The contribution of stakeholder theory 271 kamoche and mueller 1998. Stakeholder theory, when introduced in the 1980s, signify a major change in how relationships within a business might coexist and benefit one another. 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, corporate planning, systems theory, organization theory, and corporate social. It is contended in this discussion that there is a common paradigm that is pervasive throughout research and practice in hrm.
A stakeholder approach, a work that set the agenda for what we now call stakeholder theory. Operating business for the ultimate benefit of the shareholder is challenged by the stakeholder theory, which considers shareholders and other parties involved, including the customers and employees. At length, like the shareholder primacy theory, the stakeholder theory fails to balance the interests held by a person who play double role in corporations either. Employing economic, legal and behavioral analyses, the author concludes that, although the shareholder theory is often inaccurately maligned, stakeholder theory may be. The stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. Stakeholder theory has its strengths attributed by its conceptual breath and versatility.
Stakeholder theory provides an appropriate lens for considering a more complex perspective of the value that stakeholders seek as well as new ways to measure it. Hired managers and ceos are obliged to serve interests of owners and make money for them, without particular regard to welfare. Stakeholders debate should companies seek only to maximize shareholder value or strive to serve the often conflicting interests of all stakeholders. Another one is a firm should focus on not only the interest of shareholders, but also employees, suppliers. The features of this mainstream viewpoint are that it tends to be u. Howell professor of governance and regulation issn.
One which states that businesses do have social responsibilities. Edward freeman published his landmark book, strategic management. 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. The common good, stakeholder theory and the theory of. Recall that ethical egoism is the view which states that the morally right action is the one that best promotes ones own selfinterest. A powerpoint presentation that discusses the difference between shareholder and stakeholder theory in the context of the economics of strategy. Broad instrumental stakeholder theory could even be seen as an extension of shareholder theory into the phenomenon of firmstakeholder relationships figure 2. In corporate governance theory, there are two kinds of arguments. Shareholder theory was proposed by milton friedman and according to him, only and sole purpose of business is to increase profits and value returned to shareholders owners of the company. However, the predominant view of stakeholders that many marketers advocate is still primarily pragmatic and company centric.
To do so, we examine competitive advantage through a stakeholder lens by integrating its core. In fact, studies reveal that corporations are capable of successfully serving the objectives of multiple stakeholders. Thus, this gives rise to a network of dyadic obligations among the stakeholder groups of the corporation. The analysis of shareholder theory and stakeholder theory abstract. Stakeholder theory of the mnc doing this he indicated that his view of the stakeholder concept was done from the perspective of the company. Stakeholder theory and definition stakeholder is defined as any group or individual who can affect or is affected by the achievement of the organizations objectives freeman 1984. The stakeholder perspective is an alternative way of understanding how companies and people create value and trade with each other. The paper concludes that while the stakeholder theory is attractive in a number of ways, it is lacking in many respects, and it cannot be justified as a theory of the objective of large corporations. The result is a view of stakeholder theory that is an ethical theory, a theory of the firm, and a theory of management. Concepts, evidence, and implications thomas donaldson georgetown university lee e. Guidance can be found in exploring exactly what each theory does, and doesnt, say.
Stakeholder theory and the corporate objective revisited 366 organization science 153, pp. Aug 05, 2019 the agency theory looks to outline the interests of a principal and an agent, which can include an individual and a financial planner. Like customers, suppliers, employees, and local communities, shareholders have a stake in, and are affected by, the. Shareholder value theory is the dominant economic theory in use by business. Edward freemans stakeholder theory holds that a companys stakeholders include just about anyone affected by the company and its workings. The title of the work is strategic management and only the subtitle is a stakeholder approach and came out in 1984. Shareholder theory is the view that the only duty of a corporation is to maximize the profits accruing to its shareholders. Oct 18, 2014 the stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. 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. Both stockholder and stakeholder theories are normative theories of corporate social responsibility that outline the ethical responsibilities of a corporation.
Introduction 1 stakeholder theory has been the object of many interpretations. Instead, most people, particularly people of color, have not only been excluded from the benefits of todays shareholderfirst economy, they have, in fact, been harmed by it. 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. 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. But, best promotes ones own self interest is just what maximizes their own profits means in business terminology. Conflicts between shareholder theory and stakeholder theory.
In neoclassical theory, economic value is created when the price that consumers pay for goods and services is greater than the cost of producing them. Common good, company, ethics, goods, management, stakeholders, stakeholder theory, theory of the firm. This book provides an academic introduction to, and presentation and defence of stakeholder theory as a model for the strategic management of businesses and corporations, as well as of public organizations and institutions. Shareholder is an individual or corporation owning stock in a public or private company. Yes, sometimes the interests are in conflict, but over time they must be shaped in the same direction. Many believe the stakeholder theory seems to disregard the interests of the shareholders, however this point is misinterpreted because by using the stakeholder theory to ensure longterm sustainability of that company in itself takes account of the interests of the shareholders. Both the shareholder1 and stakeholder theories are normative theories of corporate. The shareholder theory, posited in the early 20th century by economist milton friedman, says that a company is beholden only to shareholders that is, the. Shareholder decides the membership of the board of directors by making a vote. Stockholder theory and stakeholder theory map out these two paths, allowing each business to decide which ethical path it will choose to take.
Download it once and read it on your kindle device, pc, phones or tablets. Objections to friedmans shareholderstockholder theory. He is generally credited with popularizing the stakeholder concept. In the intervening years, the literature on stakeholder theory has become vast and diverse. It addresses morals and values in managing an organization, such as those related. To begin we go back to freemans original book and retell the story, told there, of the origins of the idea of stakeholders.
