Stakeholder theory

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Examples of a company's internal and external stakeholders Stakeholder (en).svg
Examples of a company's internal and external stakeholders
Protesting students invoking stakeholder theory at Shimer College in 2010 Listen to your stakeholders Shimer College 2.jpg
Protesting students invoking stakeholder theory at Shimer College in 2010

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. [1] It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and social contract theory.

Contents

The stakeholder view of strategy integrates a resource-based view and a market-based view, and adds a socio-political level. 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 managers treat these parties as stakeholders (the descriptive theory of stakeholder salience). [2]

In fields such as law, management, and human resources, stakeholder theory succeeded in challenging the usual analysis frameworks, by suggesting that stakeholders' needs should be put at the beginning of any action. [3] Some authors, such as Geoffroy Murat, tried to apply stakeholder's theory to irregular warfare. [4]

History

Concepts similar to modern stakeholder theory can be traced back to longstanding philosophical views about the nature of civil society itself and the relations between individuals. [5] In Miles v Sydney Meat-Preserving Co Ltd (1912), which saw the rejection of a shareholder's legal right to a dividend, Australian chief justice Samuel Griffith observed that:

The law does not require the members of a company to divest themselves, in its management, of all altruistic motives, or to maintain the character of the company as a soulless and bowelless thing, or to exact the last farthing in its commercial dealings, or forbid them to carry on its operations in a way which they think conducive to the best interests of the community as a whole. [6]

The word "stakeholder" in its current use first appeared in an internal memorandum [7] at the Stanford Research Institute in 1963. [5] [8] Subsequently, a "plethora" [5] of stakeholder definitions and theories were developed. [9] [5] In 1971, Hein Kroos and Klaus Schwab published a German booklet Moderne Unternehmensführung im Maschinenbau [10] (Modern Enterprise Management in Mechanical Engineering) arguing that the management of a modern enterprise must serve not only shareholders but all stakeholders (die Interessenten) to achieve long-term growth and prosperity. This claim is disputed. [11] US authors followed; for example, in 1983, Ian Mitroff published "Stakeholders of the Organizational Mind" in San Francisco. R. Edward Freeman had an article on Stakeholder theory in the California Management Review in early 1983, but makes no reference to Mitroff's work, attributing the development of the concept to internal discussion in the Stanford Research Institute. He followed this article with a book Strategic Management: A Stakeholder Approach. This book identifies and models the groups which are stakeholders of a corporation, and both describes and recommends methods by which management can give due regard to the interests of those groups. In short, it attempts to address the "principle of who or what really counts. In the traditional view of a company, the shareholder view, only the owners or shareholders of the company are important, and the company has a binding fiduciary duty to put their needs first, to increase value for them. Stakeholder theory instead argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted as stakeholders – their status being derived from their capacity to affect the firm and its stakeholders. The nature of what constitutes a stakeholder is highly contested (Miles, 2012), [12] with hundreds of definitions existing in the academic literature (Miles, 2011). [13]

Development

Numerous articles and books written on stakeholder theory generally identify Freeman as the "father of stakeholder theory". [14] Freeman's Strategic Management: A Stakeholder Approach (1984) is widely cited in the field as being the foundation of stakeholder theory, [15] although Freeman himself refers to several bodies of literature used in the development of his approach, including strategic management, corporate planning, systems theory, organization theory, and corporate social responsibility. A related field of research examines the concept of stakeholders and stakeholder salience, or the importance of various stakeholder groups to a specific firm.

