefs due to an extant authentic norm? When may others, whom the manager has influenced, make the shift from agreeing in thought to enacting the new norm? What obligations does the community have not only to allow this manager to voice concerns

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but also to engage actively in hearing them and responding? In the next section, we elaborate each of these issues in detail. Before proceeding, however, it is important to consider the methodological basis for our critique of ISCT as inadequately appreciative of social and organizational change. How do we begin to address these questions so as to allow our contractarian manager to proceed? Advocating one or another micro-norm in a particular setting is not our task in this paper. Instead, we address those issues to which the only reasonable response is an alteration – a ‘friendly amendment’ – to the social contract logic envisioned in Ties that Bind. As the argument develops, we rely on two distinct but compatible methodological strategies. First, much of our critique rests on matters analytic to the concept of contract. We suggest that some gaps in ISCT’s handling of a dynamic reality originate from an incomplete treatment of the nature of contracts themselves. Van Oosterhout et al. (forthcoming) use a similar strategy in elaborating on ‘‘The internal morality of contracting’’ in ISCT and contractual business ethics more generally.2 Actual contracts are designed to deal with change and allow for asynchronous exchange. Relieving our manager’s confusion requires that we reconcile the existing notion of social contracts with that of the more familiar conception of contracts on which ISCT relies for its power. Secondly, we revisit the broadly Rawls (1971) macrosocial contract employed by Donaldson and Dunfee. We contend that reasonable and rational macrocontractors would attempt to preempt concerns arising from the acknowledgement of the dynamics of contracting. These contractors would recognize ‘‘social contracts’’ as more alterable than paper contracts, but would not want them to be infinitely flexible. We argue for supplementary principles that would arise from the original macrosocial contract deliberations as these contractors considered the implications of change.

Community definition and freedom of exit The question of community membership determines what micro-norms apply to our contractarian man-

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ager. As such, it is a pressing issue but not necessarily a simple one. Recognizing the importance and complexity of community membership, Donaldson and Dunfee offer a necessarily broad definition of the term: A community is a self-defined, self-circumscribed group of people who interact in the context of shared tasks, values, or goals and who are capable of establishing norms of ethical behavior for themselves. (p. 39) Membership in a community can derive from an express contractual commitment, as in the case of entering into an employment contract with a term of years, or it may just involve participating in a group and being acknowledged by others as a member. (p. 41)

In this section, we consider three ways that community definition can change and the moral considerations these may evoke for communities and individuals as contracting agents. Changes in the criteria of membership, the fact of multiple community affiliations with disparate moral demands and both voluntary and imposed exit from a community all present challenges arising from dynamism in social contracts. We turn now to a discussion of these challenges.

Changing membership criteria It seems reasonable to hinge the privileges and expectations of community membership on whether an individual satisfies a set of relevant criteria. Medieval guilds defined their trades by determining who would and would not be considered guild members; they required certain apprenticeships, skills, and even ethical conduct – standards of fair trade and of quality craftsmanship. Today, economic communities still have membership criteria – some restrictive, some merely commonsensical – that help to distinguish members from non-members.3 Members of the automobile industry are companies that manufacture automobiles. Employees at Microsoft are those people who work at Microsoft; this status is usually signaled by name badges, employment contracts, etc. All contracts levy some expectation of performance on contractors (Corbin,

1952), and it is by this standard that we can distinguish community members from non-members. That these criteria exist and have real consequences for both privileges and responsibilities of community members becomes obvious when it comes to light that a recognized community member does not, in fact, satisfy the membership criteria. A guild member who was found to have lied about fulfilling his apprenticeship duties might reasonably be excluded from the guild. Similar consequences result when membership criteria themselves change. In the language of contracts, we might say that the evolution of membership criteria amounts to changing, in mid-stream, who is or is not considered a party to the contract. The history of social contracts is replete with examples of this – from Kings to Congress, from church to state, from state to shareholders, from shareholders to stakeholders, etc. John Locke’s (1690) Second Treatise of Government, a classic of social contract thought, was an extended call for significantly altering the terms of the existing contract with the monarch. The American Revolution was a new social contract that excluded George III – to his manifest dissatisfaction. Examples of evolving membership criteria frequently arise in the economic sphere as well, with both inclusive and exclusive effects. Hoffman’s (1997) account of institutional change in the U.S. chemical industry recounts the story of environmental groups becoming recognized partners in the efforts to solve the environmental problems confronting the industry. As mentioned, these shifts in community membership criteria can be either inclusive or exclusive. Each, however, raises difficult problems. The inclusion of those who had not been members raises questions about possible co-optation (Selznick, 1949). Without some form of informed consent, groups may find themselves defined into economic communities, which then require obedience to community norms. Thus, for example, while the inclusion of environmental groups by chemical industry companies brought new privileges – most notably a voice in discussions – it also imposed new normative expectations. It was no longer considered fair play to attack ‘‘partner’’ companies without limits. Another version of inclusive criteria may be that class of stakeholders who are community members due to coercion. Some of these cases are more

Dynamism in Integrative Social Contracts Theory dramatic versions of the sort of situation that Donaldson and Dunfee addressed in the earlier cited passage. A mere pay cut may not be coercive, but when a person takes a job because it is the only one in an entire region of a developing country, the alternative is literal starvation, and the case for consent is trickier. More problematic still (if only due to its relative frequency) are those situations when a majority of community members – or perhaps simply its leaders – determine that a certain class of community members no longer meets the criteria for membership or merits the privileges of the membership. Such exclusionary changes amount to a form of involuntary exit and deserve special consideration if ISCT is to successfully address the dynamic reality of economic life. We can trace this problem directly to Donaldson and Dunfee’s own broad approach to community definition, in which community membership criteria merely reflect the authentic microsocial norms of the community. However, insofar as the authenticity of these norms depends on who is considered a member of the community, decision makers lack an independent reference by which to evaluate changes in membership criteria (Rowan, 2001). Ultimately, community membership criteria are flexible, and because they are also highly consequential for our manager and the people affected by that manager’s decisions, we conclude that ISCT must offer more guidance in determining who is, or should be, a party to these contracts. Community selection If the question of membership criteria involves the standards by which communities count individuals as members, the corresponding issue for individuals is community selection. The second fact of community membership is that the individual recognizes his or her membership in the community, and in practice, this recognition is manifest in whether he or she identifies the community as a relevant source of norms governing decisions. As Donaldson and Dunfee acknowledge, selection is complicated by the overlapping communities to which individuals frequently belong (1999, p.101), yet from their perspective, this complexity need not overly burden the decision-maker. They write:

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... [J]udgment needs to be exercised in the selection of communities. It is neither helpful nor necessary to identify every possible combination of communities that might conceivably have a norm... (1999, p. 200).

