Both stockholder and stakeholder theories are normative theories of corporate social responsibility that outline the ethical responsibilities of a corporation. Use features like bookmarks, note taking and highlighting while reading stakeholder theory. Stakeholder theory, value, and firm performance edisciplinas. 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. 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. To do so, we examine competitive advantage through a stakeholder lens by integrating its core. It addresses morals and values in managing an organization, such as those related. The features of this mainstream viewpoint are that it tends to be u. To begin we go back to freemans original book and retell the story, told there, of the origins of the idea of stakeholders. Edward freeman published his landmark book, strategic management. In corporate governance theory, there are two kinds of arguments. In the intervening years, the literature on stakeholder theory has become vast and diverse. The common good, stakeholder theory and the theory of the firm.
However, the predominant view of stakeholders that many marketers advocate is still primarily pragmatic and company centric. According to michael poster father of competitive theory, the fundamental firms objective is getting the higher roic return on invested capital. 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. In conclusion, shareholder wealth maximization is a superior objective over stake holder interests. So, shareholder theory is a form of ethical egoism. A stakeholder approach, a work that set the agenda for what we now call stakeholder theory. Differentiate between the systems theory, social network theory, collaboration theory and social exchange theory. The stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. Broad instrumental stakeholder theory could even be seen as an extension of shareholder theory into the phenomenon of firmstakeholder relationships figure 2. 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. Less literally, stakeholder means he, or she, who has a stake in something.
Stockholder theory and stakeholder theory map out these two paths, allowing each business to decide which ethical path it will choose to take. Stakeholder theory as an ethical approach to effective. Stakeholder theory and the corporate objective revisited 366 organization science 153, pp. 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. 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. 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. 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. 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. 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. Freeman argues that the duty of managers within a corporation is not to shareholders or stockholders i. Making reference to the theory with no restrains leads reasonably to. 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. 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.
The stakeholder theory suggests there are differences between. We intend to accomplish this in what is perhaps an unusual manner. The contribution of stakeholder theory 271 kamoche and mueller 1998. In a stakeholder model, therefore, the theory of value creation implies that. He is generally credited with popularizing the stakeholder concept. Objections to friedmans shareholderstockholder theory. Yes, sometimes the interests are in conflict, but over time they must be shaped in the same direction. 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. Both the shareholder1 and stakeholder theories are normative theories of corporate. The theory claims that the corporations should serve the interests of all stakeholders rather than shareholders only.
Mcnulty abstract milton friedman famously stated that the only social responsibility of business is to increase its pro. 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, when introduced in the 1980s, signify a major change in how relationships within a business might coexist and benefit one another. The primary purpose of this paper is to bring stakeholder theory into the mainstream of thought in strategic management. Like customers, suppliers, employees, and local communities, shareholders have a stake in, and are affected by, the.
There are four types of books that specialize in the stakeholder field. Concepts, evidence, and implications thomas donaldson georgetown university lee e. Hired managers and ceos are obliged to serve interests of owners and make money for them, without particular regard to welfare. An interesting and important aspect of stakeholder theory is that it is comprehensive in its approach. Thus, this gives rise to a network of dyadic obligations among the stakeholder groups of the corporation. It was originally detailed by ian mitroff in his book stakeholders of the organizational mind, published in 1983 in san francisco. But, best promotes ones own self interest is just what maximizes their own profits means in business terminology.
Jan 10, 20 firstly, it is necessary to understand some definitions of shareholders, stakeholders, shareholder theory and stakeholder theory. His 1984 book on strategic management, subtitled a stakeholder approach, is now widely recognised as a founding text on the subject. In fact, studies reveal that corporations are capable of successfully serving the objectives of multiple stakeholders. The stakeholder theory evolved in different forms over the period, has assumed much popularity and a distinct place in the business ethics literature.
