Journal of Business Ethics

, Volume 66, Issue 2–3, pp 207–223 | Cite as

Principal Theory and Principle Theory: Ethical Governance from the Follower’s Perspective

  • Cam Caldwell
  • Ranjan KarriEmail author
  • Pamela Vollmar


Organizational governance has historically focused around the perspective of principals and managers and has traditionally pursued the goal of maximizing owner wealth. This paper suggests that organizational governance can profitably be viewed from the ethical perspective of organizational followers – employees of the organization to whom important ethical duties are also owed. We present two perspectives of organizational governance: Principal Theory that suggests that organizational owners and managers can often be ethically opportunistic and take advantage of employees who serve them and Principle Theory that focuses on guiding principles that are sometimes taken too far in organizations. In introducing these two new organizational governance perspectives, we offer insights into the value of rethinking ethical duties owed to organizational followers.


ethical governance principal theory principle theory 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Albert, S., Whetten, D. A. 1985Organizational IdentityResearch in Organizational Behavior7263305Google Scholar
  2. Arbinger Institute2000Leadership and Self-DeceptionBerrett-Koehler PublishersSan Francisco, CAGoogle Scholar
  3. Aronson, E. 2001Integrating Leadership Styles and Ethical PerspectivesCanadian Journal of Administrative Sciences18244236Google Scholar
  4. Baker, R., Newport, S. 2003Dysfunctional Manager Behavior in the Workplace: Implications for Employees, Supervisors, and OrganizationsProblems and Perspectives in Management1108113Google Scholar
  5. Barnard, C. I. 1938The Functions of the ExecutiveThe Harvard PressCambridgeGoogle Scholar
  6. Barnett, T., Schubert, E. 2002Perceptions of the Ethical Climate and Covenantal RelationshipsJournal of Business Ethics36279291CrossRefGoogle Scholar
  7. Baruch, Y., Hind, P. 1999Perpetual Motion in Organizations: Effective Management and the Impact of New Psychological Contracts on ‘Survivors’ SyndromeEuropean Journal of Work and Organizational Psychology8295306CrossRefGoogle Scholar
  8. Baucus, M. A. and C. L. Beck-Dudley: 2000, ‘Designing Ethical Organizations’, in Proceedings (eds.), presented at the International Association for Business and Society (IABS) Annual Meeting, March 2000 (Essex Junction, Vermont).Google Scholar
  9. Berglund, J., Werr, A. 2000The Invincible Character of Management Consulting Rhetoric: How One Blends Incommensurates While Keeping Them ApartOrganization763655Google Scholar
  10. Berman, S. L., Wicks, A. C., Kotha, S., Jones, T. M. 1999Does Stakeholder Orientation Matter? The Relationship Between Stakeholder Management Models and Firm Financial PerformanceAcademy of Management Journal42488508CrossRefGoogle Scholar
  11. Black, S., Porter, L. J. 1995An Empirical Model for Total Quality ManagementTotal Quality Management6149164CrossRefGoogle Scholar
  12. Block, P. 1996Stewardship: Choosing Service Over Self-InterestBerrett-Koehler PublishersSan Francisco, CAGoogle Scholar
  13. Bowie, N. 1999Business Ethics: A Kantian PerspectiveBlackwell PublishersMalden, MAGoogle Scholar
  14. Buckley, M. R. 2001Ethical Issues in Human Resource SystemsHuman Resource Management Review111129CrossRefGoogle Scholar
  15. Burns, J. M. 1978LeadershipHarper and RowNew York NYGoogle Scholar
  16. Caldwell, C., Karri, R. 2005‘Organizational Governance and Ethical Systems: A Covenantal Approach to Building Trust’Journal of Business Ethics58249259CrossRefGoogle Scholar
  17. Caldwell, C., Clapham, S. E. 2003Organizational Trustworthiness – An International PerspectiveJournal of Business Ethics47349364CrossRefGoogle Scholar
  18. Caldwell, C., Bischoff, S. J., Karri, R. 2002The Four Umpires: A Paradigm for Ethical LeadershipJournal of Business Ethics36153163CrossRefGoogle Scholar
  19. Caldwell, C.: 2004, ‘Organizational Trustworthiness: A Developmental Model’, Ph.D. Dissertation, Washington State University, Pullman, WA.Google Scholar
  20. Callahan, D. 2004The Cheating Culture: Why More Americans are Doing Wrong to Get AheadHarcourt, Inc.Orlando, FLGoogle Scholar
