Stakeholder Theory of the Modern
Corporation
R. Edward Freeman
• Management has a
fiduciary responsibility to
stakeholders
• Corporations a tool for
immortality
• Corporations status
changed
– “Privity of Contracts
– Employment Law
– Public Policy and Law
CORPORATE BEHAVIOR FORCING
CHANGE
• EXTERNALITIES
– “Tragedy of the Commons” “Freerider”
• MORAL HAZARD
– Passing on the cost of pollution
• MONOLOPLY
– Strive to avoid competition
REASONABLE PLURALISM
• MEASURE AFFECT ON STAKEHOLDERS BY
– Doctrine of Fair Contracts
– Feminist Standpoint Theory
– Ecological Principles
• Ask Questions
– Corporation ought to be governed by…
– Managers ought to act.
• WHERE DO WE FIND BACKGROUND
DISCIPLINES: Business, Social Science, Religion
DOCTRINE OF FAIR CONTACTS
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The Principle of Entry and Exit
– Clearly defined entry, exit and renegotiations conditions
The Principle of Governance
– Rules of the game set by unanimous consent
The Principle of Externalities
– If effected person want can be renegotiated
The Principle of Contracting Costs
– Shared cost of contracting
The Agency Principle
– Must act in the interest of all stakeholders
Principle of Limited Immortality
– Continued existence of Corporation is in all stakeholders
interests
CRITICAL QUESTION
WHO IS A STAKEHOLDER?
IS THERE RANKING OF
STAKEHOLDER INTERESTS?
Business Ethics and Stakeholder Analysis
Kenneth Goodpaster
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Stakeholder Paradox
– Fiduciary duty to
stockholders
– Make stakeholders quasistockholders in their own
right
Stakeholder Analysis
– Fact Gathering
– Analysis (Strategic
Stakeholders)
– Synthesis (Multi-fiduciary
– Choice(Why Chosen)
– Action
Challenges of Stakeholder
Perspective
• Ruder: Decide based on the decent thing to
do and what ought to be done.
• Public obligations takes away from private
nature of the corporation
• Agent-Principal relationship
CRITICAL QUESTION
Can Morality Be Legislated?
The “New” U.S. Sentencing Commission
Guidelines: A Wake-up Call for Corporate
America
Dalton, Metzer, and Hill
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Formula used to determine
justice. A multiplier used to
establish penalty
– Nature of the Crime
• Amount of Loss
• Amount of Planning
– Culpability Score
• Size of Organization
• Level in Organization
– (Officer/Janitor)
• Past Crimes
• Past History
MITIGATION
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Policy in Place
Assigned Responsibility for Enforcement
Control of Deviants
Communicated to Organization
Control (Audits/Monitoring)
Appropriate Discipline
Respond Appropriately if Violation Occurs
…a society without any objective legal
scale is a terrible on indeed. But a society
with no other scale but the legal one is not
quite worthy of man either.. Life organized
legalistically has shown its inability to
defend itself against the corrosion of evil.”
Alexander Solzhenitsyn
The Parable of the Sadhu
Bowen H. McCoy
• Once in a lifetime trip to
the Himalayas. Travel a
well used trail
• Found a half naked holy
man in the snow
• Do you take him back to a
village? Do you care for
him? Both option would
cause you to loose the
opportunity to make your
once in a life time climb.
QUESTIONS RAISED?
• Is no single person responsible when there is a
group?
• Do we make decisions based on ethnic
considerations?
• Can a superordinate goal allow for moral slippage?
• Is their an institutional or group ethic strong than
an individual ethic?
• How much effort is enough to satisfy your moral
obligation?
AUTHOR’S OBSERVATIONS
• Organizations without a history of mutually
accepted shared values tend to come apart
during stress.
• People in touch with core values can deal
with change, ambiguity, stress, and tough
times.
• People tend avoid the ambiguous yet that is
what tends to be the most rewarding
• Individuals need organizational support to
act morally.