2. Which Stakeholder Theory?
Wait, what? There's more than one?
Yes, there are two. Only one is of interest in this unit.
1. Stakeholder Theory: the ethical theory, and
2. Stakeholder Theory: the managerial theory (the one we are
interested in).
Having an outline of both serves to highlight our interest in the
managerial version of this theory.
2 Created by Dr G. L. Ilott, CQUniversity Australia
3. A comparison:
Stakeholder Theory:
Ethical Branch Managerial Branch
Normative Emprical, can be positivist
Promotes ethical values Has no interest in ethical values. It is value-free.
States that firms should address the needs of all stakeholders. States that firms will move to address the needs of its most
powerful stakeholders.
Both forms of Stakeholder Theory recognise that the firm is part of a greater social system, and decisions cannot be made in isolation.
3 Created by Dr G. L. Ilott, CQUniversity Australia
4. The managerial Branch
The stakeholder's power is manifested in his/her/its ability to control
the flow of resources into the firm. The relationship between the firm
and powerful stakeholders must therefore be carefully managed.
Governments and tax offices are such powerful stakeholders, and few
successful firms antagonise these stakeholders.
4 Created by Dr G. L. Ilott, CQUniversity Australia
5. Uses of Stakeholder Theory
The managerial branch of Stakeholder Theory has been popular for
examining the disclosure decisions made for environmental and
sustainable reporting.
There have been cases where corporations have responded to
powerful financial stakeholders, only to change their behaviour once
other powerful stakeholders such as consumers revolt against
unacceptable corporate behaviour.
5 Created by Dr G. L. Ilott, CQUniversity Australia
6. Problems with Stakeholder Theory
It is always a problem having two essentially different theories sharing
the same name. This can and does lead to confusion.
Positivist theories such as the managerial branch of Stakeholder
Theory often claim to know the motivation behind provable and
observable decision, but this is not always a valid claim.
Managers and accountants may be simultaneously motivated by a
sense of ethics and a need to manage powerful stakeholders.
6 Created by Dr G. L. Ilott, CQUniversity Australia