The Stakeholder Concept: A Mistaken Doctrine
Foundation for Business Responsibilities, Issue Paper No. 4, November 1999
52 Pages Posted: 13 Mar 2001
Stakeholding has been widely offered as a corrective to perceived defects of business ethics and corporate governance, and as a primary model of business and social responsibility. It is indeed now advocated so commonly as to have become a new orthodoxy. The purpose of this paper is to show that some of the most popular usages of 'stakeholding' are positively inimical to responsible conduct.
Two of usages of 'stakeholding' are commonplace and unobjectionable. The first is a conventional observation about motivation: people are more likely to take an interest in a process when they consider that they have a stake in its outcome; the stake need not be financial. The second innocuous usage is simply a reminder that the world is complex: many factors must ordinarily be considered when pursuing even ostensibly simple outcomes. This is a basic truth that successful businesses have long understood and respected.
There is, however, a third usage of 'stakeholding' that is advocated by modern proponents of stakeholder theory: this characteristic usage is not about motivation, or functional relationships, but about entitlements. Adding force to the conventional notions, its central tenet is that organisations, and particularly businesses, must do more than just take their stakeholders into account. It maintains that organisations must instead be accountable to all their stakeholders, and that the proper objective of management is to balance their competing interests. It is this third usage of stakeholding that is being challenged here.
Far from being a source of improvements, this most distinctive stakeholder doctrine is fundamentally misguided, incapable of providing better corporate governance, business performance or business conduct. It is intrinsically incompatible with business and all other substantive objectives, and systematically subverts rather than supports both social and business responsibility. Entitlement stakeholding undermines both private property and accountability; it can be used to rationalise almost any kind of government intervention, no matter however intrusive or restrictive.
Fortunately, a better model of business ethics and social responsibility is available. Unlike stakeholder theory, the Ethical Decision Model of Elaine Sternberg's JUST BUSINESS: BUSINESS ETHICS IN ACTION (Second edition, Oxford University Press, 2000; first edition: Little, Brown & Co. (UK) Ltd. 1994, Warner paperback 1995) does justice to the need to treat all stakeholders ethically while recognising the distinctive role of shareholders and the nature of business. It offers a clear criterion of ethical responsibility for business that respects both individual liberty and the rights of business owners.
JUST BUSINESS shows that when properly understood, 'social responsibility' is not a responsibility "to" stakeholders, but a responsibility "of" stakeholders. As 'conscientious stakeholding', it consists of the strategic bestowal or withholding of support for social and economic institutions on the basis of stakeholders' values.
Keywords: stakeholder theory, stakeholding, corporate governance, business ethics, social responsibility, corporate social responsibility, ethical investment, value maximisation, balanced scorecard, multiple objectives, social welfare, corporate purpose, tradeoffs, special interest groups
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