Stakeholder theory demands that interests of all stakeholders should be considered even if it reduces company profitability i. The analysis of shareholder theory and stakeholder theory. Introduction 1 stakeholder theory has been the object of many interpretations. 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. 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. Ejbo electronic journal of business ethics and organization studies. Edward freemans stakeholder theory holds that a companys stakeholders include just about anyone affected by the company and its workings. Stakeholder reciprocity could be an innovative criterion in the corporate governance debate as to who should be accorded representation on the board. The result is a view of stakeholder theory that is an ethical theory, a theory of the firm, and a theory of management. A powerpoint presentation that discusses the difference between shareholder and stakeholder theory in the context of the economics of strategy. Download it once and read it on your kindle device, pc, phones or tablets.
A stakeholder theory approach to the organisational performance and influence of informationcommunication technology. The purpose of this chapter is to trace the development of what has come to be known as stakeholder theory. Therefore we see that the traditional theory had two aims, i. Enron case is a remarkable example to show the failure of shareholder theory in pursuing shareholder wealth maximization not paying attention to stakeholders interests. Stakeholders debate should companies seek only to maximize shareholder value or strive to serve the often conflicting interests of all stakeholders. Howell professor of governance and regulation issn. 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. Stakeholder theory and the corporate objective revisited.
Shareholder value theory is the dominant economic theory in use by business. 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 theory has its strengths attributed by its conceptual breath and versatility. The shareholder and stakeholder theory management essay. 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. Conflicts between shareholder theory and stakeholder theory.
The common good, stakeholder theory and the theory of. Shareholder is an individual or corporation owning stock in a public or private company. The concept of the stakeholder is generally applied to parties that affect. Conflicts between shareholder theory and stakeholder. Stakeholder theory an overview sciencedirect topics. 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. 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 which states that businesses do have social responsibilities. Check your knowledge with an interactive quiz and printable worksheet. Shareholder theory is the view that the only duty of a corporation is to maximize the profits accruing to its shareholders. Dec 10, 2018 stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. Stakeholder theory advocates for treating all stakeholders with fairness.
Shareholders theory and stakeholders theory are the two normative theories of business ethics and corporate social responsibility. The stakeholder perspective is an alternative way of understanding how companies and people create value and trade with each other. In contrast, the stakeholder view, based on stakeholder theory, holds that. 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. Pdf applying stakeholder theory to egovernment researchgate. Guidance can be found in exploring exactly what each theory does, and doesnt, say. Employing economic, legal and behavioral analyses, the author concludes that, although the shareholder theory is often inaccurately maligned, stakeholder theory may be. 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. The supporters of shareholder theory argue that a business primary objective is to gain profits. 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. One is a firm should focus on the shareholder wealth maximization, which is called theory of shareholder. 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.
Stakeholder theory, corporate governance and public. 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. 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 shareholder and stakeholder theories of corporate. Business schools hold shareholder value theory as a central tenet. 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. It is contended in this discussion that there is a common paradigm that is pervasive throughout research and practice in hrm. Recall that ethical egoism is the view which states that the morally right action is the one that best promotes ones own selfinterest. Doc a critique of stakeholder theory samuel mansell.
From the stakeholder to stakeholder theory request pdf. 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. In response to corporate scandals of recent years including. Positioning stakeholder theory within the debate on corporate.
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. 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. In particular, many shareholder theory advocates are quick to. Stakeholder theory a model for strategic management maria. Over the last twentyfive years a distinctive answer to this question has emerged in a body of ideas known as stakeholder theory. Throughout this article we use the terms stakeholder theory, stakehold. Another one is a firm should focus on not only the interest of shareholders, but also employees, suppliers. Common good, company, ethics, goods, management, stakeholders, stakeholder theory, theory of the firm. 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. Shareholder decides the membership of the board of directors by making a vote. Stakeholder theory is an alternative approach to understanding the purpose of a corporation. The shareholder and stakeholder theories of corporate purpose. Maximizing shareholder wealth as the purpose of the firm is established in our laws, economic and financial theory, management practices, and language.
The stakeholder theory of the corporation western washington. The title of the work is strategic management and only the subtitle is a stakeholder approach and came out in 1984. By examining the role of shareholders, we contest two common. Shareholder theory vs stakeholder theory prolific essays. 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. Theory and practice this book is distinctive in that it deals with theory, practice, policy, and education. 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.
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