Social Contract Theory and Business Legitimacy

Abstract

This chapter reviews the most prominent approaches to business legitimacy from a contractarian perspective. First, the contractarian business ethics approach is presented. Second, the contractarian approach to business legitimacy is compared with the analogous concept of “social license to operate.” Third, the chapter discusses the use of the social contract argument at different levels: economic system and organizational levels. Fourth, the approach to the legitimacy of ethical norms in business based on the influential theory of Integrative Social Contracts, advanced by Donaldson and Dunfee, is presented in detail. Fifth, the legitimacy of corporate governance based on a hypothetical social contract of the firm is presented. Finally, a reference is made to the purportedly contractarian approach to legitimacy associated to “order ethics.” The chapter ends with the proposal of a liberal legitimacy principle for corporate power, taking Rawls’s liberal legitimacy principle as a model.