A stakeholder approach originally published in 1984 and reprinted by cambridge university press in 2010 identifies and models the groups which are. Shareholder theorists argue that managers must act in accordance with the interests of a corporations shareholders, but stakeholder theorists believe managers must act in. 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. With modern corporations this no longer holds as much of the wealth. Stockholders people who some special claim on the firm. Download it once and read it on your kindle device, pc, phones or tablets. Edward freeman many groups have a moral claim on the corporation because the corporation has the potential to harm or. Stakeholder theory incorporates the executive power model, which claimed that the purpose of a corporation is the maximisation of corporate wealth. The purpose of this essay is to outline an emerging view of business that we shall call managing for stakeholders.
As we argue elsewhere in this journal, stakeholder theory. Kantian capitalism scroll down the pdf to locate this reading. Opponents seek to reconceptualise such a doctrine as to merge. Stakeholder theory of the modern corporation flashcards. Taken together, these two articles stand as perhaps the most complete statement of a social contractbased stakeholder theory in the current literature. Stakeholder theory incorporates the executive power model, which claimed that the. Edward freeman published his landmark book, strategic management.
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. Stakeholder theory and the corporate objective revisited. To create value for stakeholders, executives must understand that business is fully situated in the realm of humanity. Stakeholder theory, corporate governance and public. The basic idea is that businesses, and the executives who manage them, actually do and should create value for customers, suppliers, employees, communities, and financiers or shareholders.
A stakeholder theory of the modern corporation before talking about stakeholder theory, we must know the definition of stakeholder. The stakeholder theory in the modern global business environment. Start studying stakeholder theory of the modern corporation. The question we ultimately ask is whether it is because of stakeholder theorys apparent facility that it is so pleasing even though its false evidence may in fact be masking ambiguities that could lead many analysts astray, whether or not they lend any. Stakeholder theory is managerial in that it recommends attitudes, structures, and practices and requires that simultaneous attention be given to the interests of all legitimate stakeholders. Freeman insists on the primacy of the role of the stockholder. Since the publication of freemans landmark book, strategic manage. Im sure that you remember friedmans thesis, but here it is as a reminder. Edward freeman date 1988 page start 97 page end 106 web address.
Edward freemans stakeholder theory holds that a companys stakeholders include just about anyone affected by the company and its workings. At least since the publication of the monumental strategic management. Though still much used for this purpose, the corporate form has acquired a larger significance. Edward freemans argument in a stakeholder theory of the modern corporation 1. 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. We develop a fourfactor perspective for defining value that includes, but extends beyond, the economic value stakeholders seek. The state of the art cambridge university press that summarizes the body of research that has accumulated and made.
A stakeholder theory of the modern corporation by r. The first question probes into the primary focus of the firm, which encourages managers to express their shared sense of value of what they create and what brings the main. Lets take a look at freemans thesis, and see just how different they are. 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. Use features like bookmarks, note taking and highlighting while reading stakeholder theory. Many scholars argue for a normative instead of an instrumental approach to stakeholder theory. Stakeholder theory of the modern corporation, freeman. Edward freeman a stakeholder theory of the modern corporation. Perhaps a word or two is also needed to explain why such a critique is necessary. The role of corporate social responsibility in strengthening multiple stakeholder relationships. In the intervening years, the literature on stakeholder theory has become vast and diverse. Freeman argues in favor of a stakeholder theory of the modern corporation.
Lets take a look at freeman s thesis, and see just how different they are. These three aspects of the theory, although interrelated, are quite distinct. Stakeholder theory of the modern corporation quizlet. Assessing freemans stakeholder theory springerlink. Freeman insists on the primacy of the role of the stockholder in the corporation. Stakeholder theory attempted to describe, prescribe, and derive alternatives for corporate governance that included and balanced a multitude of interests. Theory and practice is not, as for freeman 1984, to.
We think that any set of actions, for any stakeholder, has a blend of financial. Recent examples of such an approach show that problems appear with respect to the ethical foundation as well as the specification of the norms and the relation between corporate and individual. Recent examples of such an approach show that problems appear with respect to the ethical foundation as well as the specification of the norms and the relation between corporate and individual responsibilities. Stakeholder theory, value, and firm performance business. Stakeholder theory and the corporate objective revisited 366 organization science 153, pp. This theory encourages the company through an agent to build good relations not only with the principal but all. Subsequently, some advocates have moved a bit too quickly and without proper definition or argument. And in 2010, freeman and his colleagues published stakeholder theory. The stakeholder theory has been advanced and justified in the management literature on the basis of its descriptive accuracy, instrumental power, and normative validity. Freeman 1984 defines them as any group or individual 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. Basically, all stakeholders are treated as fiduciaries in the corporation. They have exceeded freemans intentions which are more libertarian and free. Youll notice right off that freeman s stakeholder theory replaces the.