The essential issue here is with which community our contractarian manager chooses to identify in order to make a given moral decision. From this perspective, the familiar model of the firm as a nexus of multiple contracts among stakeholders (Jensen and Meckling, 1976; Jones, 1995) extends to all economic actors. Our manager stands at such a nexus, having become a contracting party to multiple contracts, some of which make conflicting demands. Not all overlapping community demands on an individual will contradict each other. However, as with rights, duties and obligations of all sorts, there is only limited guidance as to which contracts (and obligations) should take precedence. The dynamic aspect of community selection emerges when individuals change the priorities that they assign to communities. And, perhaps more easily than firms, individuals can change their priorities from decision to decision, shifting the norms to which they must adhere and their relative importance. Further, the dynamic nature of community selection is enhanced by the relative ease with which it occurs. Where exit from a community (discussed below) often entails considerable costs, selecting a different community’s norms to guide a given decision is relatively costless. Unfortunately, where changes in community selection might be less costly to the individual, they are no less consequential for the communities involved. Donaldson and Dunfee offer a set of priority rules for guiding this selection process. However, these rules paper over fundamental difficulties for contractarian thinking. First, community selection presumes that individuals can and should choose which norms govern their decisions, despite the fact that, as members in each of these communities, they have accepted privileges that hinge on their acceptance of the normative burdens of each. Here, ISCT allows the seemingly intractable situation to arise in which parties subscribe to multiple, mutually exclusive contracts. If this were not problematic enough, in its fundamental conception of what a contract is, the dynamics of community selection generate a second

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problem: the degree to which individuals are allowed by ISCT to play their community memberships off against one another. Specifically, in those instances when individuals face conflicting norms, ISCT offers little resistance to our manager if she chooses always those norms that exact the lightest moral burden (call it ‘‘community-shopping’’ – an analogy to the legal slang ‘‘jurisdiction shopping’’ whereby attorneys seek to bring suit in the court with the friendliest laws). This seems an unlikely, not to mention undesirable, result of the hypothetical macrosocial contracting process. These problems are, we argue, intensified by the emphasis on prioritization itself. We later discuss the prospects for deemphasizing prioritization in deference to the search for a mutually agreeable, but as yet non-existing, governing norm.

Exit The third fact of community membership is that, at the time of the decision, the individual has not chosen to exit the community. It may seem odd to imagine a community as those people who have not yet chosen to leave; however, this fact merits attention because of its centrality in contractarian thinking. The availability of exit, especially as a possible response to undesirable or unjust community norms, is distinctive to organizational participants as social contractors. Phillips and Margolis (1999) argue that among the challenges of using Rawls’s (1971, 1993) social contract methodology at the level of the organization is that a certain freedom to alter affiliations with organizations (i.e., emigration and immigration) exists for members of organizations that is methodologically precluded in considering societal-level norms. It is problematic at the societal level of analysis (e.g., Rawls’s justice as fairness) to argue for norms that permit a ‘‘love it or leave it’’ clause. However, for ISCT, recourse to exit is not merely permissible; together with voice and compliance, exit constitutes standard recourse. Thus, the very parties to the contract themselves are subject to (often unilateral) revision. Any consideration of dynamism in social contracts must take account not only of changes to the terms of the social contract (i.e., norms) but also of changes in the parties to the contract.

Of course, a social contract theory that relies centrally upon exit as viable or preferable reaction to disagreement flies in the face of the standard notion of a contract. Put simply, the very purpose of a contract is the self-imposed restriction of one’s freedom. Contracts exist in large part to restrict future liberty of one or several parties to the contract (Corbin, 1952). If immediate reciprocity were possible, there would be no need for contracts. If one is able to simply opt out (or push another out) of a contract at any time, irrespective of compensation, it is a far less useful device. Clearly social contracts must have a higher degree of flexibility than actual legal contracts. But what are the bounds on this flexibility? By what process and under what constraints can the very parties to social contracts be altered? What, if any, tension exists between freedom of exit and the power of the social contract? Moreover, by treating exit as a dynamic feature of an individual’s possible action set, we find that all forms of exit are not created equal. Returning to our contractarian, we find her contemplating exit as a possible response to a moral quandary. On the one hand, exit may be a response to unjust, or illegitimate, community norms, which the manager does not wish to affirm. This form of exit is the one most commonly cited, with approbation, in Ties that Bind. If we assume that all exit occurs for this noble reason, some might think it reasonable that such exit impose no further obligations on community members. However, the idea of costless exit is more obviously problematic in those instances where exit is imposed on one party by another (e.g., layoffs, plant relocations, etc.). In each of these instances exit with no further obligations seems unreasonable. Indeed, our macrosocial contractors would surely consider the relaxing of all obligations unreasonable even in the abstract. Thus, our contractarian manager will require more guidance to know when and how exit is permissible and what steps should be required to protect the involuntarily severed and those who have come to rely on the contract.

Norm evolution The second step in the ISCT decision logic concerns identifying norms that are, at once, (a) commonly

Dynamism in Integrative Social Contracts Theory and freely accepted in the community, (b) relevant to the decision at hand, and (c) legitimate relative to universal hypernorms. Even in the static version of ISCT, in which extant norms are the central concern, this second step requires sophisticated moral reasoning from contractarian decision makers. What complicates the matter further, however, is the uncertainty engendered by evolving norms. How is a decision-maker to respond to this uncertainty? And, what moral consideration must be given to community members as they adapt to changing norms? In this section, then, we move from discussing dynamism in the parties of the contract to examining dynamism in the terms of the contract. There can be little doubt that norms evolve. Some change is purposive; it is the work of institutional entrepreneurs working to authenticate new norms. (We discuss the problems raised by these attempts in the next section). However, much change is merely the result of evolutionary processes by which social practices are selectively retained in a given community. Given the dynamic nature of norms, it is essential that we attend to what Nozick (1974) calls the historic rather than the ‘‘current time slice’’ perspective on norm generation. The empirical fact of norm evolution becomes morally problematic insofar as a contractarian manager comes to lack a valid standard by which to determine the morality of proposed actions. Recognizing this potential for indeterminacy, Donaldson and Dunfee ask, ‘What if no authentic norms exist?’ and go on to discuss several instances of ambiguity or the absence of authentic norms, including moments when (pp. 168ff ): 1. ‘‘...a community is closely divided over a difficult issue...’’ with ‘‘...no apparent consensus supporting any particular approach.’’ 2. ‘‘...new processes or techniques unveil novel ethical issues where...there has yet to be a coalescence of attitudes or behavior around a particular solution.’’ 3. ‘‘...an interim period in which there is a gap or void while new norms replace longstanding authentic norms.’’ Responding to these scenarios, they suggest that decision makers (a) search for relevant hypernorms, (b) look to other communities for dominant

