Stakeholder Theories Normative Stakeholder Theory Stakeholder Theories Analytic Stakeholder Theory
Normative Stakeholder Theory Is consider the core of stakeholder theory. Normative can refer to:The norms or standard practices of society as it existsThe way one would live in an ideal „good‟ societyWhat we ought to do, either in order to achieve a goodsociety or unconnected with any notion of the „good‟
Type of Normative TheoriesTheories of the first kind• In a just society, business should be managed for the benefit of stakeholders (Ideal just society).Theories of the second kind• Changes in the law and institutions of society are required to ensure greater corporate responsibility towards stakeholders (Laws and institutions).Theories of the third kind• Manager should take account of the interest of all the stakeholders in the firm, given the existing legal and institutional environment (Corporate response).
Type of Normative Theories Normative Normative Normative theories of the theories of the theories of the first kind second kind third kind• Ecology & • Feminist Theories • Property Rights: Spirituality: Starik Donaldson & (1994) Preston (1995)• Kantian Stakeholder • Stakeholder Theories Paradox:• Integrative Social Goodpaster (1991) Contract Theory: • Public Policy: Donaldson & Boatright (1994) Dunfee (1994, • Aristotelian 1999) Stakeholder Theory:• Rawlsian Wijnberg (2000) Stakeholder Theory• The Common Good: Argandona (1998)
Normative theories 1st kind Ecology & Spirituality: Starik (1994) Starik‟s contribution lies in his argument that non- entities, particularly the natural environment, is as important as stakeholder status due to the extent of environment deterioration of the planet caused by human. Starik includes the natural environment (living and non- living) in terms of elements (particular landmarks), categories of elements (trees, rocks) and systems of elements (like river delta systems on a micro scale and the cosmos on a macro scale)
Normative theories 1st kind Ecology & Spirituality: Starik (1994) Proposed a very broad stakeholder definition. Ecology & Spirituality: “Any naturally occurring entity Starik which affects or is affected by (1994) organizational performance” Clear example of unconstrained Justifies using 4 first kind of NST reasons: Heavily criticized
Normative Ecology & Spirituality: Starik (1994) theories 1st kind Justifies using 4 reasons: #1 The natural environment is a business environment. As nature provides many constraints on business life, it ultimately affects and is affected by organizations. Stakeholder idea to include social-emotional (spiritual), ethical and legal (Eg. Slaves, political prisoners who #2 although do not have political voice would be counted as stakeholders). Traditional: Those without political and economic power, to have their voices heard by the organization cannot be regarded as stakeholders.
Normative Ecology & Spirituality: Starik (1994) theories 1st kind Justifies using 4 reasons: Human stakeholders, acting as proxies for the environment through activists groups and government #3 agencies, are necessary but insufficient given how degraded the natural environment is. People can try to manage their interaction with the natural #4 environment using stakeholder management processes as evidenced by environmental audits impact statements.
Normative theories Kantian Stakeholder Theories 1st kind Immanuel Kant (1724 – 1804) – considered moral actions to arise from the sense of duty (obligation). Focuses on the intention or motive behind the act rather than the consequences that make actions good. Example: If corporate managers support a charity only because they believe it will bring cheap advertising or enhance corporate reputation, it cheapens the act and cannot be thought of as moral.
Normative theories Kantian Stakeholder Theories 1st kind Kantian Capitalism: Evan & Freeman (1988, 1993) The true purpose of the organization is to pursue the interest of stakeholders Management have the duty to stakeholders to act as their agents and stakeholders must participate in determining the future direction of the firm in which they have a stake.
Normative theories Kantian Stakeholder Theories 1st kind Kantian Capitalism: Evan & Freeman (1988, 1993) Any theory of corporations must be consistent with the Kantian principles of: Corporate • The corporation and its managers may not violate the legitimate rights of rights others to determine their own future. Corporate • The corporation and its managers are responsible for the effects of their effects actions on others.