  21. Cameron, K. S., Sutton, R. I., Whetten, D. A. 1988Readings in Organizational Decline: Frameworks, Research, and PrescriptionsBallinger Publishing Co.Cambridge, MAGoogle Scholar
  22. Cameron, K. 2003aOrganizational Virtuousness and PerformanceCameron, K.Dutton, J.Quinn, R. eds. Positive Organizational Scholarship: Foundations of a New DisciplineBerrett-Koehler PublishersSan Francisco, CA4865Google Scholar
  23. Cameron, K. 2003bEthics, Virtuousness, and Constant ChangeTichy, N. M.McGill, A. R. eds. The Ethical Challenge: How to Lead with Unyielding IntegrityJossey-BassSan Francisco, CA185194Google Scholar
  24. Canella, A. A., Monroe, J. M. 1997Contrasting Perspectives on Strategic Leaders: Toward a More Realistic View of Top ManagersJournal of Management23213237CrossRefGoogle Scholar
  25. Carroll, A. B., Buchholtz, A. K. 2003Business and Society: Ethics and Stakeholder ManagementSouth-Western PublishingCincinnati, OHGoogle Scholar
  26. Collins, J. C., Porras, J. I. 1994Built to Last: Successful Habits of Visionary CompaniesHarper BusinessNew York, NYGoogle Scholar
  27. Collins, J. C., Porras, J. I. 1996Building Your Company’s VisionHarvard Business Review746577Google Scholar
  28. Collins, J. C. 2001Good to Great Why Some Companies Make the Leap and Others Don’tHarper-CollinsNew York, NYGoogle Scholar
  29. Conger, J. A., R. N. Kanungo et al.: 1998, Charismatic Leadership: The Elusive Factor in Organizational Effectiveness (Jossey-Bass, San Francisco, CA).Google Scholar
  30. Corbetta, G., Salvato, C. 2004Self-Serving or Self-Actualizing? Models of Man and Agency Costs in Different Family Firms: A Commentary on “Comparing the Agency Costs of Family and Non-Family Firms: Conceptual Issues and Exploratory Evidence”Entrepreneurship Theory & Practice28355362CrossRefGoogle Scholar
  31. Daily, C. M., Dalton, D. R., Rajagopalan, N. 2003Governance through Ownership: Centuries of Practice, Decades of ResearchAcademy of Management Journal46141158CrossRefGoogle Scholar
  32. Davis, J. H., Schoorman, F. D., Donaldson, L. 1997Toward a Stewardship Theory of ManagementAcademy of Management Review222047CrossRefGoogle Scholar
  33. Pree, M. 1989Leadership is an ArtDellNew York, NYGoogle Scholar
  34. Deming, W. E. 1986Out of the CrisisMassachusetts Institute of Technology PressCambridge, MAGoogle Scholar
  35. Donaldson, T., Dunfee, T. 1999Ties that Bind: A Social Contracts Approach to Business EthicsHarvard Business PressCambridge, MAGoogle Scholar
  36. Ekanayake, S.: 2004, ‘Agency Theory, National Culture, and Management Control’, The Journal of American Academy of Business March, 48–54.Google Scholar
  37. Evan, W. M., Freeman, R. E. 1993Stakeholder Theory of Modern Corporation: Kantian CapitalismBeauchamp, T.Bowie, N. eds. Ethical Theory and Business4Prentice HallEnglewood Cliffs, NJGoogle Scholar
  38. Fairholm, G. W. 1994Leadership and the Culture of TrustGreenwood Publishing GroupWestport, CTGoogle Scholar
  39. Foreman, P., Whetten, D. A. 2002Members’ Identification with Multiple-Identity OrganizationsOrganization Science: A Journal of the Institute of Management Sciences13618635Google Scholar
  40. French, P. A. 1996Integrity, Intentions, and CorporationsAmerican Business Law Journal34134155Google Scholar
  41. Friedman, M.: 1970, ‘The Social Responsibility of Business is to Increase its Profits’, New York Times Magazine September 13, 32–33 & 122–126.Google Scholar
  42. Gay, K. 2002Board Theories and Governance Practices: Agents, Stewards, and their Evolving Relationship with StakeholdersJournal of General Management273661Google Scholar
  43. Goffee, R., Jones, G. 2001Followership: It’s Personal TooHarvard Business Review79148158Google Scholar
  44. Golembiewski, R .T. 2000Psychological Contracts at WorkGolembiewski, R. T. eds. Handbook of Organizational Consultation,2Marcel DekkerNew York, NYGoogle Scholar
  45. Gulick, L. 1937Notes on the Theory of OrganizationGulick, L.Urwick, L. eds. Papers on the Science of AdministrationInstitute of Public AdministrationNew York, NY313Google Scholar
  46. Hosmer, L. T. 1995Trust: The Connecting Link between Organizational Theory and BehaviorAcademy of Management Review20379404CrossRefGoogle Scholar
  47. Hosmer, L. T. 1996The Ethics of ManagementIrwinChicago, ILGoogle Scholar
  48. Hosmer, L. T. 1994Strategic Planning as if Ethics MatteredStrategic Management Journal151734CrossRefGoogle Scholar
