If there is only one firm, the stakeholder equilibrium is pareto optimal. Edward freeman corporations have ceased to be merely legal devices through which the private business transactions of individuals may be carried on. A stakeholder is a party that has an interest in a company, and can either affect or be affected by the business. Linked references are available on jstor for this article. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. The theory represents asynthesisof the stakeholder concept, economic theory, insights from behavioral science, and ethics. Among these, stakeholder theory or stakeholder thinking has emerged as a new narrative to understand and remedy three interconnected business problemsthe problem of understanding. Kantian capitalism scroll down the pdf to locate this reading add to my bookmarks export citation. The first aspect of the theory creates a framework for checking the connections between the practice of stakeholder management and the success of a corporations performance. Pdf there is a widely held view within the general public that large corporations should act in the interests of a broader group of agents than. A stakeholder approach, a work that set the agenda for what we now call stakeholder theory. Dialogue on the stakeholder theory of the corporation.
The corporation has, in fact, become both a method of property tenure and a. Besides, a stakeholder group might have certain duties and obligations to its own set of stakeholders, and to the other groups of stakeholder of the corporation. Edward freeman many groups have a moral claim on the corporation because the corporation has the potential to harm or benefit them call these groups stakeholders. 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. Concepts, evidence, and implications thomas donaldson georgetown university lee e. 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. Stakeholder theory of the modern corporation university of dayton. The authors take issue with the foundation of the argument, claiming that the theory loses force and clarity when presented as a descriptive model.
Wileyblackwell is not responsible for the content or functionality of any supporting information supplied by the authors. Company, interest groups, income, stakeholders, value. The stakeholder theory has been advanced and justified in the management literature on the basis of its descriptive accuracy, instrumental power, and normative validity. Edward freeman date 1988 page start 97 page end 106 web address. Edward freeman a stakeholder theory of the modern corporation freeman, managing for stakeholders humanity argument. Examine social responsibility and how it influences stakeholder management differentiate between the systems theory, social network theory, collaboration theory and social exchange theory. Pdf stakeholders theory and corporate social responsibility in. Stakeholder theory and the corporate objective revisited organization science 153, pp. Aseem nath tripathi introduction there is a continuing debate about what the purpose of the modern corporation should be.
Murphy, stevens, mcleod, and andersen 1997 contend that the fundamental change is the concept of the entire organisation contributing to create value for the customer, and it includes all the stakeholders who are associated with the organisation. These two paths are called the shareholder theory and the stakeholder theory. In this sense, stakeholders of a firm can be defined as. The stakeholder equilibrium can be implemented by introducing new property rights employee rights and consumer rights and instructing managers to maximize the total value of the firm the value of these rights plus shareholder value. Stakeholder theory and the corporate objective revisited. The stakeholder theory and how it ties into your corporate. This is only a partial representation of ed freemans published works on stakeholder theory. It is not the purpose of this paper to provide an overview of the vast literature on corporate social responsibility csr, stakeholder theory sht and the socalled triple bottom line 3bl. The second part identifies and analyses some of the concerns raised about the theory and the primary points that are directed against the theory. Corporate social responsibility as a simple example, when a factory produces industrial waste, a csr perspective attaches a responsibility directly to factory owners to dispose of the.
To create value for stakeholders, executives must understand that business is fully situated in the realm of humanity. Businesses are human institutions populated by real live complex human beings. Corporations have ceased to be merely legal devices through which. In this article, we examine these three aspects of the. Stakeholder theory is a prominent popular and academic way of understanding business ethics, however no fullscale defense of stakeholder theory exists examines stakeholder theory from the perspective of several fields of study including strategic management, economics, moral and political philosophy, social psychology, and. 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.
Pdf a theory of the stakeholder corporation researchgate. For the 1st interdisciplinary conference on stakeholders, resources and value creation. A stakeholder approach, cambridge university press, new york. Stakeholder identification, who are those groups and individuals who can affect and are affected by achievement of a corporations. In the intervening years, the literature on stakeholder theory has become vast and diverse. Stakeholder theory an overview sciencedirect topics. Stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. The primary stakeholders in a typical corporation are its investors. The shareholder and stakeholder theories of corporate. Stakeholder theory as an ethical approach to effective. Even though the stakeholder theorys ultimate objective is the concerns continued existence, it must be achieved by balancing the interests of all stakeholders, including the shareholders, whose interests are usually addressed through profits. The shareholder and stakeholder theories of corporate purpose by dr. Positioning stakeholder theory within the debate on corporate.
This article attempts to advance the case for using the stakeholder model as an integrating theme for the field by proposing a formalinstrumental theoryof stakeholder management. Economist milton friedman introduced this idea in the 1960s, which states a corporation is primarily responsible to its shareholders. Edward freeman published his landmark book, strategic management. On the stakeholder theory side, ethical components can be drawn from several sources including the principles of corporate rights and corporate effects evan and free.
While agency theory asserts that the exclusive focus of corporate governance is to ensure the interests of shareholders, stakeholder theory proposes that corporations should serve all groups or individuals who have a stake in the corporation. Though still much used for this purpose, the corporate form has acquired a larger significance. 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. A theory of the stakeholder corporation magill 2015. The stakeholder theory of the corporation western washington. These three aspects of the theory, although interrelated, are quite distinct. Stakeholder theory is a a conceptual framework of business ethics and organizational management which addresses moral and ethical values in the management of a business or other organization.
In this article, we examine these three aspects of the theory. Ethical aspects of shareholder value objective cejsh. In a single sentence, stakeholder theory affirms that those whose lives are touched by a corporation hold a right and obligation to participate in directing it. Pdf this article summarizes the major features and different schools of thought surrounding concepts such as corporate governance, corporate social. Stakeholder theory of the modern corporation, freeman. 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. Economist milton friedman, whose work shaped much of 20thcentury corporate. The second aspect of the theory is used to describe particular corporations behaviors. Stakeholder theory is not the same as corporate social responsibility csr theory. One which states that businesses do have social responsibilities. The stakeholder perspective is an alternative way of understanding how companies and people create value and trade with each other. Stakeholder theory, corporate governance and public management.
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