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authentic norms relevant to the situation, and, as a last resort, (c) act consistently with the traditions and values of their firms, even where those values and traditions have not risen to the status of authentic ethical norms. We challenge both the description of the problem and the proposed solutions. With few exceptions, periods of transition are better characterized by the existence of several competing norms rather than the absence of norms. This vision of norm evolution emerging from a contest among competing normative systems recurs in much of the institutional literature dating from the earliest studies of the Tennessee Valley Authority (Selznick, 1949) and endures through the most recent studies in that literature (for a review of the empirical findings on this subject, see Scott, 1995). In one widely cited example, Dimaggio (1991) depicts the struggles of museum curators and other art museum professionals, portraying the co-existence of multiple norms in vivid detail. These studies suggest repeatedly that the ambiguous moments engendered by norm evolution do not represent the absence of a norm (i.e., a ‘‘void’’ or ‘‘gap’’), but the simultaneous existence of more than one proto-authentic norm. In light of this reformulation of the problem, the proposed solutions seem insufficient. First, though a fine source of moral criticism in some instances, hypernorms are less useful in evaluating and adjudicating between divergent norms that are all consistent with hypernorms. We contend that using such avowedly thin (and mostly negative) hypernorms as a source of evaluation will, at best, describe which norms are morally wrong but will prove too broad and too thin to guide the choice among competing legitimate norms. Complicating this picture further is the status of aspirational norms (1999, p. 93). Insofar as competing microsocial norms are frequently aspirational, setting out positive principles to which a community should aspire rather than regulatory prohibitions, most of the hypernorms cited by Donaldson and Dunfee are particularly ill-equipped to adjudicate. Second, the notion that decision makers may find recourse, as Donaldson and Dunfee’s second and third approaches to ambiguity suggest, in norms of related communities raises the problem of what we might term ‘‘meso-social contracts’’: the extant norms in the broader, though not universal, com-

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munities within which the micro-contracts are embedded. Here we encounter a problem with the specificity of norms. If the meso-norm is sufficiently precise to guide decision making, a case can be made that it is the operative norm and that the void or conflict was only apparent rather than actual. If, on the other hand, ‘‘the traditions and values of their firms, even where those values and traditions have not risen to the status of authentic ethical norms’’ are as ambiguous as this description suggests, then such traditions and values are as unlikely to guide decisions as the ethical norms from which they are distinguished. The underlying issue, made evident by the formulation of norm evolution as competition rather than vacuum, is the relative importance of multiple levels of norms. ISCT bears many marks of the influence of Michael Walzer, particularly from his book Thick and Thin. Walzer writes, ‘‘Minimalism is liberated from its embeddedness and appears independently, in varying degrees of thinness, only in the course of a personal or social crisis or a political confrontation’’ (1994, p. 3). For Walzer, the thick is prior to the thin, temporally and logically. This contrasts with ISCT that has the thin, macrosocial contract as logically prior both for norm generation as well as when adjudicating between norms in dynamic contexts. For ISCT, the thin (i.e., broader) community receives priority when norms conflict. Donaldson and Dunfee, like Walzer, underemphasize the mutual influence and prospects for change when thick moralities converge and interact. This is a more serious problem (and opportunity) for theories of economic morality than for political philosophy. A thinner level agreement is easier to maintain among distinct nations than among business partners whose engagement must necessarily run deeper than ‘‘do no harm’’ or ‘‘respect rights and sovereignty’’. ‘‘Thick’’ guides are necessary to managerial decision-making. Of course, the ambiguities created by evolving norms do not end when the competition among norms is resolved. An additional problematic result of dynamism surfaces in the aftermath of changes to the microsocial contract. At this stage, with a new norm having been authenticated, the most pressing question concerns the status of behaviors once considered moral but now considered counter-normative. Micro-norms, like all contrac-

tual terms, induce community members’ reliance on them in planning for the future. Norms concerning, for example, job security or retirement benefits shape the behavior of community members. And while a community (or, at least, the majority of community members) may freely choose to affirm a new norm concerning these issues, this does not entirely resolve the treatment of individuals who have acted or may continue to act as if the former terms still applied. Put in terms of contractual obligations, we might wonder what consideration the community, or the manager acting as an adjudicator on behalf of the community, owes to members who staked their expectations on the community’s performance of the original terms of the contract. This question is further complicated by what Boatright (2000) correctly identifies as the majoritarian impulse that undergirds ISCT, a charge that raises important questions about binding all community members to those norms supported by a majority of the community. Where Boatright’s qualms may be dismissed with reference to hypernorms (cf. Donaldson and Dunfee, 2000: 484ff), we focus on the narrower question of how to treat members when their views lose authenticity but retain legitimacy. In this dynamic scenario, where the former norms were as legitimate as the new ones, hypernorms are of little help. Left to judge the morality of a possible action according to a newly evolved set of majority-endorsed norms, our contractarian manager must wonder whether there are any lasting obligations to the minority of community members who made decisions under the old contract.

Revision mechanisms Revision mechanisms, such as voice, surely play role in our contractarian manager’s reasoning process. We imagine several points before, during, and after the ethical decision-making process at which the desire to speak out in favor of normative change might find voice or action. In their view of revision in ISCT, Donaldson and Dunfee emphasize voice, even civil disobedience, as a means for changing microsocial norms. A community member, feeling a desire to bring about some revision in the commu-

Dynamism in Integrative Social Contracts Theory nity’s norms, takes advantage of the right to express voice (safeguarded by the provisions of the macrosocial contract). Over time, these efforts can lead to changes in thinking and, ultimately, behavior among community members. Thus, a lone voice may, in the end, produce a new authentic norm. In most examples cited in Ties, this revision mechanism is a force for moral improvement in a community. The change agent, freed of any moral obligation to behave consistently with a sub-optimal norm (by whatever standards), countermands it in word and deed, thereby rallying support for a new, also legitimate norm. But there is also little guidance for where and when a community member, convinced of the new norm, can begin to behave consistently with it, and lacking any guidance on the question, we confront a logical problem of infinite regress. Without members acting consistently with the norm, it can never become authentic, but without a norm’s being authentic, no moral actor can act consistently with it (except if the previous norm is decidedly illegitimate). The change agent who cannot behave consistently with the norm she advocates finds herself continually vulnerable to the charge of hypocrisy and deprived of one of the most powerful tools of persuasion: behavioral modeling (Cialdini, 1984). Lacking these tools, it is particularly difficult to create social change, especially given the weight of the community operating in the other direction. For example, we wonder about the limits of any community’s willingness to accept criticism of itself. How many firms, for example, would hesitate to fire a person for criticizing the company’s product to the press (however valid those criticisms may be)? As minor as they seem, these issues, when taken in the aggregate, point toward a broader concern about ISCT’s treatment of revision mechanisms: the charge of conservatism. Long before Donaldson and Dunfee articulated ISCT, Freeman and Gilbert (1988) voiced their concern that reliance on accepted norms and practices to guide moral decisions was an ‘inherently conservative idea’, which would leave little room for criticism of extant norms and would make impossible those efforts for improvement by change agents discussed above. Of course, Donaldson and Dunfee attempt to allay this concern by suggesting that, under ISCT, leadership can occur and be a force for moral improvement in the com-