An anticipation of such concepts, as part of Corporate Social Responsibility, appears in a publication that appeared in 1968 by the Italian economist Giancarlo Pallavicini, creator of "the decomposition method of the parameters" to calculate the results are not directly economic activity of enterprise, regarding ethical issues, moral, social, cultural and environmental. [16]

More recent scholarly works on the topic of stakeholder theory that exemplify research and theorizing in this area include Donaldson and Preston (1995), [15] Mitchell, Agle, and Wood (1997), [17] Friedman and Miles (2002), [18] and Phillips (2003). [19]

Thomas Donaldson and Lee E. Preston argue that the theory has three distinct but mutually supportive aspects, descriptive, instrumental, and normative: [20]

Since the publication of this article in 1995, it has served as a foundational reference for researchers in the field, having been cited over 1,100 times.[ citation needed ]

Mitchell, et al. derive a typology of stakeholders based on the attributes of power (the extent a party has means to impose its will in a relationship), legitimacy (socially accepted and expected structures or behaviors), and urgency (time sensitivity or criticality of the stakeholder's claims). [23] By examining the combination of these attributes in a binary manner, 8 types of stakeholders are derived along with their implications for the organization. Friedman and Miles explore the implications of contentious relationships between stakeholders and organizations by introducing compatible/incompatible interests and necessary/contingent connections as additional attributes with which to examine the configuration of these relationships. [24] Robert Allen Phillips distinguishes between normatively legitimate stakeholders (those to whom an organization holds a moral obligation) and derivatively legitimate stakeholders (those whose stakeholder status is derived from their ability to affect the organization or its normatively legitimate stakeholders).

Implementation in other fields

Stakeholder theory succeeds in becoming famous not only in the business ethics fields; it is used as one of the frameworks in corporate social responsibility methods. For example, ISO 26000 and GRI (Global Reporting Initiative) involve stakeholder analysis. [25]

In the field of business ethics, Weiss, J.W. (2014) illustrates how stakeholder analysis can be complemented with issues management approaches to examine societal, organizational, and individual dilemmas. Several case studies are offered to illustrated uses of these methods.

Stakeholder theory has seen growing uptake in higher education in the late 20th and early 21st centuries. [26] One influential definition defines a stakeholder in the context of higher education as anyone with a legitimate interest in education who thereby acquires a right to intervene. [27] Studies of higher education first began to recognize students as stakeholders in 1975. [28] External stakeholders may include employers. [28] In Europe, the rise of stakeholder regimes has arisen from the shift of higher education from a government-run bureaucracy to modern systems in which the government's role involves more monitoring than direct control. [29]

Economist and university professor Danuše Nerudová, a candidate in the 2023 Czech presidential election, is a proponent of stakeholder capitalism where "questions of sustainability and global politics, as well as the development of domestic societies" will have increased relevance for company and state decision making. Researcher Benjamin Tallis has examined whether a move from neoliberalism to stakeholder capitalism, "which implies a different role for the state as well as a focus on creating more cohesive and resilient societies", could affect public optimism in the Czech Republic. [30]

Criticism

The political philosopher Charles Blattberg has criticized stakeholder theory for assuming that the interests of the various stakeholders can be, at best, compromised or balanced against each other. Blattberg argues that this is a product of its emphasis on negotiation as the chief mode of dialogue for dealing with conflicts between stakeholder interests. He recommends conversation instead and this leads him to defend what he calls a 'patriotic' conception of the corporation as an alternative to that associated with stakeholder theory. [31]

Management scholar Samuel F. Mansell argued that stakeholder theory, by applying the political concept of a 'social contract' to the corporation, undermines the principles on which a market economy is based, and could thereby increase the opportunities of weak stakeholder exploitation by self-interested managers rather than to decrease them. [32]

See also

Related Research Articles

Business ethics is a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations. These ethics originate from individuals, organizational statements or the legal system. These norms, values, ethical, and unethical practices are the principles that guide a business.

The reputation or prestige of a social entity is an opinion about that entity – typically developed as a result of social evaluation on a set of criteria, such as behavior or performance.

Corporate governance are mechanisms, processes and relations by which corporations are controlled and operated ("governed").

