Freeman: A Stakeholder Theory of Corporate Moral Responsibility.
The point:
Corporations are no longer simply ‘profit-machines’. They are also the dominant means by which individuals organize themselves for the purposes of economic activity.
Which means that Corporations cannot be thought of as being responsible to only one group, but must be seen to bear responsibilities to all of the individuals their activities affect, and upon whom their existence depends.
The Question:
When we are trying to determine who the Corporation should be responsible to, we must ask, “For whose benefit and at whose expense should the firm be managed?”(p. 56).
The Steps:
Freeman’s paper has four steps in defending his presentation of a
Stakeholder Theory.
1. Show that the current Legal system, and dominant Economic theories, are both inconsistent with the view that Corporations are responsible only to their stockholders.
2. Present an outline of The Stakeholder theory, detailing the ways in which the stakeholder groups are related to the Corporation.
3. Outline the specific implications a stakeholder theory might have for
Corporate managers.
4. Present a more detailed version of a possible Stakeholder theory, one whose rules would be determined and adopted on the grounds of a ‘Fair
Contract’.

Step 1.
The Legal system does not reflect the idea that Corporations are responsible only to their stockholders. Contemporary laws require that Corporations take into account the interests of their customers, those of their employees, and those of their local communities, to name a few.
Economic theory is also inconsistent with the stockholder theory which, if followed closely, would generate inefficiencies like the ‘Tragedy of the
Commons’, ‘Cost-passing’, and monopolies.
Step 2.
A Stakeholder theory could maintain that Corporations bear some responsibility to any person(s) that its activities affect. This would be a
‘wide’ version of the theory.
For now, Freeman only wants to defend a ‘narrow’ version of the
Stakeholder Theory, i.e., one wherein the stakeholder groups are only those that engaged in a RECIPROCAL relationship with the Corporation.
These groups would be, for example,
1.
Stockholders
2.
Employees
3.
Suppliers
4.
Customers
5.
Local Communities
Step 3.
The Implications for Corporate Managers:
While its true that managers are in essence employees of the stockholders, the major part of their job description involves ensuring the survival/success of the Corporation.
What this requires is that managers need to balance between the competing interests of the many stakeholders in the Corporation, because always giving priority to the interests of one group (e.g., stockholders) will ensure the
Corporation’s demise.

Step 4.
As it turns out, according to Freeman there are many possible specific versions of a Stakeholder Theory.
All stakeholder theories recognize the need to take the interests of groups affected by the Corporation’s activities into account.
But these theories can vary with respect to which effects merit recognition.
This will be the result of each emerging from a different ‘normative background’, i.e., a different moral philosophy.
Freeman briefly presents his own version, one based on the idea of fairness in contracts, which he calls the Doctrine of Fair Contracts.
Freeman believes that his Doctrine of Fair Contracts will identify different stakeholders, and require different actions then, say, a version of Stakeholder theory based on an Ethic of Care, or Ecological principles.
So the difference between Friedman (Stockholder) and Freeman
(Stakeholder) is as follows:
Friedman believes that because the purpose of the Corporation is to generate profits, corporate executives have only one responsibility, i.e., to generate profit for stockholders.
Freeman accepts that ‘profit-generation’ is one goal of the Corporation, but the presence of corporations is so pervasive in today’s world that they also
‘set the shape’ of economic interaction. Since economic interaction is a fundamental component of all social interaction, it follows that corporations bear some socially responsibility, at least toward those with whom they share a reciprocal relation.