The SHAKEholder view of Corporate Responsibility Flashcards
Who are stakeholders?
All of those who have a claim upon the corporation:
- suppliers
- customers
- employees
- shareholders
- local community
- competitors
- unionists, NFPs etc
What is a stake?
- An investment (financial stake or non-economic investment such as employee moving for a job)
- exposure to risk
- a claim for consideration
- capacity to influence the firm
- capacity to benefit or harm the firm
The ECONOMIC argument for stakeholder view
Markets don’t operate efficiently where there are:
-externalities
-information asymmetry
-monopoly power
Efficiency increased if corporations recognise and manage interests of their stakeholders
The LEGAL argument for the stakeholder view
- Law has moved away from caveat emptor (buyer beware) to caveat venditor (seller beware)
- Evident in areas such as product safety, labour relations, pollution controls etc
The ETHICAL argument for stakeholder view (Freeman)
- Principle of Corporate Rights (deontological): the corp and managers may not violate the rights of others to determine their own futures
- Principle of Corporate Effects (utilitarian): the corp and its managers are responsible for the effects of their actions on others
Two levels of business ethics
- Normative theory of business ethics: what ‘should’ be, prescriptive
- Descriptive/instrumental theory of management: what is? what could be? empirical, also consistent with shareholder theory
Stakeholder salience model: instrumental theory
Stakeholders have three attributes which impact performance:
- power: capacity to influence firm
- legitimacy: how they’re seen by others
- urgency: incorporates time
Normative stakeholder theory: principle of fairness
Where a stakeholder has invested in an organisation, and that investment has been accepted, the organisation owes a duty for a fair return to the stakeholder (proportional to investment)
Criticisms of stakeholder theory (Sternberg):
1. Stakeholder theory is incompatible with business
-Not compatible with single over-riding objective of maximising long-term shareholder value
Response: shareholder theory is to simplistic for dynamic business environment
Criticisms of stakeholder theory (Sternberg):
2. Balancing stakeholder benefits is an unworkable objective
-Unlimited number of stakeholders, all are given equal importance, unlimited number of claims
Response: criteria exist as to how stakeholders can be identified and limited; normative - benefits are distributed based on relative contribution to the org; strategic - stakeholder salience determined management prioritisation
Criticisms of stakeholder theory (Sternberg):
3. Stakeholder theory is incompatible with good corporate governance
-Key to corp gov is accountability (directors, execs etc), however stakeholder model says that corporations are equally accountable to all stakeholders, divided accountability, managerial opportunism
Response: managers are agents of the organisation; stakeholder accountability is not reduced accountability; managerial opportunism no more of a problem than for shareholder view
Criticisms of stakeholder theory (Sternberg):
4. Stakeholder theory of accountability is unjustified
Laws and regulations exist to protect various stakeholder groups, there is no need for additional accountability
Response: corporations that want to create value should go beyond the law in their stakeholder relationships, stakeholder theory doesn’t advocate additional laws
Criticisms of stakeholder theory (Sternberg):
5. Stakeholder theory undermines private property, agency and wealth
-Undermines private property because it denies owners the right to determine ho their property will be used; stakeholder theory denies the duty that agents owe to principals; if shareholder view abandoned, long term wealth will be diminished
Response: stakeholder theory defines property more broadly and incorporates rights of all contributors, the agency relationship is honoured, objective is value creation to organisation and stakeholders
Goodpaster stakeholder models: 1. strategic stakeholder model
- Maximise benefits and minimise costs to shareholder
- Pay close attention to the interest of other stakeholder groups that may influence the achievement of (1) - Friedman realises that if stakeholder groups are not handled properly, profits may suffer
Goodpaster stakeholder models: 2. Multifiduciary model
-Management bears fiduciary obligation to all stakeholders in an enterprise
-The interests of all stakeholder groups are treated as morally significant when decisions are made
-Profit maximisation for the shareholders does not automatically take precedence over the interests of other stakeholders
(controversial theory, contrast to strategic model)
