Stakeholder theory and value creation the key idea about capitalism is that the entrepreneur or manager creates value by capturing the jointness of the interests of the stakeholders. In this regard, researchers on both topics are quick to point out that csr and stakeholder theory are not the same thing. A stakeholder approach is widely cited in the field as being the foundation of stakeholder theory, although freeman himself credits several bodies of literature in the development of his approach, including strategic management. Keywords stakeholder theory, stakeholder management, international. The analysis may be done for simply informational purposes but is rarely acted on. Jackson, towards a stakeholdershareholder theory of corporate governance. We conclude that the three aspects of stakeholder theory are mutually supportive and that the normative base of the theorywhich. One common version of stakeholder theory seeks to define the specific stakeholders of a company the normative theory of stakeholder identification and. If it is a nexus of contracts, or a vehicle for the. Doc a critique of stakeholder theory samuel mansell. This belief helped shape his shareholder theory of capitalism. The stakeholder perspective is an alternative way of understanding how companies and people create value and trade with each other. As such, this ethical theory posits to the effect that organisations should encourage the people to work towards the outcomes that will benefit the majority of the people that are affected by the operations of a given organisation.
Pdf purpose the recent financial crisis has restarted the debate of the value of both shareholder and stakeholder theories. The stakeholder theory of corporate governance focuses on the effect of corporate activity on all identifiable stakeholders of the corporation. It is a theory that tells business managers what they morally ought to do. It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and social contract theory. The analysis of shareholder theory and stakeholder theory. The shareholder theory is based on the interests of the. Stake holder theory, howe ver, propose s that socia l, rathe r than mar ket, forc es dete rmine the a lloca tion to com peting stakeh older in terest s of such scarce resourc es as inform ation. Some theorists believe that maximize shareholder profit is the highest objective of firm. Numerous views of stakeholder theory are presented in the literature though a key distinction can be drawn between the tenets of stakeholder theory and the conventional inputoutput model of the firm which see firms as converting investor, supplier, and employee inputs into customer outputs donaldson and preston, 1995.
The 1930 berledodd debate dealt with shareholder primacy versus the stakeholder approach. The stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. Oct 18, 2014 the stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. One of the values produced by stakeholder theory includes greater productivity across the organization. Apr, 2006 practical examples based on new data are used to examine a diverse range of stakeholders, and the relationships stakeholders have with their organizations.
Stakeholder theory argues that the interests of all stakeholders not just those with a financial stake in the business should be taken into consideration. Shareholder theory economist milton friedman, whose work shaped much of 20thcentury corporate america, was a believer in the freemarket system and no government intervention. Friedman believes this gives shareholder theory enormous normative appeal. A stakeholder approach points out the groups which. This theory posits that corporate managers officers and directors should take into consideration the interests of. Dec 10, 2018 stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. Numerous articles and books written on stakeholder theory generally credit freeman as the father of stakeholder theory. It seems pertinent to know these forms of stakeholder theory and distinguish between them for better understanding of the subject. Oct 03, 2017 amongst various papers and researches carried out in establishing the dominance of any one theory, especially of shareholder primacy, one argument advanced by keay stands out. Stakeholder theory six principles of stakeholder theory. Over the last twentyfive years a distinctive answer to this question has emerged in a body of ideas known as stakeholder theory. One is a firm should focus on the shareholder wealth maximization, which is called theory of shareholder.
Shareholder theory vs stakeholder theory uk essays. The stakeholders of a firm are individuals or groups that. Shareholder value creation is shown on the one hand in dividends, on the other in the variation of the value of shares and in stock market capitalization. Shareholder individual, group, or organization that holds one or more shares in a firm, and in whose name the share certificate is issued. Though this debate was not specifically extended to the concept of corporate governance at that time, with the advancement of law, governments, academicians and advocates now question the viability of various theories for the purpose of corporate governance. The strategic approach to stakeholder theory views stakeholders instrumentally. Freeman, harrison and zyglidopoulos discuss the foundation concepts and implementation of stakeholder management as well as the advantages this approach provides to firms and their managers. This approach is still common, but an exclusive focus on maximising shareholder returns has come under increasing criticism for business as well as social reasons.
If the point of stakeholder theory is to take seriously the responsibilities the corporation has towards the various stakeholder groups this has to entail more than simply enumerating them. Stakeholder theory proposes that stakeholding has a dual instrumentalnormative quality. This theory posits that corporate managers officers and directors should take into consideration the interests of each stakeholder in its governance process. In response to corporate scandals of recent years including. The analysis of shareholder theory and stakeholder theory abstract. According to this view, a firms only purpose is to serve the needs and interests of the companys owners. Shareholder theory is then contrasted with stakeholder theorythe dominant theory espoused in the field of corporate social responsibility stakeholder theory expresses the idea that business organizations are dependent upon stakeholders for success, and stakeholders have some stake in the organization. According to the theory, which was first introduced by milton friedman in the 1960s, a corporation is primarily responsible to its stockholders due to the cyclical nature of business hierarchy. Stakeholder theory is a view of capitalism that stresses the interconnected relationships between a business and its customers, suppliers, employees, investors, communities and others who have a stake in the organization. An empirical analysis of the stakeholder approach to corporate governance silvia ayuso1, miguel a. While many perceive clear differences between a shareholder and a stakeholder, stakeholder theory states that a shareholder is a special class of stakeholder, where the former has a financial stake in the success of the business, and the latter can potentially have interests beyond financial. The common good, stakeholder theory and the theory of the firm. The term has been made popular by a fortunate 1986 volume by alfred rappaport, creating shareholder value.
