Integrating instrumental and normative stakeholder theories: a systems theory approach

Purpose - The stakeholder theory encompasses instrumental and normative varieties whose mutual relationship remains unclear and exhibits a classic tension between rational self-interest and moral motivation. The purpose of this paper is to develop a strategy for navigating this tension. Design/methodology/approach - Niklas Luhmann's social systems theory is concerned with the limited ability of social systems to codify, and be receptive to, the complexity of the environment. Drawing on this theory, the paper juxtaposes the codification problems of two types of social systems: the for-profit firm and the economic function system. Findings - This juxtaposition allows to identify four firm behavior patterns, two of which can be aligned with instrumental and normative stakeholder theories. If the codification capacity of the economic function system is assumed to be sufficient, the codification problems of the for-profit firm are shown to specify the range of applicability of the instrumental stakeholder theory. Dropping the above assumption is shown to specify the range of applicability of the normative stakeholder theory. Originality/value - The argument offers a fresh way of understanding the institutional economics foundations of the stakeholder theory. Given that the systems-theoretic idea of codification reflects the functioning of the real-world institutions, the argument shows that both instrumental and normative stakeholder theories reflect the institutional texture of the modern society in distinct but equally legitimate ways.