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munity (1999, p. 182); however, the fundamental issue remains unchallenged. To the degree that ISCT, by its very nature, (a) proves vague with regard to the moral permissibility of certain change efforts and (b) prevents the effective exercise of moral leadership (thereby making such efforts less likely to succeed), it remains exposed to the charge of conservatism. Of course, conservatism is not entirely bad, even in the face of a dynamic normative landscape. There is reason to believe that existing norms are best (i.e., most efficient, most environmentally adapted) thereby justifying the perceived conservatism in the theory. It may be claimed that the norms employed within and among organizations became the norms through a complex series of social and commercial interactions. These particular norms emerged because they were either the best adapted to the environment in question (Darwinian adaptability), they were most efficient (economic adaptability) or some combination (cf. Hannan and Freeman, 1977). This historical perspective on norm generation and maintenance suggests that the current norms play an important role in maintaining the stability and efficiency of social relations. Respect for how the norms achieved that very status would advise caution and particular attention to potential unintended or unexpected consequences of revision mechanisms. Yet, there are reasons to press for keeping ISCT’s revision mechanisms available and sufficiently robust. We consider three: First, criticism of extant norms is a central purpose of ethical theory in business. Deprived of well-defined mechanisms for formulating and expressing alternative ethical positions, our contractarian manager has little hope of improving the ethical norms in a given community. Second, if the empirical claims made above (but admittedly untested in the literature) are borne out, the institutional weight of communities is decidedly against efforts to change. This being the case, there is little reason to hope that a potential change agent will ever rise beyond the status of vox clamantis in deserto. Finally, given the essential role of co-operation in economic exchange, there is little incentive for macrosocial contractors to accept a reality in which conflicting views are likely to become intractable. Yet, the revision mechanisms sketched by ISCT portend just such a reality, in which either persistent voice or sullen exit, are the primary tools

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for change. As the discussion of revision mechanisms in ISCT stands, voice appears a necessary if overly simplistic and ineffective tool in the hands of our contractarian qua change agent. Thus, in our search for solutions to each of these problems (addressed in the next section), we will pay particular heed to those solutions which will maintain rather than foreclose the opportunity for revision through negotiated means. Toward a dyanamic ISCT Having outlined the challenges that dynamism presents the contractarian manager (and, by extension, the social contracts theorist), we now offer suggestions for addressing these challenges. In this section, we specify four principles which would guide our contractarian manager in the face of changing norms and contracting communities: 1. 2. 3. 4.

A principle of stakeholder membership A principle of maximum moral free space An avorum principle A principle of community discourse

Of course, these principles are not comprehensive; they point toward possible ways of amending the theory but certainly do not exhaust the possibilities. They point in the direction of a more dynamic ISCT; however, they are, at best, only the beginning of a more thorough elaboration that might produce alternative principles to improve ISCT’s ability to deal with the challenges of dynamism presented above. As we have suggested, these principles may be derived either from the nature of the contract as a commitment device, as desiderata of macrosocial contractors or some combination of these. It is important to point out, however, that these principles create a rebuttable presumption and should be considered as prima facie rather than conclusively binding. That is, all of these (indeed all) principles and commitments have a degree of contingency to them such that they may be overcome by the force of better reasons and other important considerations. However, the presumption created by the principles indicates that the burden of justification falls to those who would resist or deny their force or relevance.

A principle of stakeholder membership Earlier, we discussed the challenges for ISCT in determining community membership. Under the current ISCT model, with its emphasis on exit as a solution to conflict, either the community or the individual member may define membership criteria or choose communities in such a way as to alter the parties to the social contract mid-stream. Clearly, there is a pressing need for more normative guidance in defining who is and is not a member of an economic community. Such guidance would place additional constraints on all parties to govern the possibilities of unfair co-optation, involuntary exit, and strategic switching as a means of shirking community norms. All of this amounts to a call for some principle to guide community definition and to define membership. For these constraints to have sufficient moral force to guide behavior across communities, they must originate somewhere beyond the local microsocial contract. We argue that notion of reciprocity embodied in Phillips’s (1997, 2003) principle of stakeholder fairness offers some foundation for constraining community definition decisions on both sides of the contract. To articulate this argument, we revisit the basic argument behind stakeholder fairness, situate reciprocity – the foundational premise of the stakeholder fairness argument – in an ISCT context, and outline the implications of reciprocity and fairness for the question of community membership in a dynamic world. We begin by re-introducing Phillips’s (2003) principle of stakeholder fairness. Responding to the more particular question of how individual firms should identify their stakeholders, he outlines a principle of stakeholder fairness. He writes: Whenever persons or groups of persons voluntarily accept the benefits of a mutually beneficial scheme of co-operation requiring sacrifice or contribution on the parts of the participants and there exists the possibility of free-riding, obligations of fairness are created among the participants in the co-operative scheme in proportion to the benefits accepted.

That is, managers and organizations have prima facie obligations to those from whom they have accepted benefits. Though the extent and content of this obligation must reflect the desires and intersubjective understandings of the parties to the

Dynamism in Integrative Social Contracts Theory contract (consistent with microsocial contracts), the fact of the obligations and the identity of the parties themselves are a matter of prior stakeholder obligation. Failure to recognize these obligations violates not only the principle of stakeholder fairness but also the more foundational value of reciprocity. Indeed, the notion of fair treatment in economic life hinges on reciprocity. Hume calls reciprocity the mainspring of human sociality and it is a central moral feature of all contracts – legal and social (see, e.g., Binmore, 2003). This principle offers a starting point for considering how our contractarian manager might determine the relevant parties to a social contract and, therefore, which community memberships are relevant to a given decision. While Phillips frames the stakeholder fairness principle in terms of the relationships between firms and their stakeholders, the principle applies equally at other levels of analysis and is multi-directional; it defines obligations for all parties to a co-operative scheme. Thus, this principle of stakeholder fairness represents a particular case of a broader notion of fairness widely applicable to other forms of economic community discussed under the aegis of ISCT. The contractarian manager, asked to identify the relevant communities to an economic decision seeks out those parties from whose efforts the organization benefits. Membership in these cooperative schemes engenders obligations to abide by the norms of these communities in exchange for benefits received from fellow members in the cooperative scheme. A manager may not strategically redefine community membership without considering the moral implications of failing to reciprocate. Thus, we offer a: Principle of Stakeholder Membership – Membership in an economic community is based on inclusion in a co-operative scheme for mutual benefit. An economic actor’s voluntary acceptance of benefits from such a scheme generates obligations to follow the norms of that community and to consider the wellbeing of other such members in community-relevant decision-making.