Normative theories Kantian Stakeholder Theories 1st kind Kantian Capitalism: Bowie (1999) Proposes 7 principles for Kantian approach to business: The interests of all affected stakeholders #1 should be considered on any decision a firm makes. Those affected by the firm‟s rules and policies #2 should participate in determining those rules and policies before they are implemented. #3 One stakeholder‟s interests should not automatically take priority for all decisions.
Normative theories Kantian Stakeholder Theories 1st kind Kantian Capitalism: Bowie (1999) Proposes 7 principles for Kantian approach to business: When stakeholder group interests conflict, #4 decisions should not be made solely on the grounds of there being a greater number of stakeholders in one group than in another. #5 Universal laws of nature and never treat people as means to an end.
Normative theories Kantian Stakeholder Theories 1st kind Kantian Capitalism: Bowie (1999) Proposes 7 principles for Kantian approach to business: #6 Every profit-making firm has a limited, but genuine duty of beneficence. #7 All firms must establish procedures designed to ensure relations among stakeholders are governed by rules of justice.
Normative theories Integrative Social Contract Theory: 1st kind Donaldson & Dunfee (1994, 1999) ISCT was intended to be a general business ethics theory. Is based on social contract. Suggests that management should take into account the norms (not interests) of certain stakeholders because society allows corporations to operate in exchange for the promotion of society‟s interest.
Normative theories Integrative Social Contract Theory: 1st kind Donaldson & Dunfee (1994, 1999) Donaldson & Dunfee stated that a person is entitled to object or to try and change a norm (voice), leave an economic group (exit), or refuse to obey a norm (civil disobedience).
Normative theories Rawlsian Stakeholder Theory 1st kind John Rawls (1921 – 2002) – Believe that politics based on justice and could not rely on our intuitions about good social outcomes. Based on fair play and each person has equal right.
Normative theories Rawlsian Stakeholder Theory 1st kind Fair contracts: Freeman (1994, 2004) According to Freeman, stakeholder theory should reflect the principle of stakeholder fairness based on the concept of fair play. Introduced: 6 ground rules – Doctrine of Fair Contract
Normative theories Rawlsian Stakeholder Theory 1st kind Fair contracts: Freeman (1994, 2004) The • The contract has to define processes thatDoctrine of Fair Contract clarify entry, exit and renegotiation principle of conditions for stakeholders to decide when entry & exit an agreement exists and if it can be fulfilled. The • Procedures for changing the rules of the principle of game must be agreed by unanimous (majority) consent. governance The • If a contract between A and B imposes a cost on C, then C has the option to become principle of a party to the contract, and the terms externalities renegotiated.
Normative theories Rawlsian Stakeholder Theory 1st kind Fair contracts: Freeman (1994, 2004) The principle • All parties to the contract must share in theDoctrine of Fair Contract of contracting cost of contracting. costs The agency • Any agent must serve the interests of all stakeholders. It must resolve conflicts principle within the bounds of the other principals. The principle • The corporation shall be managed as if it of limited can continue to serve the interests of immortality stakeholders through time.
Normative theories Rawlsian Stakeholder Theory 1st kind Stakeholder fairness: Phillips (1997, 2003b) Obligations of fairness arise when individuals or groups of individuals interact for mutual benefits. Such persons and groups engage in voluntary activities that require mutual contribution and restriction of liberty. This voluntary activities provide a normative justification for the idea of stakeholder management.
Normative theories The Common Good: Argandona (1998) 1st kind Is the only religion-based value used to develop normative stakeholder model. The concept is largely associated with Christian theologians. The common good of a company is to create the conditions that will enable its members to achieve their personal goals. The company facilitates achieving these personal goals through achievement of its own goal.
Normative theories Feminist Theories 2nd kind Feminist ethics is related to virtues. It emphasis that caring is good and that marginal voices must be heard. The ethics of care focuses on virtues that are associated with sympathy, compassion and friendship.