  49. James, H. S., Rassekh, F. 2000Smith, Friedman, and Self-Interest in Ethical SocietyBusiness Ethics Quarterly10659674Google Scholar
  50. Jensen, M. C., Meckling, W. H. 1976Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership StructureJournal of Financial Economics3305360CrossRefGoogle Scholar
  51. Kanter, R. M. 1990Values and EconomicsHarvard Business Review684Google Scholar
  52. Kerr, S. 1975On the Folly of Rewarding A, While Hoping for BAcademy of Management Journal18 769783CrossRefGoogle Scholar
  53. Korsgaard, M. A., Brodt, S. E., Whitener, E. M. 2002Trust in the Face of Conflict: The Role of Managerial Trustworthy Behavior and Organizational ContextJournal of Applied Psychology87312319CrossRefGoogle Scholar
  54. Kouzes, J. M., Posner, B. Z. 1993Credibility: How Leaders Gain and Lose It, and Why People Demand ItJossey-BassSan Francisco, CAGoogle Scholar
  55. Kowtha, N. R. 1997Skills, Incentives, and Control: An Integration of Agency and Transaction Cost ApproachesGroup & Organization Management225388Google Scholar
  56. Kretchmar, L. 1992Oh, the Pity of a Baldridge AwardFortune125153Google Scholar
  57. Lea, D. 2004The Imperfect Nature of Corporate Responsibility to StakeholdersBusiness Ethics Quarterly14201217Google Scholar
  58. Low, M. B.: 1991, ‘Stockholder vs. Stakeholder: How Managerial Attitudes Affect Goal Consensus Between Groups’, Academy of Management Proceedings 336–340.Google Scholar
  59. Lussier, R. N., Achua, C. F. A. 2004Leadership: Theory, Application, Skill Development,2Thomson-WestEagan, MNGoogle Scholar
  60. Maccoby, M. 2004The Power of TransferenceHarvard Business Review827685Google Scholar
  61. Mahoney, J. T. 2002The Relevance of Chester I. Barnard’s Teachings to Contemporary Management Education: Communicating the Aesthetics of ManagementInternational Journal of Organization Theory and Behavior5159172CrossRefGoogle Scholar
  62. Manville, B., Ober, J. 2003A Company of Citizens: What the World’s First Democracy Teaches Leaders about Creating Great OrganizationsHarvard Business School PressCambridge, MAGoogle Scholar
  63. McCall, J. 2002Leadership and Ethics: Corporate Accountability to Whom, for What, and by What Means?Journal of Business Ethics38133139CrossRefGoogle Scholar
  64. McClusky, J. E. 2002Rethinking Non-Profit Organization Governance: Implications for Management and LeadershipInternational Journal of Public Administration25539559CrossRefGoogle Scholar
  65. McLean, B., Elkind, P. 2003The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of EnronPenguin BooksLondon, EnglandGoogle Scholar
  66. Menard, C. 1996Why Organizations Matter: A Journey Away from the Fairy TaleAtlantic Economic Journal24281300CrossRefGoogle Scholar
  67. Offerman, L. R. 2004When Followers Become ToxicHarvard Business Review825460Google Scholar
  68. Organ, D. W. 1988Organizational Citizenship Behavior: The Good Soldier SyndromeLexington BooksLexington, MAGoogle Scholar
  69. Paine, L. S. 2003Value Shift: Why Companies Must Shift Social and Financial Imperatives to Achieve Superior PerformanceMcGraw-HillNew York, NYGoogle Scholar
  70. Pava, M. 2003Leading with Meaning: Using Covenantal Leadership to Build a Better OrganizationPalgrave MacMillanNew York, NYGoogle Scholar
  71. Pfeffer, J. 1998The Human Equation: Building Profits by Putting People FirstHarvard Business School PressBoston, MAGoogle Scholar
  72. Phillips, R., Freeman, R. E., Wicks, A. C. 2003What Stakeholder Theory is NotBusiness Ethics Quarterly13479502Google Scholar
  73. Post, J. E., Preston, L. E., Sachs, S. 2002Redefining the Corporation: Stakeholder Management and Organizational WealthStanford University PressStanford, CAGoogle Scholar
  74. Primeaux, P., Karri, R., Caldwell, C. 2003Cultural Insights to Justice: A Theoretical Perspective through a Subjective LensJournal of Business Ethics46187199CrossRefGoogle Scholar
  75. Quinn, D. P., Jones, T. M. 1995An Agent Morality View of Business PolicyAcademy of Management Review202242CrossRefGoogle Scholar
  76. Reinganum, M. R., Smith, J. K. 1983Investor Preference for Large Firms: New Evidence on Economies of SizeThe Journal of Industrial Economics32213227CrossRefGoogle Scholar
  77. Romero, E. J., McFarlin, D. 2004Are the Great Places to Work Also Great Performers?Academy of Management Executive18150152Google Scholar