Our argument, premised as it is on reciprocity, is well suited to dealing with dynamism in ISCT. Specifically, there is a temporal element to reciprocity that admits a more robust conception of social contracts than Donaldson and Dunfee’s

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framework of priority rules and preference for exit. With reciprocity as a guide, the manager will not view a one-time perceived violation of social contract norms as prompting a complete re-evaluation of the social contract or redefinition of the relevant community memberships. Depending on the nature (including duration) of the prior relationships and previous actions relative to the norms in question, a single perceived violation may be overlooked or its importance attenuated. Repeated violations may be necessary to invoke a deeper renegotiation. Thus, social contracts exhibit greater resilience and community membership proves less ephemeral as parties work out equitable levels of contribution. This general principle for determining community membership differs somewhat from Donaldson and Dunfee’s approach. They rely on two sources: states (‘‘national communities’’) and the discretion of organizations. Relying on national communities to dictate community membership is problematic. Deeming the laws of the state part of moral free space runs contrary to the historical use of the social contract methodology. Hobbes, Locke, Rawls and others used the social contract precisely to determine the proper role of the state. Donaldson and Dunfee blur the important distinction between the macro and microsocial contracts by including national laws as part of the microsocial contract (and thus part of moral free space). More importantly, as current business realities suggest, national boundaries mean very little in considering the norms governing many business transactions. Social contractors aware of such business realities would no doubt anticipate that the community definition problem would be more rather than less acute where national norms are themselves at issue. The strategic determination of which norms apply to a given actor represents one of the more common issues in international business ethics. If the nation-state can offer little guidance in determining community membership, so too does Donaldson and Dunfee’s second option prove problematic. They suggest that economic actors themselves might determine to which community (and stakeholders) they owe obligations. That is, ‘‘Core Principle of Generic Stakeholder Theory – B’’ states: Where norms pertaining to stakeholder obligations are not firmly established in the relevant sociopoliti-

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cal communities, organizations have substantial discretion in deciding how to respond to stakeholder claims and interests. (1999, p. 253f)

Reference to substantial discretion recurs throughout the discussion. It is reasonable, however, for our manager to seek more guidance than this from ISCT. Who within the organization qualifies to make such judgments? Is it managers (those with the greatest power), employees (those with the greatest numbers), shareholders and the board of directors (those in whom the law reposes rights and privileges) or some combination of these and other groups? This Core Principle seems only to once again strain the definition of community it is in part intended to resolve. If, for example, employees are to be considered, it would be a curious outcome to discover many organizations selecting an exclusive concern for shareholder well-being. Indeed, a theory prescribing that organizations ‘‘develop their own sets of values concerning stakeholder interests...’’ may be criticized as not especially helpful; and the risks that discretion would lead to ambiguity and opportunistic behavior in community selection increase. We argue that reasonable and rational macrosocial contractors would seek a better solution to community membership problems at the outset. The differences among communities and their norms are central to most discussions of ethics, as evidenced by the centrality of relativism and pluralism in moral discourse. Historically, conflicts among community norms were commonly solved by withdrawal (or armed conflict). Since there was little need for cooperation, it was easier in some ways to fight for one’s comprehensive moral scheme than to engage the difficult work of seeking common ground. In the case of commerce, however, greater co-operation is required. It does manufacturers little good to see sub-contractors’ factories destroyed and employees killed over a disagreement about what constitutes human rights. And the mutual gains of trade are forgone should disengagement and disinvestment result from disagreement. Ex post adjudication and rationalization of norms (see below) provides an alternative to the emphasis on prioritizing and priority rules from ISCT. However, such a process would need to rest on the common agreement that reciprocity and fairness constitute the basis for community membership.

Acknowledging the principle of stakeholder membership as an addition to the ISCT framework, however, does not entirely eliminate ISCT’s admirable preference for ethical decisions governed by local norms. Like truth-telling, the sufficiency of reciprocation is often inconsistent between communities. In a context of negotiation, being less than perfectly transparent about some aspects of one’s true position is counted a virtue. So too if the truth will cause unnecessary or unjust harm, communities may differ on just how starkly the truth should be spoken. Similarly, different cultures place different levels of emphasis on reciprocity (e.g., consider the practice of gift-giving in Japan relative to the U.S.). Moreover, reciprocity is a norm that admits of myriad degrees – reciprocation is not always a dichotomous behavior in which it either occurred or did not. Often failure to reciprocate is a matter of insufficiency rather than complete omission – that is, a question of proportionality. If A has performed a service for B and B returns the service to a degree less than what A thought was proper, there arises a question of whether this contract has been fulfilled. This does not, however, make reciprocity any less universal or foundational. Being a friendly amendment to ISCT, the principle of stakeholder membership leaves most of the theoretical apparatus intact. Where might this principle fit into ISCT? As our arguments imply, we view reciprocity as a candidate for hypernorm status (Becker, 1986). It certainly meets the standards for a hypernorm as elaborated by Donaldson and Dunfee (i.e., convergence of religious, political and philosophical thought). In addition to the central role reciprocity and mutual benefit play in Phillips’s ‘‘principle of stakeholder fairness,’’ they are also central to van Oosterhout et al.’s (forthcoming) internal morality of contracting. Thus, we can imagine judging microsocial norms, which violate reciprocity as illegitimate norms. At the same time, we suggest that the same hypothetical macrosocial contractors who agree upon the procedural need for voice and exit as precursors to norm authentication would recognize the limitations of this process (in terms of community definition) and would bound the decision-making process by defining membership more clearly. The principle of

Dynamism in Integrative Social Contracts Theory stakeholder membership serves this definitional role and is a precursor to effective decision making under ISCT.

A principle of maximal moral free space The problem of norm evolution may be divided into ex ante contestation among norms and post hoc effects. In this section, we begin by considering the contested nature of microsocial norms, which emerge not in a vacuum but rather through a process of contest among candidate norms. (The next section addresses the post hoc effects). What guidance, if any, might a dynamic ISCT provide to shape the ex ante dimension of this evolutionary process? Specifically, how might our contractarian manager best negotiate a normative landscape characterized by norms competing for wider recognition and often varying across multiple levels of analysis? Inasmuch as norms and communities are artificial, community members, like our manager, have an important role to play in the creation, maintenance and evolution of community norms. What moral constraints might macrosocial contractors consider to govern the manager’s behavior in this dynamic landscape? To answer these questions, we must consider the relationships among communities at various levels of analysis and the norms they generate. A central feature of the ISCT conceptual apparatus concerns the multiple levels of norm-generating communities. From a more dynamic perspective, sensitive to how contested norms emerge, these levels also represent sources of competing norms. The central feature of the relationship among these levels is the need for moral free space in which microsocial contractors act. The current formulation of ISCT is ambiguous, however, regarding how much moral free space should cascade downward through the contracting levels, and the end result is a framework incapable of governing the dynamic reality of normative conflict and safeguarding the reasonable preferences of macrosocial contractors. Donaldson and Dunfee offer priority rules to guide a decision maker in negotiating conflicting norms. Among these rules are: (a) to ‘‘anticipate and respond to classes of foreseeable conflicts between their own norms and norms of other communities’’ (Priority Rule #2); (b) to choose more precise