Normative theories Feminist Theories 2nd kind Traditional economics-based approaches to management have concentrated on the legalistic, contractual, masculine side of human existence. Managers are presumed to view the corporation as being competition with others and they need to act to protect and further the interests of the corporation.
Normative theories Feminist Theories 2nd kind Feminist interpretations of stakeholder theory are classified as the 2nd kind of theories – They argue that norms, already existing in certain spheres and among certain people, should be extended to other situations. They call for more cooperative, caring type of relationship in which firms seek to make decisions that satisfy stakeholders, leading to situations where all parties are involved in a relationship gain.
Normative theories Property Rights: Donaldson & Preston 3rd kind (1995) Argue that the basis for stakeholder theory can be based on the evolving theory of property. Traditional view suggests that corporations should be managed for the exclusive benefit of the shareholders as their property rights are superior to all other interests in the corporation. Donaldson & Preston – Property rights are not exclusively related to the interest of owners. Property is viewed as a bundle of many rights, some of which may be limited.
Normative theories Property Rights: Donaldson & Preston 3rd kind (1995) Central to the notion of property is the notion of human rights and the restrictions against harmful uses. This brings the interest of non-owner stakeholders into the picture and does not support the claim that management should act only in the interest of the stakeholders.
Normative theories Stakeholder Paradox: Goodpaster (1991) 3rd kind Argues that stakeholder synthesis is naturally either strategic (business without ethics) or multi-fiduciary (ethics without business). Strategic Stakeholder Multi-fiduciary Stakeholder Management (SSM) Management (MSM) • SSM is non-moral • MSM treats all stakeholders as • Specific rules: having equally important (a) Maximize the benefits and interests and deserving joint minimize the costs to maximization. stockholder group, short and long term. (b) Pay close attention to the interest of other stakeholder groups that might potentially influence the achievements of (a).
Normative theories Stakeholder Paradox: Goodpaster (1991) 3rd kind Goodpaster‟s model attempts to develop an account of the moral responsibilities of management that: a) Avoids surrendering the moral relationship between management and stakeholders as the strategic view does, while b) Not transforming stakeholder obligations into fiduciary obligations.
Normative theories Public Policy: Boatright (1994) 3rd kind Boatright (1994) asks what is so special about stakeholders? Why are they given special status as discussed in Goodpastel (1991)
Normative theories Public Policy: Boatright (1994) 3rd kind Argues that shareholders do not need additional fiduciary duties because they are given rights, such as to elect directors and to receive dividends, and have the ability to sell their shares on the open market if they are disappointed with how the corporation is being run. Fiduciary duties of management are and ought to be determined by considerations of public policy.
Normative theories Public Policy: Boatright (1994) 3rd kind If public policy is accepted as the basis for fiduciary, a different solution can be suggested. This is based on the premise that the obligations of management to shareholders can be differentiated according to whether they are fiduciary or non-fiduciary.
Normative theories Public Policy: Boatright (1994) 3rd kind Fiduciary duties – those for which they are held personally liable (act with due diligence within the scope of their authority and exercise ordinary care and prudence) Non-fiduciary duties – All other obligations for which there is no corresponding personal liability.
Normative theories Aristotelian Stakeholder Theory: Wijnberg 3rd kind (2000) A moral virtue is gained from action, a good person of practical wisdom needs moral dilemmas: to have to act politically and to deal with conflicting interests. The corporation is a political association in which decisions have to be made that affect the interests of different stakeholders and express the values of the decision-makers. The end is the good life of the individual decision maker, not the welfare of the corporation or the society.
Normative theories Aristotelian Stakeholder Theory: Wijnberg 3rd kind (2000) Recommendations from Wijnberg: 1. Corporate structure must permit sufficient autonomy to allow managers to practice their practical wisdom. 2. A systematic identification of shareholders and their interests to identify their influence so that decision makers can strive to acquire and exercise. 3. Codes of conduct or mission statement can be fruitfully used to enforce or encourage virtuous decision-making. 4. Education is of crucial importance.