STAKEHOLDER THEORY - Edward Freeman(1984)

(Milton) Friedman (Edward) Freeman Shareholder Stakeholder

Milton (Friedman)
The only group that has a moral claim on the corporation is the people who own shares of the stock, (that is, the shareholders).

Edward (Freeman)
Many groups have a moral claim on the corporation because the corporation has the potential to harm or benefit them, (call these groups stakeholders).

Definition of Stakeholder:
Freeman: can affect or is affected by the achievement of the organizations objectives. Evan and Freeman: benefit from or are harmed by, and whose rights are violated or respected by, corporate actions. Clarkson: have, or claim, ownership,rights,or interest in a corporation and its activities.

To actually determine who in a specific situation can be considered as a stakeholder, Evan and Freeman suggest we can apply two simple principles. Principle of corporate rights Principle of corporate effect A stakeholder of a corporation is an individual or a group which either: is harmed by, or benefits from, the corporation; or whose rights can be violated, or have to be respected, by the corporation.

Different models of Stakeholder Theory

Traditional model of Managerial Capitalism Stakeholder view of the firm Network model of stakeholder theory(Rowley 1997)

Why Stakeholders Matter?

Moral or philosophical reasons corporate social responsibility Practical reasons licence to operate Strategic planning reasons identifying opportunities and threats The quality of relationships with stakeholders are the key determinant of corporate reputation

Different Forms of Stakeholder Theory:

Thomas Donaldson and Lee Preston(1995) Normative stakeholder theory Descriptive stakeholder theory Instrumental stakeholder theory