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norms over less precise ones (Priority Rule #6); and (c) to give priority to those norms whose source is a more global community (Priority Rule #3).4 In the context of competing normative schemes hatched by related but autonomous communities, the summative effect of this advice would likely be to create a race to circumscribe moral free space. That community with the most expansive and exhaustive rules limiting moral free space will be the community whose rules are applied. Rather than extending moral free space, such a rule would reduce it drastically. On the other hand, there are at least two reasons to accept that macrosocial contractors would agree to the need for moral free space. First, the notion of free space is consistent with pragmatic experimentalism. Put simply, greater moral free space generally allows for a wider diversity of norms and ways of organizing economic life that can then be compared and contrasted with one another. Eastman and Santoro (2003) have elaborated on ‘‘the importance of value diversity in corporate life’’ to which we would add that greater moral free space also allows for greater flexibility of norms for intercommunity interaction.5 To enhance this spirit of experimentalism requires that priority rules urging a form of normative imperialism, in which one community has reason to attempt to over-specify its own norms or to impose those norms on related communities, play a less significant role. Second, free space represents a commitment to the maximization of liberty for all – itself a common desideratum of macrosocial contractors (Rawls, 1971). Donaldson and Dunfee recognize this desire, writing that ‘‘...preference should be given to norms that do not adversely restrict the freedom of other economic communities to create and support their own norms.’’ (p. 45). To the extent that larger norms are designed and intended to restrict the freedom of smaller communities, it is reasonable to expect that these hypothetical contractors would do more to safeguard free space than merely to give a vague positive moral primacy to microlevel norms. They would agree upon additional provisions that would dissuade limitations on this liberty and would place the burden of justification for circumscribing liberty in economic interactions on those who would so limit. Thus we again resort to these macrosocial contractors to suggest that the mechanisms

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of ISCT would include some additional safeguard making behavior contrary to extensive moral free space the exception rather than the norm under dynamic circumstances. In this spirit, we advance a: Principle of Maximal Moral Free Space – elaboration of broader norms must permit maximum space for pragmatic experimentation at lower levels. The scope of broad principles should tend toward thinness.

For our contractarian manager, this broad-ranging principle has clear, if not altogether determinate, implications. The demand of maximal moral free space leaves this manager without resort to (occasionally contradictory) priority rules, when faced with competing norms. The challenge of reconciling and specifying norms in satisfactory and mutually agreeable ways devolves to our manager and other community members.6 Moreover, our manager is asked to reconsider any behavior that might impinge on free space without first seeking resolution within the community. Where priority rules de-emphasize the prospects for finding a common or acceptable middle ground between competing norms, the manager operating under maximal moral free space recognizes that recourse to priority rules, the priority of larger communities and exit represent the failure of voice and a failure to reach a (new) contract. This principle also places heavier procedural requirements (one of which we discuss further below), upon the manager and the microsocial contracting community. They now need to seek ways to facilitate voice for community members working together to reconcile competing norms. This procedural approach to moral free space would clearly oppose firing union organizers, but would also include a positive obligation to create more effective conduits for voice. In sum, though not rising to the level of a hypernorm, the principle of maximal moral free space represents one step toward guiding norm evolution by shaping the ex ante process of norm generation. In response to the dynamic reality that ISCT faces, maximal moral free space protects the underlying commitment to local norms and moral free space and encourages the search for mutually agreeable microsocial norms. Thus, in suggesting it as a friendly amendment to ISCT, we maintain that maximal moral free space would be seen by the macrosocial

contractors as an important principle for operationalizing ISCT.

Avorum principle The opposite aspect of the problem of norm evolution concerns the post hoc effects of changing norms. One of the more pressing challenges to a dynamic ISCT regards the treatment of those who consented to a prior set of contractual conditions but now face a revised microsocial contract. Thus, for example, changes to employee benefits such as retirement plans represent a challenge, insofar as they often require employees to accept less favorable terms than originally agreed upon. In the language of ISCT, these new terms may well rest on authentic norms, insofar as a majority of younger employees, for example, may favor certain revised plan provisions, while only those few employees closest to retirement find them unacceptable. ISCT currently offers these employees (and, indeed, all community members who suddenly find themselves in a minority) with two options: voice and exit. The first has proven challenging and the second leaves the members significantly worse off than under the terms of the prior social contract. So, particularly in times of rapid transition of either norms of, or parties to, the microsocial contract, we argue that the prior terms of the contract (as well as obligations of stakeholder fairness) demand some concern for the well-being of those who reasonably expected the terms of the former contract to continue. We contend that the solution to post hoc effects must involve some provision to ‘‘grandfather in’’ the prior terms of the microsocial contract or ‘‘grandfather out’’ those involuntarily removed from the community or the contractual terms to which they were previously bound. In short, we suggest: Avorum Principle – Those subject to social contracts should make every effort to respect the former terms of the contract during times of transition. Barring this, some restitution or compensation should be made for the breach.

Why should macrosocial contractors accept such a principle as part and parcel of the ISCT framework? We suggest two justifications for limiting the mi-

Dynamism in Integrative Social Contracts Theory crosocial community’s freedom to breach authentic and legitimate norms: one rooted in the concept of contracts and the other premised on the need for internal coherence in ISCT. First, as the principle itself suggests, much of its reasoning derives from the conceptual nature of contracting. As we argued earlier, it is implicit to the notion of contract that the parties commit themselves to a restriction of their liberty for the purpose of mutually beneficial interaction. A contract affords a secure promise of future benefits even in the absence of additional negotiation, and the ability to alter the terms of, and parties to, the contract unilaterally and without compensation violates the very purpose of contracting. To accept free breach ignores the temporal nature of reciprocity, discussed above, which requires that both the initial provision of benefits and the future response in kind, be considered as part and parcel of the same interaction. Free breach also undermines the basic notion of promise-keeping. Promise-keeping is central to contracting, morally axiomatic and most likely a hypernorm.7 Contracts, including social contracts, may reasonably be considered a promise of a sort. Violating or unilaterally altering the terms or parties to a contract may just as reasonably be considered a failure to keep a promise. Ultimately, in the face of such untenable moral implications, we contend that no reasonable contractor (in the macrosocial sense envisioned by ISCT) could possibly agree to a system in which the notion of a contract itself had no moral force. Second, the concern for post hoc effects rests as much on procedural concerns as substantive ones. The morality of depriving minority community members of expected claims or benefits relies on ISCT’s procedural adequacy in governing the change process. Obviously, as Donaldson and Dunfee argue, macrosocial contractors would demonstrate the highest sensitivity to procedural justice in the generation of authentic microsocial norms. The voice requirement represents a significant artifact of this commitment. Yet, the revision processes which produce free breach are worrisome not only for their material impact on minority members but also for the overly optimistic view of the mechanisms that bring about normative changes. Those who might advocate free breach must be particularly sanguine about the prospects for ex ante debate and