<span class="mw-page-title-main">Corporate social responsibility</span> Form of corporate self-regulation aimed at contributing to social or charitable goals

Corporate social responsibility (CSR) or corporate social impact is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in, with, or supporting professional service volunteering through pro bono programs, community development, administering monetary grants to non-profit organizations for the public benefit, or to conduct ethically oriented business and investment practices. While once it was possible to describe CSR as an internal organizational policy or a corporate ethic strategy similar to what is now known today as Environmental, Social, Governance (ESG); that time has passed as various companies have pledged to go beyond that or have been mandated or incentivized by governments to have a better impact on the surrounding community. In addition, national and international standards, laws, and business models have been developed to facilitate and incentivize this phenomenon. Various organizations have used their authority to push it beyond individual or industry-wide initiatives. In contrast, it has been considered a form of corporate self-regulation for some time, over the last decade or so it has moved considerably from voluntary decisions at the level of individual organizations to mandatory schemes at regional, national, and international levels. Moreover, scholars and firms are using the term "creating shared value", an extension of corporate social responsibility, to explain ways of doing business in a socially responsible way while making profits.

<span class="mw-page-title-main">Applied philosophy</span> Branch of philosophy

Applied philosophy is a branch of philosophy that studies philosophical problems of practical concern. The topic covers a broad spectrum of issues in environment, medicine, science, engineering, policy, law, politics, economics and education. The term was popularised in 1982 by the founding of the Society for Applied Philosophy by Brenda Almond, and its subsequent journal publication Journal of Applied Philosophy edited by Elizabeth Brake. Methods of applied philosophy are similar to other philosophical methods including questioning, dialectic, critical discussion, rational argument, systematic presentation, thought experiments and logical argumentation.

In a corporation, a stakeholder is a member of "groups without whose support the organization would cease to exist", as defined in the first usage of the word in a 1963 internal memorandum at the Stanford Research Institute. The theory was later developed and championed by R. Edward Freeman in the 1980s. Since then it has gained wide acceptance in business practice and in theorizing relating to strategic management, corporate governance, business purpose and corporate social responsibility (CSR). The definition of corporate responsibilities through a classification of stakeholders to consider has been criticized as creating a false dichotomy between the "shareholder model" and the "stakeholder model", or a false analogy of the obligations towards shareholders and other interested parties.

<span class="mw-page-title-main">Social responsibility</span> Ethical framework

Social responsibility is an ethical framework in which a person works and cooperates with other people and organizations for the benefit of the community.

Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value".

Double bottom line seeks to extend the conventional bottom line, which measures fiscal performance—financial profit or loss—by adding a second bottom line to measure a for-profit business's performance in terms of positive social impact. There is controversy about how to measure the double bottom line, especially since the use of the term "bottom line" implies some form of quantification. A 2004 report by the Center for Responsible Business noted that while there are "generally accepted principles of accounting" for financial returns, "A comparable standard for social impact accounting does not yet exist." Social return on investment has been suggested as a way to quantify the second bottom line, though defining and measuring social impact can prove elusive.

Corporate behaviour is the actions of a company or group who are acting as a single body. It defines the company's ethical strategies and describes the image of the company. Studies on corporate behaviour show the link between corporate communication and the formation of its identity.

Sustainability reporting refers to the disclosure, whether voluntary, solicited, or required, of non-financial performance information to outsiders of the organization. Sustainability reporting deals with qualitative and quantitative information concerning environmental, social, economic and governance issues. These are the criteria often gathered under the acronym ESG.

Stakeholder analysis in conflict resolution, business administration, environmental health sciences decision making, industrial ecology, public administration, and project management is the process of assessing a system and potential changes to it as they relate to relevant and interested parties known as stakeholders. This information is used to assess how the interests of those stakeholders should be addressed in a project plan, policy, program, or other action. Stakeholder analysis is a key part of stakeholder management. A stakeholder analysis of an issue consists of weighing and balancing all of the competing demands on a firm by each of those who have a claim on it, in order to arrive at the firm's obligation in a particular case. A stakeholder analysis does not preclude the interests of the stakeholders overriding the interests of the other stakeholders affected, but it ensures that all affected will be considered.