Concepts, evidence, and implications thomas donaldson georgetown university lee e. Edward freeman respectively, and i will argue that while none of the three satisfies as either a cogent or. Freeman gives two main arguments in favour of stakeholder theory. A critique of stakeholder theory is important first because stakeholder theory is arguably one of the most prominent and. Stakeholder management, reciprocity and stakeholder responsibility. Edward freeman believes the key to success in business is several stakeholders working together in a sort of interconnected corporate system. Stakeholder individuals who benefit from or are harmed by, and whose rights are violated or respected by, corporate actions.
One of the most important developments of the theory is usually referred back to r. 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. Stakeholder is a person, group, organization, or system who affects or can be affected by an organizations actions. This is only a partial representation of ed freemans published works on stakeholder theory. Roughly speaking, enron has done for reflection on corporate governance what aids did for research on the immune system. Stakeholder theory proposes that treating all stakeholders well creates a sort of synergy parmar.
A stakeholder approach, a work that set the agenda for what we now call stakeholder theory. Stakeholders is a group that is broader than shareholders. This view has emerged over the past thirty years from a group of scholars in a diverse set of disciplines, from finance to philosophy. A stakeholder approach 1984, the stakeholder theory originated by r. Stakeholder theory is inherently managerial, as donaldson and preston 1995 argue and as countless executives have testi. 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. Businesses are human institutions populated by real live complex human beings. In this article, we examine these three aspects of the. Kantian capitalism scroll down the pdf to locate this reading add to my bookmarks export citation.
For example, many ways that people believe the government should be run. Edward freeman a stakeholder theory of the modern corporation freeman, managing for stakeholders humanity argument. Stakeholder theory is an important part of modern business ethics. Some future directions, freeman2 spells out in greater detail the principles that stakeholders would adopt that, in turn, would generate the specific reforms he argues for. In this article, we examine these three aspects of the theory. Meaning there are many ways to define how the stakeholder theory should be used and interpreted. In 2008, freeman and his colleagues wrote managing for stakeholders, setting out the managerial framework for companies to implement a stakeholder approach. A stakeholder approach, which has been out of print for a decade, there is a dearth of books that provide a. A vast secondary literature has emerged on the search for the normative foundation.
Freeman has engrossed much of the business ethics literature. The purpose of this article is to pose several challenges to this assumption, from within the framework of managerial capitalism, and to suggest the bare bones of an alternative theory, a stakeholder theory of the modern corr. Edward freeman, a stakeholder theory of the modern. A fiduciary is defined as a person to whom property or power is entrusted for the benefit of another. The theory has drawn considerable attention and support since its early formulation.
Stakeholder theory of the modern corporation 2002 and managing for stakeholders 2008 will be the main targets of this critique. Stakeholder theory is introduced by edward freeman in 1988. The theory that was created by freeman 1984, also called stakeholder theory. He calls these the legal argument and economic argument, respectively. The stakeholder theory has been advanced and justified in the man agement literature on. Stakeholder theory as an ethical approach to effective. Edward freeman originally detailed the stakeholder theory of organizational management and business ethics that addresses morals and values in managing an organization. Edward freeman born december 18, 1951 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. Edward freeman corporations have ceased to be merely legal devices through which the private business transactions of individuals may be carried on. A stakeholder approach, cambridge university press, new york.
Learn vocabulary, terms, and more with flashcards, games, and other study tools. A theory about the fundamental nature and purpose of the corporation. Pdf on jan 1, 2014, annie zhao and others published business. It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and. One contestant of stakeholder theory is the traditional model of managerial. Sep 24, 2008 at least since the publication of the monumental strategic management. A strong believer in his reconceptualized stakeholder theory of the modern corporation, r. Stakeholder theory of the modern corporation business ethics. This mouthful of jargon simply means the arrangement which most closely approaches the ideal of stakeholder theory. Stakeholder theory is unquestionably the most popular framework for discussing business ethics. They are individuals or groups that provide critical support to business firm, such as shareholders, employees, suppliers, customers, local community, environment, even. The theory that youve just read about is significantly different from the stockholder theory that we saw from friedman.
This paper draws heavily on freeman, harrison, wicks, parmar, and decolle. Secondary stakeholders, combining actors who are situated at the borders of a. The stakeholder theory has been advanced and justified in the man. The stakeholder theory made popular during the 1980s suggested that corporations. Edward freeman milton friedman the only group that has a moral claim on the corporation is the people who own shares of the stock that is, the shareholders. Review freemans stakeholder theory of the modern corporation, what is a stakeholder. I will just give the barebone arguments and replies. This book examines this body of research and assesses its relevance for our understanding of modern.
1339 363 15 429 337 201 1060 144 403 475 463 738 639 540 493 908 566 1124 1562 1607 529 263 853 749 1414 956 880 323 340 1372 622 372 140 1426