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deliberation. Unfortunately, this faith that economic actors, such as corporations, will necessarily allow a free and fair discussion of a new policy (e.g., a revised retirement plan) flies in the face of empirical reality (Johnson-Cramer, 2003). At least two matters merit mention in the context of the avorum principle: efficient breach and reliance on illegitimate systems. First is the concept – examined at some length by scholars of law and economics – of efficient breach.8 With some regularity, cases arise for which it is more efficient (or cost effective) for one party to break a contract even when this includes forgoing the contractual consideration or even paying penalties for failure to perform according to the terms of the agreement. Fairness concerns play a limited role in discussions of efficient breach. This concept may be fruitfully extended to the case of social contracts of the sort considered here. As Donaldson and Dunfee are aware (1999, p. 117ff ) issues of efficiency must be balanced with issues of distributional and procedural fairness. Avorum more explicitly addresses issues of contractual equity as well as alters somewhat the calculus of efficient breach by including a requirement to compensate those parties reliant on the fulfillment of the contract upon breach. Also, some might point to specific instances in which adherence to the avorum principle would be morally undesirable or, at least unnecessary. Avorum is morally undesirable in the case when new norms represent obvious moral improvements. After all, to protect prior contractual claims in such a circumstance would be to give license to continue to act in an illegitimate way (i.e. contrary to some universally agreed hypernorm). Thus, neither the former slaveholders in the post-Civil War South nor executives in this post-Sarbanes-Oxley era should enjoy a grandfathering into the old norms of slavery and financial opacity.9 Avorum is, likewise, unnecessary when new norms arise to address situations not previously foreseen under the old norms. We respond to these concerns with two further qualifications. First, we emphasize that the basis for avorum is not merely that community members should not have to deal with changes to the social contract but rather that, having subscribed to an equally legitimate expectation, community members merit some protection. Clearly, both slavery and graft fail this test and do not receive the protection of

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avorum. They represent illegitimate behaviors relative to universal hypernorms, and no one should expect that the de-authentication of norms supporting these behaviors will generate avorum claims. We would also emphasize that avorum, though prima facie binding, also admits the possibility of stronger counter arguments and considerations. There may be compelling reasons in some instances for not recognizing prior terms as binding, but the burden of justification is, once again, on those who would override the principle. Efficient breach of social contracts and the role of ISCT’s efficiency hypernorm as well as reliance on illegitimate prior terms could occupy entire essays in their own right. For current purposes we merely wish to suggest that this principle is inadequately addressed in most contractualist or contractarian theories. To be consistent with the contract metaphor, prior parties and prior terms may not be simply ignored or annulled.

A principle of community discourse To this point, it is clear that one of the primary challenges wrought by introducing dynamic elements to the normative landscape of ISCT is the greater burden placed on microsocial communities to revise norms fairly. ISCT offers much to help addres this challenge. And as our contractarian manager goes about the business of advocating normative changes, the requirements of allowing voice and exit constrain that manager’s entrepreneurial spirit to a degree. The manager is thus bound to seek ‘‘a process or broad framework by which moral rules will be established under appropriate circumstances.’’ (Donaldson and Dunfee, 1999, p. 37). As we have argued above, however, problems still arise. In particular, the requirements entailed in ISCT’s definition of authentic norms offer little assurance either that managers will entertain those opinions voiced by community members or that there is any escape from the infinite regress by which suggested normative changes can never be morally enacted. How should social contract theorists avoid the problems of deaf managers and infinite regress entailed in the revision mechanisms of ISCT?

What makes this problem particularly compelling is that it forces social contract theorists to wrestle with the realities of power relationships, which business ethicists are historically loathe to address (Phillips and Margolis, 1999). The provision of procedural safeguards is a clear element of good faith community interaction and is also an important consideration in any circumstance where a majority of community members might rightly impose requirements on others. It is true enough that appeal to hypernorms insulates ISCT from charges of being overly majoritarian and ignoring minority rights. However, by resting the authentication scheme on the principles of free exercise of voice and majoritarian principles, ISCT must also address a challenge long recognized by democracy theorists (e.g., Gutmann and Thompson, 1996): that voice and voting rights (however hypothetical) rarely constitute a sufficient apparatus for just decision-making. This is especially true in the economic context where we cannot assume that decision processes are based on explicitly democratic premises. The solution, then, to the concerns raised by dynamic ISCT, in general, and the dysfunction of revision mechanisms, in particular, must necessarily involve less contentdependent procedural principles. Here we join Calton (2001; see also Calton and Payne, 2003) and others in calling for greater attention to dialogue as an important addition to a dynamic and practical ISCT. Where some (JohnsonCramer, 2003) emphasize dialogue as an element of the particular interactions between firms and their stakeholders, we suggest that, for the contracting process to work in the way envisioned by macrosocial contractors, the notion of dialogue must apply broadly to all economic communities in which authentic norms are generated. Thus, we suggest a: Principle of Community Discourse – Particularly in times of conflict and transition, parties to the must contract to create systems for the exercise of voice.

Again we resort to the contractarian’s preferred question: What sort of procedural safeguards would macrosocial contractors specify? Failure of the contractors to make allowance for solving the problems of infinite regress and deaf majorities represents a blind-spot for ISCT. A central tenet of ISCT – a tenet that is further bolstered by the principle of

Dynamism in Integrative Social Contracts Theory maximal moral free space presented above – is that local norms should be the primary source of moral guidance for economic actors. The norms generated at the microsocial community obviously do matter; and for any number of reasons, not least of which is the viability of economic exchange, these norms should matter. Such, in any case, would be the conclusion of macrosocial contractors. Yet, these contractors would not be entirely indifferent to the content of these norms (cf. van Oosterhout et al., forthcoming). For example, they would care that microsocial communities with obviously illegitimate norms not only incur the moral disapproval of society but also, sooner or later, come to revise those norms. Thus, the procedural mechanisms, though themselves independent of moral content, are a moral necessity. Macrosocial contractors would care if the procedural mechanisms put into place to ensure revision of illegitimate norms actually work. If managers, for example, are allowed merely to turn a deaf ear on a stakeholder group’s exercise of voice, the mechanisms simply will not work. Of course, there is much more to be said on the matter of community discourse, in general, and stakeholder dialogue in particular. Already some theorists are seeking ways to incorporate this insight at the societal (Calton and Payne, 2003), firmstakeholder (Johnson-Cramer, 2003), and organizational (Smith, 2004) levels. This principle does not solve every problem associated with the revision mechanisms. We leave open, for example, the question of infinite regress, except to say that in contracting communities characterized by dialogic interaction we might expect to encounter such situations – i.e., where dissenters must determine whether or not to behave in ways inconsistent with local norms in order to effect change – far less frequently. Yet, we are confident that a principle of community discourse has a role to play in making ISCT more resilient and better equipped to handle the dynamic realities of norm revision mechanisms.

