When Frederick Winslow Taylor practiced his idea of scientific management, owners where the only stakeholders, who ever counted. Till way passed the two world wars, the situation did not change. Managers were obligated to pursue owners’ interests, which were merely making money. Employees had to work hard and were badly compensated, consequences for the environment were not known, and customers bought what they could get. When the markets became maturated, customers started to gain bargaining power and companies had to take their interests and needs into account. Strategic marketing of goods implied advertising and customer orientation. This trend accelerated and globalization, workers’ unions, environmental concern, and supplier relationships are just a few of many crucial external influences, a business has to face in today’s world. As Daft (2001: 11) states “Organizations get into trouble when they fail to pay attention to ethical issues in the blind pursuit of making money.” But how far does this attention really go? Many companies still pursue the ir only goal, namely maximizing shareholder value, and react to the needs of the other stakeholders only when great pressure is exercised. If those enterprises still survive, are stakeholders’ concerns of any importance? Or to phrase it differently: Which approach should today’s companies follow, the stockholder theory or the stakeholder approach? To answer this question, this paper will proceed with following sub-points. Firstly, a definition and explanation of the above mentioned theories will be provided. The stakeholder theory will be further underlined by the description of the normative grounds, which it is based on. The paper will clarify also, whether companies do have a social responsibility. The attributes, which separate stakeholders from non-stakeholders will be outlined next. Continuing, different views on those theories will be disclosed and examples for both approaches described, before the paper will end with some thoughts of mine and a conclusion.
Table of Contents
1. Introduction
2. Stockholder Theory
3. Stakeholders and Their Theory
4. Normative Grounds on Stakeholder Justification (the Theory of Property)
5. What turns a group or an individual into a stakeholder?
6. Different Views on Stakeholder and Stockholder Theories
6.1 Literature
6.2 The Body Shop and Du Pont: Real Life Examples of the Theories
6.3 Some annotations of my own opinion
7. Conclusion
Research Objectives and Core Themes
This paper examines the ongoing debate between the traditional stockholder theory, which prioritizes shareholder wealth, and the stakeholder approach, which advocates for a broader consideration of all organizational interest groups. The primary objective is to evaluate which strategic orientation best serves a company's long-term interests in a globalized, complex business environment.
- Theoretical definitions and comparisons of stockholder vs. stakeholder models.
- Normative justification of the stakeholder approach via the theory of property.
- Identification and classification of stakeholders based on power, legitimacy, and urgency.
- Analysis of corporate social responsibility and its impact on economic performance.
- Comparative case studies demonstrating real-world applications of these theories.
Excerpt from the Book
The Body Shop and Du Pont: Real Life Examples of the Theories
The Body Shop is by now famous for its Against Animal Testing (AAT) policy. Along with environmental policies and the acknowledgement of human and civil rights is this part of The Body Shop’s mission statement. But they do not only recognize specific projects, they also developed a special way of making sure that stakeholder interests will be anticipated, their framework for social auditing and disclosure. This framework consists of eleven steps, which are arranged in a cycle. This cycle starts with leadership and commitment, since a clear leadership is one of the most important attributes of a company. What then follows is the review or adoption of the policy, which should clarify the intentions towards stakeholders. Succeeding this, the scope of the audit will be determined and agreements of indicators will be agreed upon. The next step will be to consult the stakeholders, since The Body Shop believes that stakeholders, who are asked for their opinion and who will feel treated well, may be an important source of information and develop loyalty towards the company.
Du Pont, on the other hand, followed the shareholder approach in the discussion about the production of chlorofluorocarbons (CFC). CFCs were used in the production of refrigerators and air-conditioners and years ago, they were also to be found in most foams and sprays. In the mid 1970 and the mid 1980, evidence was found that this substances are responsible for the destruction of the ozone layer. To calm down the society, Du Pont (1974) testified before the Congress that “should reputable evidence show that some fluorocarbons cause a health hazard through depletion of the ozone layer, we are prepared to stop production of those compounds”. But when this evidence was found, Du Pont switched its strategy and continued the CFC production, while carrying out some alibi R&D for substitutes, in order to get the public of its back.
Summary of Chapters
1. Introduction: Defines the historical context of management theories and presents the fundamental research question regarding the superiority of stockholder versus stakeholder approaches.
2. Stockholder Theory: Explores the concept of corporate ownership where managers act as agents to maximize shareholder wealth, highlighting both benefits and agency cost shortcomings.
3. Stakeholders and Their Theory: Provides various definitions of stakeholders and describes the specific interests of owners, employees, customers, creditors, the community, and the government.
4. Normative Grounds on Stakeholder Justification (the Theory of Property): Discusses the ethical and legal foundations of stakeholder theory, arguing that property rights inherently carry duties toward non-owner stakeholders.
5. What turns a group or an individual into a stakeholder?: Analyzes the attributes of power, legitimacy, and urgency that determine the salience and importance of different stakeholder classes to management.
6. Different Views on Stakeholder and Stockholder Theories: Synthesizes academic literature and compares the economic and social performance implications of both theories through corporate examples.
7. Conclusion: Summarizes the findings and suggests that the stakeholder theory is increasingly preferable in today's unstable environment due to the information and loyalty advantages it provides.
Keywords
Stockholder theory, Stakeholder theory, Corporate governance, Shareholder value, Social responsibility, Business ethics, Agency costs, Stakeholder identification, Power, Legitimacy, Urgency, Financial performance, Business strategy, Economic environment, Accountability
Frequently Asked Questions
What is the core subject of this publication?
The work explores the strategic divide between the stockholder approach, focusing on maximizing owner wealth, and the stakeholder approach, which accounts for the needs of diverse interest groups affected by a company.
What are the central themes discussed?
The text focuses on corporate accountability, the normative grounds of property rights, stakeholder identification models, and the link between corporate social performance and financial outcomes.
What is the primary research goal?
The aim is to determine whether companies should prioritize shareholder value or broaden their perspective to include other stakeholders in order to succeed in a complex global market.
Which methodology is applied?
The paper utilizes a literature-based comparative analysis, synthesizing existing academic theories and illustrating them through real-world corporate case studies.
What topics are covered in the main body?
The main body investigates the definition of stakeholders, the attributes of power and legitimacy, comparative accounting practices, and the practical application of these theories in different global contexts.
Which keywords best characterize this work?
Key terms include Stakeholder Theory, Stockholder Theory, Corporate Governance, Social Responsibility, and Business Accountability.
How does the author explain the difference between the 'German-Japanese' and 'Anglo-American' approaches?
The author identifies the Anglo-American way as prioritizing shareholder wealth, whereas the German-Japanese approach is characterized by a stronger focus on broader stakeholder interests and creditor protection.
What role does the 'Theory of Property' play in this discussion?
It is used as a normative foundation to argue that property ownership is not absolute but carries social duties, thereby providing a moral justification for considering stakeholder interests.
- Quote paper
- Maria Kimme (Author), 2001, The Battle Between Stakeholders and Stockholders, Munich, GRIN Verlag, https://www.grin.com/document/34943