  78. Rousseau, D. M. 1995Psychological Contracts in Organizations – Understanding Written and Unwritten AgreementsSage PublicationsThousand Oaks, CAGoogle Scholar
  79. Rousseau, D. M. 2003Extending the Psychology of the Psychological Contract: A Reply to “Putting the Psychology Back into Psychological Contracts”Journal of Management Inquiry12229238CrossRefGoogle Scholar
  80. Rummler, G. A., Rummler, M. E. 2003Employee Bill of RightsT+D6727Google Scholar
  81. Schein, E. H. 1992Organizational Culture and LeadershipJossey-BassSan Francisco, CAGoogle Scholar
  82. Schumann, P. L. 2001A Moral Principles Framework for Human Resource Management EthicsHuman Resource Management Review1193111CrossRefGoogle Scholar
  83. Scott, E. D. 2002The Organizational Moral ValuesBusiness Ethics Quarterly123355Google Scholar
  84. Seidman, D. 2004The Case for Ethical LeadershipAcademy of Management Executive18134138Google Scholar
  85. Selznick, P. 1992The Moral Commonwealth: Social Theory and The Promise of CommunityUniversity of California PressBerkley, CAGoogle Scholar
  86. Shankman, N. 1999Reframing the Debate Between Agency and Stakeholder Theories of the FirmJournal of Business Ethics19319334CrossRefGoogle Scholar
  87. Simon, H. A. 1946The Proverbs of AdministrationPublic Administration Review65367CrossRefGoogle Scholar
  88. Smith, H. J. 2003The Shareholders vs. Stakeholders DebateSloan Management Review448590Google Scholar
  89. Solomon, R. C. 1993Ethics and Excellence: Cooperation and Integrity in BusinessOxford University PressNew York, NYGoogle Scholar
  90. Steinberg, R. M., Pojunis, D. 2000Corporate Governance: The New FrontierInternal Auditor573439Google Scholar
  91. Stewart, T. A. 2004Practical CatsHarvard Business Review8210Google Scholar
  92. Sturdivant, F. D., Ginter, J. L. 1977Corporate Social Responsiveness: Management AttitudesCalifornia Management ReviewXIX3039Google Scholar
  93. Swanson, D. L. 1999Toward an Integrative Theory of Business and Society: A Research Strategy for Corporate Social PerformanceAcademy of Management Review24508521CrossRefGoogle Scholar
  94. Thomas, T., Schermerhorn, J. R.,Jr., Dienhart, J. W. 2004Strategic Leadership of Ethical Behavior in BusinessAcademy of Management Executive185666Google Scholar
  95. Trevino, L. K., Brown, M. 2004Managing to be Ethical: Debunking Five Business Ethics MythsAcademy of Management Executive186981Google Scholar
  96. Wetlaufer, S. 1999Organizing for Empowerment: An Interview with AES’s Roger Sant and Dennis BakkeHarvard Business Review77110123Google Scholar
  97. Whetten, D. A., Mackey, A. 2002A Social Actor Conception of Organizational Identity and Its Implications for the Study of Organizational ReputationBusiness and Society41393414CrossRefGoogle Scholar
  98. Wilcke, R. W. 2004An Appropriate Ethical Model for Business and a Critique of Milton Friedman’s ThesisIndependent Review9187209Google Scholar
  99. Williams, S., Pitre, R., Zinuba, M. 2002Justice and Organizational Citizenship Behavior Intentions: Fair Rewards versus Fair TreatmentJournal of Social Psychology1423344CrossRefGoogle Scholar
  100. Williamson, O. E. 1985The Economic Institutions of Capitalism: Firms, Markets, Relational ContractingFree PressNew York, NYGoogle Scholar
  101. Williamson, O. E. 1996The Mechanisms of GovernanceOxford University PressNew York, NYGoogle Scholar
  102. Williamson, O. E. 1975Markets and Hierarchies, Analysis and Antitrust Implications: A Study in the Economics of Internal OrganizationFree PressNew York, NYGoogle Scholar
  103. Wilson, I. 2000The New RulesStrategy & Leadership281216CrossRefGoogle Scholar
  104. Woodward, D. G., Edwards, P., Birkin, F. 1996Organizational Legitimacy and Stakeholder Information ProvisionBritish Journal of Management7329347CrossRefGoogle Scholar
  105. Yan, A., Guorong, Z., Hall, D. T. 2002International Assignments for Career Building: A Model of Agency Relationships and Psychological ContractsAcademy of Management Review27373391CrossRefGoogle Scholar

Copyright information

© Springer 2006

Authors and Affiliations

  1. 1.School of Business AdministrationUniversity of Houston – Victoria CampusVictoriaU.S.A.
  2. 2.Department of ManagementBryant UniversitySmithfieldU.S.A.

Personalised recommendations