M2 - U1 - Class 18 - Stakeholder Theory Flashcards
- Why does Friedman call profitable CSR activities “hypocritical window dressing”?
Continue business as usual. Businesses only care about business…
- According to Sundaram and Inkpen, why does stakeholder management distort good risk-taking?
Bad risk taking because it distorts incentives. Shareholders can take more risks because of their portfolios but stakeholders may not easily diversify their portfolios. Shareholders are the residual claimers whereas everyone else is fixed.
stakeholders
Who are the stakeholders
Stakeholders: Any groups that can affect or are affected by the business operation of the corporation
Goes both ways
Shareholders affect company and are affected too and they can also be stakeholders
Non-share holding stakeholders
stakeholder theory
Stakeholder Theory
Primary objective of corporation is to attend to the stakeholder interests
Stakeholders consist of various groups with heterogeneous interests (employees, suppliers, customers, etc.)
Therefore, corporations should balance the interests of multiple stakeholder groups
The question is … WHY?
“Why should the stakeholder theory be accepted or preferred over alternative concepts” (Donaldson & Preston, p.73)
three reasons to stakeholder theory
Descriptive
60% of children at your school eat vegetables every day
Instrumental
If you eat vegetables, you stay healthy
If you at vegetables, you get a prize
If you don’t eat vegetables, you get a punishment
Normative
You should eat vegetables because it is the right thing to do
three types of justifications
Descriptive
People are doing X (so you should do X too)
Most fortune 500 corporations do stakeholder management
Instrumental
If you do X, you will get Y (so you should do X)
If you do X, you will avoid Z (so you should do X)
Prescriptive, hypothetical (If… then)
Companies that do stakeholder management tend to be financially successful
Normative
You should do X because it is the right thing to do
Prescriptive, categorical
Companies should do stakeholder management because it is the right thing to do
descriptive justification
Many managers say they believe stakeholder theory
Many companies practice some sort of stakeholder management
Laws and legal opinion reflect stakeholder consideration
Is this a sufficient justification?
instrumental justification
Do companies that practice stakeholder management perform better financially than companies that do not practice it?
How do we test this hypothesis?
Might be the other way around
is there any evidence
a little scattered…
normative justification
“The ultimate justification for the stakeholder theory is to be found in its normative base.” (pp.87-88)
The right of property ownership: “the right to carry out a circumscribed list of actions,” “The right of ownership is not an unrestricted right” (p.83)
How is ownership of corporate stocks different from ownership of other assets?
“The normative principles that underlie the contemporary pluralistic theory of property rights provide the foundation for the stakeholder theory.” (p.85)
justifications
Shareholder value principle
Maximizing shareholder value maximizes …
Stakeholder management distorts …
Having more than one objective function …
Non-shareowning stakeholders can …
The law fills the judicial void …
Stakeholder theory
Descriptive justification
Instrumental justification
Normative justification
discussion questions
What are the three justifications of stakeholder theory?
Descriptive, instrumental and normative
According to Donaldson and Preston, why isn’t a descriptive justification of stakeholder theory sufficient?
Because other people are doing it doesn’t mean it’s right
Just cuz other companies are doing it doesnt mean you should too