<span class="mw-page-title-main">Hybrid organization</span>

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Robert Edward Freeman is an American philosopher and professor of business administration at the Darden School of the University of Virginia, particularly known for his work on stakeholder theory (1984) and on business ethics.

Stakeholder management is a critical component in the successful delivery of any project, programme or activity. A stakeholder is any individual, group or organization that can affect, be affected by, or perceive itself to be affected by a programme.

<span class="mw-page-title-main">Friedman doctrine</span> Theory that the only social responsibility of business is to increase its profits

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A corporate social entrepreneur (CSE) is someone who attempts to advance a social agenda in addition to a formal job role as part of a corporation. It is possible for CSEs to work in organizational contexts that are favourable to corporate social responsibility (CSR). CSEs focus on developing both social capital and economic capital, and their formal job role may not always align with corporate social responsibility. A person in a non-executive or managerial position can still be considered a CSE.

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References

  1. ↑ Lin, Tom C. W., Incorporating Social Activism (December 1, 2018). 98 Boston University Law Review 1535 (2018)
  2. ↑ Phillips, Robert (2003). Stakeholder Theory and Organizational Ethics. Berrett-Koehler Publishers. p. 66. ISBN   978-1576752685.
  3. ↑ Harrison, Wicks, Parmar and De Colle, Stakeholder Theory, State of the Art, Cambridge University Press, 2010
  4. ↑ Connelley and Tripodi, Aspects of leadership, Ethics, law and Spirituality, Marines Corps University Press, 2012, pp. 39–59
  5. 1 2 3 4 Alex Murdock: Stakeholders. In: Helmut K. Anheier, Stefan Toepler (eds.): International Encyclopedia of Civil Society. doi:10.1007/978-0-387-93996-4_154.
  6. ↑ Baumfield, Victoria (2016). "Stakeholder theory from a management perspective: Bridging the shareholder/stakeholder divide" (PDF). Australian Journal of Corporate Law. 31 (1): 187–207.
  7. ↑ R. F. Stewart, J. K. Allen, J. M Cavender: The Strategic Plan, LRPS report no. 168. Long Range Planning Service, Menlo Park: Stanford Research Institute.
  8. ↑ R. W. Puyt, F. B. Lie, F. J. Graaf: Contagious ideas and cognitive artefacts: the SWOT Analysis evolution in business. BAM2017 Conference Proceedings, 2017.
  9. ↑ Bidhan L. Parmar, R. Edward Freeman, Jeffrey S. Harrison, Andrew C. Wicks, Simone de Colle, Lauren Purnell: Stakeholder theory: the state of the Art. The Academy of Management Annals, June 2010, doi:10.1080/19416520.2010.495581.
  10. ↑ Schwab, Klaus; Kroos, Hein (1971). Moderne Unternehmensführung im Maschinenbau (PDF).
  11. ↑ WEF-Gründer Klaus Schwab schmückt sich mit fremden Federn. 17 January 2020.
  12. ↑ Miles, Samantha (2012). "Stakeholders: essentially contested or just confused?". Journal of Business Ethics. 108 (3): 285–298. doi:10.1007/s10551-011-1090-8. S2CID   89609310.
  13. ↑ Miles, Samantha (2011). "Stakeholder Definitions: Profusion and Confusion". EIASM 1st Interdisciplinary Conference on Stakeholder, Resources and Value Creation, IESE Business School, University of Navarra, Barcelona.
  14. ↑ Laplume, André; Karan Sonpar; Reginald Litz (Dec 2008). "Stakeholder Theory: Reviewing a Theory That Moves Us". Journal of Management. 34 (6): 1152–1189. doi:10.1177/0149206308324322. S2CID   143857200.
