Stakeholder Theory

Stakeholder TheoryA very brief overviewDr. Randy Richards, Ph.D.St. Ambrose University

Development

Descriptive As a strategy As an ethical approach

Who are the stakeholders?

Shareholders/ownersEmployeesSuppliersCustomers“Community”

In whose interest should a corporation be managed?

Traditional answerThe stake holder alternative answerWho are the stakeholders?What are the stakes and expectations of each?

In whose interest:The Traditional Answer

The shareholders/owners Managers have a fiduciary relationship to the owners to look after their interests

Legal constraints on this duty Problems with this understanding of single view of responsibility

A shareholder mission statement

From Coca-Cola: We exist to create value for our share owners

on a long term basis by building a business that enhances the Coca-Cola company’s trademark. This is also our ultimate commitment.

Discussion

In whose interest: the stake holder alternative

Stockholders are one group among many.Stakeholders are those groups that have a “stake in” or claim on the resources / activities of the company.Each has a right to be treated as a end itself not just means for enrichment of the stockholders.

A stakeholder mission statement

Cadbury Schweppes Our task is to build upon our tradition

of quality and value and to provide brands, products, financial results and management performance that meet the interest of our shareholders.

Discussion

Resource Base Stakeholders

InvestorsEmployeesCustomers

Owners / Shareholders

Their stake: stocks, bonds, equity, etc.

Their expectation: some ROI

Stakes and expectations:Employees

Their stake: jobs, livelihood, career, human capital investments

Their expectation: decent wages, security, benefits and meaningful work

Stakes and expectations:Customers

Their stake: need for / purchases of products and services

Their expectations: honesty, quality goods, fair pricing

Stakes and expectations:Suppliers

Their stake: income from goods and services

Their expectation: fairness, mutual prosperity,

honesty

Stakes and expectations:the community

Their stake: the environment, taxes, payroll, infrastructure improvements

Their expectations: good citizenship, open partnership

How to decide in cases of conflicting interests?

The traditional answer simple

The stakeholder model much more difficult

The web of stakeholder relationships

Can you serve the long term interests of the shareholders without paying attention to the others? The interconnectedness of wealth creation Long term relationships are source of wealth not individual transactionsThe key to organizational long term viability is manage the entire web of interconnected stakeholder relationships for everyone’s mutual benefit as much as possible.