Stakeholder theory of corporate governance

1. Stakeholder Theory
A very brief overview
Dr. Randy Richards, Ph.D.
St. Ambrose University

2. Development
Descriptive
As a strategy
As an ethical approach

3. Who are the stakeholders?
Shareholders/owners
Employees
Suppliers
Customers
“Community”

4. In whose interest should a corporation be managed?
Traditional answer
The stake holder alternative
answer
Who are the stakeholders?
What are the stakes and
expectations of each?

5. 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

6. 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

7. 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.

8. 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

9. Resource Base Stakeholders
Investors
Employees
Customers

10. Owners / Shareholders
Their stake:
 stocks, bonds, equity, etc.
Their expectation:
 some ROI

11. Stakes and expectations:
Employees
Their stake:
 jobs, livelihood, career, human
capital investments
Their expectation:
 decent wages, security, benefits
and meaningful work

12. Stakes and expectations:
Customers
Their stake:
 need for / purchases of products
and services
Their expectations:
 honesty, quality goods, fair
pricing

13. Stakes and expectations:
Suppliers
Their stake:
 income from goods and services
Their expectation:
 fairness, mutual prosperity, honesty

14. Stakes and expectations:
the community
Their stake:
 the environment, taxes, payroll,
infrastructure improvements
Their expectations:
 good citizenship, open
partnership

15. How to decide in cases of
conflicting interests?
The traditional answer
 simple
The stakeholder model
 much more difficult

16. 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 transactions
The key to organizational long term viability is
manage the entire web of interconnected
stakeholder relationships for everyone’s
mutual benefit as much as possible.