Dec 10, 2018 stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. Stakeholder theory, value, and firm performance edisciplinas. So, shareholder theory is a form of ethical egoism. A stakeholder theory approach to the organisational performance and influence of informationcommunication technology. Differentiate between the systems theory, social network theory, collaboration theory and social exchange theory. That view is in opposition to the longheld shareholder theory proposed by economist milton friedman that in capitalism, the only stakeholders a company should care about are its shareholders and thus, its bottom line. One is a firm should focus on the shareholder wealth maximization, which is called theory of shareholder. 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. Pdf applying stakeholder theory to egovernment researchgate. 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. Check your knowledge with an interactive quiz and printable worksheet. Shareholder theory equates to an influential view on the role of business in society which pushes the idea that the only responsibility of managers is to serve in the best possible way the interests of shareholders, using the resources of the corporation to increase the wealth of the latter by seeking profits.
It was originally detailed by ian mitroff in his book stakeholders of the organizational mind, published in 1983 in san francisco. The common good, stakeholder theory and the theory of the firm. While some argue that the stakeholder theory is crucial in management, others fiercely content the notion. Stakeholder theory demands that interests of all stakeholders should be considered even if it reduces company profitability i. Conflicts between shareholder theory and stakeholder. 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 theory is an alternative approach to understanding the purpose of a corporation.
Freeman argues that the duty of managers within a corporation is not to shareholders or stockholders i. Stakeholder theory and the corporate objective revisited. Stakeholder theory a model for strategic management maria. Few academics have done more to put stakeholder theory on the map over the past three decades than this prolific professor at the university of virginias darden school of business.
Stakeholder reciprocity could be an innovative criterion in the corporate governance debate as to who should be accorded representation on the board. Maximizing shareholder wealth as the purpose of the firm is established in our laws, economic and financial theory, management practices, and language. While students commonly assume the identity of being key stakeholders of higher education, the present article explores the possible complications stemmed from such key identity. Jan 10, 20 firstly, it is necessary to understand some definitions of shareholders, stakeholders, shareholder theory and stakeholder theory. The stakeholder theory evolved in different forms over the period, has assumed much popularity and a distinct place in the business ethics literature. A typology based on the division of stakeholder theories into normative, descriptive, and instrumental is rejected on the grounds that the latter two designations refer to second order theories rather than divisions within stakeholder theory and the first is a designation which, for the purposes of business ethics, applies to all stakeholder theories. The shareholder and stakeholder theories of corporate purpose. Enron case is a remarkable example to show the failure of shareholder theory in pursuing shareholder wealth maximization not paying attention to stakeholders interests. Over the last twentyfive years a distinctive answer to this question has emerged in a body of ideas known as stakeholder theory.
Therefore we see that the traditional theory had two aims, i. Making reference to the theory with no restrains leads reasonably to. The stakeholder theory of the corporation western washington. There are four types of books that specialize in the stakeholder field. An interesting and important aspect of stakeholder theory is that it is comprehensive in its approach. Theory and practice this book is distinctive in that it deals with theory, practice, policy, and education. Doc a critique of stakeholder theory samuel mansell. In contrast, the stakeholder view, based on stakeholder theory, holds that. The cost of producing goods and services is the opportunity cost of the resources i. Stakeholder theory as an ethical approach to effective. Shareholders theory and stakeholders theory are the two normative theories of business ethics and corporate social responsibility. 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. The purpose of this chapter is to trace the development of what has come to be known as stakeholder theory. Stakeholder theory advocates for treating all stakeholders with fairness.
This is the traditional view of the purpose of a corporation, since many people buy shares in a company strictly in order to earn the maximum possible return on their f. Ejbo electronic journal of business ethics and organization studies. Stakeholder and shareholder theories have been discussed intensely with each being viewed and exhibited as having both its merits and demerits. The analysis of shareholder theory and stakeholder theory. Shareholder theory equates to an influential view on the role of business in society which pushes the idea that the only responsibility of managers is to serve in the best possible way the interests of shareholders, using the resources of the corporation to. Throughout this article we use the terms stakeholder theory, stakehold. Business schools hold shareholder value theory as a central tenet. 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. Preston university of maryland the stakeholder theory has been advanced and justified in the man agement literature on the basis of its descriptive accuracy, instrumen tal power, and normative validity. According to michael poster father of competitive theory, the fundamental firms objective is getting the higher roic return on invested capital. International journal of applied institutional governance volume 1 issue 1 the stakeholder theory in the modern global business environment tony ike nwanji phd researcher on corporate governance kerry e. In response to corporate scandals of recent years including. Mcnulty abstract milton friedman famously stated that the only social responsibility of business is to increase its pro. Shareholder theory vs stakeholder theory prolific essays.
Less literally, stakeholder means he, or she, who has a stake in something. The main challenger is stakeholder theory, which argues that the corporation exists to benefit not just investors but all its major constituenciesemployees, customers, suppliers, the local community, and the federal government, as well as shareholders. Positioning stakeholder theory within the debate on corporate. The stakeholder theory suggests there are differences between. In a stakeholder model, therefore, the theory of value creation implies that. The authors argue that stakeholder marketing is slowly coalescing with the broader thinking that has occurred in the stakeholder management and ethics literature streams during the past quarter century. The supporters of shareholder theory argue that a business primary objective is to gain profits. In conclusion, shareholder wealth maximization is a superior objective over stake holder interests. From the stakeholder to stakeholder theory request pdf. Use features like bookmarks, note taking and highlighting while reading stakeholder theory. Stakeholder theory, corporate governance and public. By examining the role of shareholders, we contest two common. Pdf according to most scholars in the field, stakeholder theory is not a special theory on a firms constituencies but sets out to replace todays.
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