This theory focuses on the conflicts of interest between the shareholders on the one hand and the other leaders on the. Failure to implement the stakeholder theory in many projects can result in pure disaster, especially if stakeholder a is in the dark as to what stakeholder b is doing. The paper argues that the normative theory elaborated by critical theorists such as habermas exhibits important advantages over its rivals and that these advantages provide the basis for a theoretically more adequate version of shmt. On one hand, incorporating stakeholders participation enhances the organizations management capabilities in a globalized context characterized by increasing socioeconomic interconnectivity. A guide for the perplexed, business ethics quarterly 8, no. According to this theory, the choice that yields the greatest benefit to the majority of people is ethically, rainbow, 2002. It says that businesses, corporations, and business managers ought to respond to the interests or claims of stakeholders, in a proper waymanagers bear a. After setting out what stakeholder theory stands for, this paper analyses whether stakeholder theory should overtake shareholder primacy as the leading theory in angloamerican jurisdictions. This is the first book on stakeholder theory to propose a critical analysis, both at the macro and micro level, that is framed and guided by theory. Stakeholder theory is a theory of management that concerns itself with matters related to morals and ethics in running a business. This article elaborates a normative stakeholder management theory shmt from a critical theory perspective.
Stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. The shareholder and stakeholder theory management essay. We conclude that the three aspects of stakeholder theory are mutually supportive and that the normative base of the theory which includes the modern theory of property rightsis fundamental. One which states that businesses do have social responsibilities. Amongst various papers and researches carried out in establishing the dominance of any one theory, especially of shareholder primacy, one argument advanced by keay stands out. Selfinterest and ethics, stakeholdershareholder theory essay. The supporters of shareholder theory argue that a business primary objective is to gain profits. It says that businesses, corporations, and business managers ought to respond to the interests or claims of stakeholders, in a proper waymanagers bear a fiduciary relationship to stakeholders. Pdf how does starbucks implement stakeholder theory. Shareholders theory and stakeholders theory are the two normative theories of business ethics and corporate social responsibility. However, there are many articles and academic journals assert that stakeholder theory is the modern management methods. Practical examples based on new data are used to examine a diverse range of stakeholders, and the relationships stakeholders have with their organizations. The common good, stakeholder theory and the theory of the firm 2 antonio argandona, iese business school, spain the second point that the theory of the common good adds to the stakeholder theory of management is a broader concept of the firm. Towards a stakeholdershareholder theory of corporate governance.
Stakeholder theory as an ethical approach to effective. If the point of stakeholder theory is to take seriously the responsibilities the corporation has towards the various stakeholder groups this. Part of stakeholder theory is the element of awareness, involved decision making, and keeping the integrity of any project first and foremost. On one hand, incorporating stakeholders participation enhances the organizations management capabilities in a globalized context characterized by. Feb 25, 2020 a shareholder owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. Stakeholder and shareholder theories have been discussed intensely with each being viewed and exhibited as having both its merits and demerits. Ian mitroff, in his 1983 book stakeholders of the organizational mind, originally laid out the concept. Shareholder theory vs stakeholder theory prolific essays. Aug 31, 2016 one common version of stakeholder theory seeks to define the specific stakeholders of a company the normative theory of stakeholder identification and then examine the conditions under which. Both of them are theories about how corporate leaders deal in their business environment by each of their different perspectives, one is emphasizing to put priority on shareholders interests, the other is emphasizing to put priority on larger business. Jan, 2015 the stakeholder theory of corporate governance focuses on the effect of corporate activity on all identifiable stakeholders of the corporation. The theory argues that a firm should create value for all stakeholders, not just shareholders.
In order for the business to gain and maintain momentum, the manager must ensure that the interests of the stockholders and all the shareholders are aligned. The fourth part is a conclusion to express the author opinion. The shareholder and stakeholder theories of corporate purpose. Shareholder theory, on the other hand, focuses strictly on those who have a monetary share of the company. The shareholder theory and the stakeholder theory are two kinds of corporate governance theories. While some argue that the stakeholder theory is crucial in management, others fiercely content the notion. The purpose of theory is to provide general knowl edge that can be applied in any situation, based on research and discourse. Stakeholders are means to generating a profit for shareholders. The issue whether managers should apply shareholder theory or stakeholder theory is opens for debate. Specifically, the paper examines the arguments propounded in support of stakeholder theory and evaluates the strength of these arguments with the aim of. In corporate governance theory, there are two kinds of arguments. Stakeholder theory an overview sciencedirect topics.
Yes, sometimes the interests are in conflict, but over time they must be shaped in the same direction. According to the stakeholder theory, managers are agents of stakeholders who must ensure that the ethical rights of stakeholders are not violated and their legitimate interests are balanced while making decisions. It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and. The stakeholder theory made popular during the 1980s suggested that corporations should look beyond the shareholder theory of profit maximisation, and take into consideration other stakeholder groups that the corporation is associated with, and who contribute to the companys achievements. This article and the others in this special issue aim to help fill that void. The stakeholder theory is a theory of organizational management and business ethics that accounts for multiple constituencies impacted by business entities like employees, suppliers, local communities, creditors, and others. Mar 05, 2019 stakeholder theory posits that a company is only successful when it delivers value to its stakeholders, and those values can come in many forms beyond financial benefits.
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