  15. 1 2 Donaldson, Thomas; Preston, Lee E. (1995). "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications". Academy of Management Review. 20 (1): 65–91. doi:10.5465/amr.1995.9503271992. JSTOR   258887.
  16. ↑ "Integrated structures in the Italian distribution system", Giuffre Editore, Milan, 1968, pp. VIII / 351 ^ "Universal Biographical Encyclopedia" Treccani, 2007 Edition, Vol. 14, p. 617; "Treccani - Portal", Social Sciences / economists / Biographies; Annual Meeting Bancoper, Bologna, 15.11.2008, Prefect Angelo Tranfaglia, "Profit and social responsibility", p. 12; "Finanza e Mercati", February 3, 2009, p. 11, Mara Consoli, "When ethics become a bargain"; New Chronicles, CNEL, Rome, 12.01.2009, Adelaide Mochi, "Socialis Prize and corporate social responsibility"
  17. ↑ Mitchell, Ron; Agle, BR; Wood, DJ (1997). "Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts". Academy of Management Review. 22 (4): 853–886. doi:10.2307/259247. JSTOR   259247.
  18. ↑ Friedman, Andrew L.; Samantha Miles (2006). Stakeholders: Theory and Practice. Oxford University Press. ISBN   978-0199269860.
  19. ↑ Phillips, Robert (2003). Stakeholder Theory and Organizational Ethics. Berrett-Koehler Publishers. ISBN   978-1-57675-268-5.
  20. ↑ Donaldson, Thomas; Preston, Lee E. (1995). "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications". Academy of Management Review. 20 (1): 70–71. doi:10.2307/258887. JSTOR   258887.
  21. ↑ Donaldson, Thomas; Preston, Lee E. (1995). "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications". Academy of Management Review. 20 (1): 70. doi:10.2307/258887. JSTOR   258887.
  22. 1 2 Donaldson, Thomas; Preston, Lee E. (1995). "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications". Academy of Management Review. 20 (1): 71. doi:10.2307/258887. JSTOR   258887.
  23. ↑ Mitchell, R. K.; Agle, B. R.; Wood, D. J. (1997). "Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts". Academy of Management Review. 22 (4): 853–886. doi:10.2307/259247. JSTOR   259247.
  24. ↑ Friedman, Andrew L.; Miles, Samantha (2002). "Developing Stakeholder Theory". Journal of Management Studies. 39 (1): 1–21. doi:10.1111/1467-6486.00280. S2CID   143220996.
  25. ↑ Duckworth, Holly Alison; Moore, Rosemond Ann (2010). Social Responsibility: Failure Mode Effects and Analysis. CRC Press. p. 10. ISBN   978-1439803745.
  26. ↑ Leisyte, I.; Westerheijden, D.F. (2014). "Stakeholders and Quality Assurance in Education". In Eggins, Heather (ed.). Drivers and Barriers to Achieving Quality in Higher Education. Springer. p. 84. ISBN   978-9462094949.
  27. ↑ Bjørkquist, Catharina (2011). Stakeholder Regimes in Higher Education. Waxmann Verlag. p. 23. ISBN   978-3830974406.
  28. 1 2 Leisyte & Westerheijden 2014, p. 86.
  29. ↑ Neaves, Guy (2002). "The Stakeholder Perspective". In Teichler, Ulrich; Enders, J.; Fulton, Oliver (eds.). Higher Education in a Globalising World. Springer. p. 33. ISBN   978-1402008641.
  30. ↑ Tallis, Benjamin (3 January 2023). "INTERVIEW: Presidential candidate Danuše Nerudová on the EU, economy, and what sets her apart". Expats Cz. Retrieved 10 January 2023.
  31. ↑ Blattberg, Charles (2004). "Welfare: Towards the Patriotic Corporation". From Pluralist to Patriotic Politics: Putting Practice First. New York: Oxford University Press. pp. 172–184. ISBN   978-0-19-829688-1.
  32. ↑ Mansell, Samuel F. (2013). Capitalism, Corporations and the Social Contract: A Critique of Stakeholder Theory. Business, Value Creation, and Society. Cambridge, UK; New York: Cambridge University Press. doi:10.1017/cbo9781139058926. ISBN   9781107015524. OCLC   808628201.

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