A Stakeholder Theory of the Modern Corporation
Before talking about stakeholder theory, we must know the definition of stakeholder. Stakeholder is a person, group, organization, or system who affects or can be affected by an organization's actions.
Types of stakeholders are :
• People who will be affected by an endeavor and can influence it but who are not directly involved with doing the work. In the private sector, People who are (or might be) affected by any action taken by an organization or group. Examples are parents, children, customers, owners, employees, associates, partners, contractors, suppliers, people that are related or located near by. Any group or individual who can affect or who is affected by achievement of a group's objectives.
• An individual or group with an interest in a group's or an organization's success in delivering intended results and in maintaining the viability of the group or the organization's product and/or service. Stakeholders influence programs, products, and services.
• Any organization, governmental entity, or individual that has a stake in or may be impacted by a given approach to environmental regulation, pollution prevention, energy conservation, etc.
• A participant in a community mobilization effort, representing a particular segment of society. School board members, environmental organizations, elected officials, chamber of commerce representatives, neighborhood advisory council members, and religious leaders are all examples of local stakeholders.
Market (or Primary) Stakeholders are those that engage in economic transactions with the business. (For example stockholders, customers, suppliers, creditors, and employees)
NonMarket (or Secondary) Stakeholders are those who - although they do not engage in direct economic exchange with the business - are affected by or can affect its actions. (For example the general public, communities,activist groups, business support groups, and the media.
A narrow mapping of a company's stakeholders might identify the following stakeholders:
• Employees
• Communities
• Shareholders
• Creditors
• Investors
• Government
• Customers
A broader mapping of a company's stakeholders may also include:
• Suppliers
• Labor unions
• Government regulatory agencies
• Industry trade groups
• Professional associations
• NGOs and other advocacy groups
• Prospective employees
• Prospective customers
• Local communities
• National communities
• Public at Large (Global Community)
• Competitors
• Schools
The Attack on Managerial Capitalism
The Legal Argument
The basic idea of managerial capitalism is that in return for controlling the firm, management vigorously pursues the interest of the stockholders. Central to the managerial view of the firm is the idea that management can pursue market transaction with suppliers and costumers in an unconstrained manner.
The Economic Argument
In its pure ideological form managerial capitalism seeks to maximize the interest of stockholders. In its perennial critics of government regulation, management espouses the invisible hand doctrine. It contends that is creates the greatest good for the greatest number, and therefore government need not intervene.
Externalities, moral hazards, and monopoly power have led to more external control on managerial capitalism. There are de facto constraints, due to these economic facts of life, on the ability of management to act in the interest, of the stockholders.
A Stakeholder Theory of the Firm
The Stakeholder Concept
Corporations have stakeholder, that is, groups and individuals who benefit from or are harmed by, and whose rights are violated or respected by, corporate actions. The concept of stakeholders is a generalization of the notion of stockholders, who themselves have some special claim on the firm.
Freeman and Reed (1983) distinguish two senses of stakeholder. The “narrow definition” includes those groups who are vital to the survival and success of the corporation. The “wide definition” includes any group or individual who can affect or is affected by the corporation.
Stakeholders of the Modern Corporation
The stakeholders in a typical modern corporation involve owners, employees, suppliers, costumers, the local community, competitor and government.
The Role of Management
Management plays a special role, for it too has a stake in the modern corporation. On the other hand, management’s stake is like that of employees, with some kind of explicit or implicit employment contract. But, on the other hand, management has a duty of save-guarding the welfare of the abstract entity that is the corporation. In short, management, especially top management, must look after the health of the corporation, and this involves balancing the multiple claims of conflicting stakeholders.
A stakeholder theory of the firm must redefine the purpose of the firm. The stockholder theory claims that the purpose of the firm is to maximize the welfare of the stockholders, perhaps subject to some moral or social constraints, either because such maximization leads to the greatest goods or because of property rights.
Example : firm have to give social responsibility for it communities, like program baby care by Johnson & Johnson that give concern for mother and their babies.