Conclusion Novel theories often rely on somewhat static conceptions of the relevant context as a simplifying assumption; the novelty provides more than sufficient complexity. And later commentators pointing

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out challenges that emerge under conditions of dynamism is by no means original to this paper. That said, allowance for change often leads to a more nuanced and useful theory. In this paper, we have begun considering the challenges to and prospects for a dynamic ISCT. Among the challenges we have described are: (1) The definition of community membership needs revision as the roster of members, the criteria for membership and the priority of different community norms to which members are obliged all ebb and flow; (2) The evolution and emergence of norms within and among organizations when there are several candidate norms that are equally legitimate by the standards of thin, universal hypernorms; and (3) The rules and limits that should govern the actions of those who would purposely set out to alter legitimate and authentic norms. By way of preliminarily addressing these problems, we have suggested four principles that should be considered part of a greater appreciation of dynamism in ISCT. Specifically: (1) (2) (3) (4)

A principle of stakeholder membership A principle of maximum moral free space An avorum principle A principle of community discourse

This discussion included a brief elaboration of how these principles fit within ISCT and the implications of each principle for moral decision-making in economic and organizational contexts. Concluding a response to early critics of Ties that Bind, Donaldson and Dunfee (2000, p. 483) caution that, ‘‘ISCT is not intended to be a simply focused calculus for making ethical judgments bereft of hard thinking and careful judgment. It is best to view ISCT as pointing the way toward what counts as a careful judgment in business ethics.’’ ISCT, they contend, is not meant only to provide a few priority rules by which managers can mechanically turn out an ethical decision. Our reliance on a hypothetical contractarian as a rhetorical signpost notwithstanding, we have argued that the natural dynamism that characterizes the normative landscape (particularly in

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economic communities) creates significant demands on ISCT as a framework for guiding ethical thought in business. In response to these demands, we have proposed several principles that help to fill the gaps in ISCT while allowing it to stand as a useful and more readily applicable theory. True to ISCT’s emphasis on the judgment of managers, however, we have not sought to offer that contractarian manager a recipe for ethical decisions. Donaldson and Dunfee make good use of the word ‘‘judgment’’ throughout Ties that Bind. With this term, they recall an Aristotelian approach to intrapersonal selection of appropriate moral norms and communities (Hartman, 1996; Solomon, 1993). Eventually, most managerial moral decision making must redound to an exercise in judgment. This is certainly the case for our exposition here inasmuch as we have claimed that our candidate principles are only prima facie binding. Perhaps the most we can do is to help guide this managerial judgment by elaborating upon compelling and convincing considerations to aid such judgment. In this vein, we have sought, here, to better define and bound the context in which that manager will exercise judgment, guided by ISCT. We have also not attempted an exhaustive catalog of theoretical concerns (much less solutions) for a more dynamic ISCT. Our hope for this essay is that it contributes to framing these concerns and point toward some potential remedies. Given the subject of this special issue, which focuses on the application of social contracts theory, we would also suggest that the insights of this article open the way for a more sophisticated treatment of many aspects of contemporary business behavior. We cite two in particular. First, a popular topic of discussion in management and organization studies is that of organizational change (Kotter, 1996). Despite the continuing popularity of the subject among scholars and managers alike, there has been, to date, little consideration given to the moral implications of leading and managing change in organizations. Aided by our conception of social contracts as dynamic, future researchers might ask: To what degree are managers bound by community norms during restructuring? What role should leaders and other change agents play in framing new standards for community membership and in revising community norms?

Second, on the increasingly vital subject of employee benefits and retirement security, recent trends toward the reduction and even elimination of retirement benefits raises particularly difficult questions concerning the continuing obligations of managers even as community norms continue to evolve. What consideration do firms owe to longterm employees who have staked their retirement fortunes to the authentic terms of the social contract prevalent during the greater part of their tenure at the company? Are there procedural obligations the firm must offer in order to provide an opportunity for such employees to influence the revision of these social contracts? Such application questions will offer full airing to the ISCT model and, in particular, to the supplementary principles that we have suggested above. Ultimately, new models in perhaps every field of inquiry begin with implicit assumptions about change, envisioning a static reality rather than a dynamic one. In light of the complexity with which such models must typically contend, assuming away change is a natural simplifying assumption. ISCT is a sophisticated and subtle theory of organizational, economic and commercial ethics. We would prefer this paper be considered less pale critique and more suggestion for further advancing a useful and instructive framework.

Notes 1

The authors wish to thank the conveners of and participants in the Zicklin Center’s ‘‘Contractarian Approaches to Business Ethics’’ conference at the Wharton School for their comments on an earlier draft of this work. In particular, we are grateful to Thomas Donaldson, Thomas Dunfee and William Laufer for their support of this work. We are also grateful to Troy Harting and the editors Hans van Oosterhout, Pursey Heugens, Muel Kaptein as well as the anonymous reviewers for their helpful comments. 2 Van Oosterhout et al. cite Fuller’s (1964) use of a similar method for seeking the morality implied by the concept of law. Other relevant examples of such analysis include Habermas’s (1990) examination of the commitments entailed by the use of discourse and McMahon’s (1981) discussion of the implicit morality of the market.

Dynamism in Integrative Social Contracts Theory 3

An additional challenge that we shall not address arises from the emergence of networked, ‘‘virtual’’ organizations for which the boundaries of the organization itself are somewhat blurry. This creates additional difficulties in determining community membership. For current purposes, we assume that, at least, the boundaries of the organization can be discerned and focus on issues of membership in these organizations. 4 It is worth noting that rules (b) and (c) will tend to contradict each other. If Donaldson and Dunfee, like Walzer, are correct to assume that more global norms tend to be less precise – thin morality being more general than thick – then telling a manager to always choose the general and seek out the most precise seems to be like telling them to take the fastest route but always choose the horse and buggy. For the moment, we can ignore this contradiction because following either priority rule has the effect, in a dynamic setting, of inviting the manager to abandon the principle of moral free space. 5 Organizations with a diversity of norms and perspectives may benefit in the same way ecosystems benefit from biodiversity, though a more thorough elaboration of this analogy must await another venue. 6 We acknowledge, but do not address, the likelihood that maximal moral free space may facilitate the problem of ‘‘community shopping’’ described earlier. Thanks to Troy Harting for pointing out this uncomfortable tension. 7 Thanks to Troy Harting for making this point clearer to the authors. 8 Thanks to Hans van Oosterhout for this point. 9 Thanks to an anonymous reviewer who suggested both examples.

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Robert A. Phillips Robins School of Business, University of Richmond, Richmond, VA 23173, U.S.A. E-mail: [email protected] Michael E. Johnson-Cramer Department of Management, Bucknell University, Taylor Hall, Room 322, Lewisburg, PA, 17837, U.S.A.