Stakeholder theory provides a framework for investigating the relationship between corporate social performance (CSP) and corporate financial performance. This relationship is investigated by examining how change in CSP is related to change in financial accounting measures. The findings provide some support for a tenet in stakeholder theory which asserts that the dominant stakeholder group, shareholders, financially benefit when management meets the demands of multiple stakeholders. Specifically, change in CSP was positively associated with growth in sales for the current and subsequent (...) year. This indicates that there are short-term benefits from improving CSP. Return on sales was significantly positively related to change in CSP for the third financial period, indicating that long-term financial benefits may exist when CSP is improved. (shrink)

Definitions of what it is to be a stakeholder are divided into "claimant" definitions requiring some sort of claim on the services of a business, "influencer" definitions requiring only a capacity to influence the workings of the business, and "combinatory" definitions allowing for either or both of these requirements. It is argued that for the purposes of business ethics, stakeholding has to be about improving the moral conduct of businesses by directing them at serving more than just the interests of (...) owners. On that basis, influencer definitions are eliminated on the grounds that they only concern morally neutral strategic considerations and combinatory definitions on the grounds that the combining of ethical and strategic considerations they promise can be less confusingly achieved through an exclusively claimant definition. It is concluded that for the purposes of business ethics, stakeholders are claimants towards whom businesses owe perfect or imperfect moral duties beyond those generally owed to people at large. (shrink)

This paper evaluates the current use of the Principal Agent Model (PAM) in accounting and finance, focusing on the agent'ss use of private information. The agent'ss behavioral norms in the the PAM deviate from commonly held ethical values in society, from models of man in conventional economic theory, and also from behavioral foundations of related business school fields like corporate strategy, business ethics, and human resource management. Still, it would be unwise to reject the PAM solely because of its distasteful (...) ethical assumptions. The model does appear to have predictive power, but its descriptive or normative qualities remain unexplored. The popularity of the PAM, with its extreme model of man, raises fundamental questions about the impact of this model on business school stakeholders and society at large. (shrink)

Large corporations are coming under intense pressure to act in a socially responsible manner. Corporations have accepted this notion provided that it is exercised voluntarily. It has also been argued that corporations can do well by doing good, and that good ethics is good business. This paper presents an alternative viewpoint by demonstrating that while voluntary socially responsible conduct is desirable, it plays a rather small role in inspiring good corporate conduct. Instead, (a) it is the external economic-competitive conditions that (...) define the parameters and opportunities for good corporate conduct; and (b) the values and traditions of the corporations, and their perceived risk in exploiting those opportunities, that influence the extent of a corporation's socially responsible conduct. The framework presented here analyzes certain market-competitive conditions, which determine the scope and direction of socially responsible corporate conduct, and the instruments available to society to enhance ethical corporate conduct. It suggests that from society's perspective, we should move away from the notion of corporate social responsibility and toward corporate social accountability. Most modern economies operate under conditions of imperfect competition where corporations gain above-normal profits, i.e., market rent, from market imperfections. Therefore, corporations should be held accountable for a more equitable distribution of these above-normal profits with other groups, e.g., customers, employees, etc., who were deprived of their market-based gains because of market imperfections and corporate power. Three approaches are suggested for measuring corporate accountability through corrections. These are: information imbalance, bargaining power imbalance, and, adjudication, remedy and relief imbalance. (shrink)

This paper analyses the relationships between corporate community involvement activities, the organizational structures within which they are managed, the firm's industry and evolving stakeholder attitudes and preferences in a sample of 148 U.K. based firms who have demonstrated a clear desire to be socially responsible. The research highlights significant associations between the allocation of responsibility for community involvement within the firm, its industry and the extent of its community involvement activities. Consistent with the view that managerial structures may play a (...) significant role in the implementation of community initiatives, the results identify significant variations in community involvement policies across alternative organizational forms. However, important similarities in corporate community policies across alternative structures are also shown to exist suggesting that corporate community involvement activities may be influenced by the preferences of societal stakeholders. (shrink)

This paper provides three brief cases of retailers who have, through what is interpreted as stakeholder mismanagement, brought major problems to bear upon those companies, and other stakeholder groups. The main cases examined concern a "free flight" promotion run by the Hoover company in the UK in 1992/3, the collapse of the Ratner'sretail jewellery chain, and wage realignments at British Gas in 1994.Synthesising these examples, it is suggested that: (1) All companies are expected to meet ethical norms in dealings with (...) their stakeholders, regardless of whether or not they have specifically set out to cultivate an "ethical" image; (2) Stakeholder groups tend not to stand in isolation, but to interact; moreover, modern technology may well tend to increase that interaction; (3) The fall-out from stakeholder mismanagement is likely to be widespread, highly publicised, long lasting, and difficult to contain; (4) Prospect Theory, derived from economics and psychology, may be applicable in such cases. This broadly asserts that we are far more readily affected by dissatisfaction than satisfaction, and this is especially so if expectations have been raised. However, from an ethical standpoint, there is still virtue in pursuing high standards in dealings with stakeholders. (shrink)

The question of whether, and to what extent, business managers have obligations to stakeholders has been the principal theme in much of recent business ethics literature. The question of whether shareholders have obligations to stakeholders, however, has not been addressed sufficiently. I provide some needed attention to this matter by examining the positions of shareholders in the contemporary world of investing. Their positions are considerably different than that often envisioned by business ethicists and economists where shareholders determine the directions of (...) corporate activities through their voting decisions. Typical contemporary investors rarely control corporate activities. If they own corporate securities directly, generally they own too small an interest to exercise control. And, in most cases, they do not even own corporate securities directly, but, rather, own shares in funds. Because of the positions of shareholders today, it is highly questionable whether most have obligations to stakeholders. This has a significant implication for business managers. Whether or not shareholders have obligations to stakeholders, business managers have a greater obligation to educate shareholders about how corporate activities affect stakeholders. I provide a justification for that obligation and comment on how business managers might begin to fulfill it. (shrink)

The question of whether, and to what extent, business managers have obligations to stakeholders has been the principal theme in much of recent business ethics literature. The question of whether shareholders have obligations to stakeholders, however, has not been addressed sufficiently. I provide some needed attention to this matter by examining the positions of shareholders in the contemporary world of investing. Their positions are considerably different than that often envisioned by business ethicists and economists where shareholders determine the directions of (...) corporate activities through their voting decisions. Typical contemporary investors rarely control corporate activities. If they own corporate securities directly, generally they own too small an interest to exercise control. And, in most cases, they do not even own corporate securities directly, but, rather, own shares in funds. Because of the positions of shareholders today, it is highly questionable whether most have obligations to stakeholders. This has a significant implication for business managers. Whether or not shareholders have obligations to stakeholders, business managers have a greater obligation to educate shareholders about how corporate activities affect stakeholders. I provide a justification for that obligation and comment on how business managers might begin to fulfill it. (shrink)

The main thesis guiding the conceptual development of our corporate performance measurement model is that business success – defined as long-term survival and growth – is determined by relationship quality (1) among the various organizational departments (internal stakeholders), (2) between internal and external stakeholders, and (3) between internal and distal stakeholders. Relationship quality among internal stakeholders is conceptualized and operationalized in terms of internal service quality. Relationship quality between internal and external stakeholders is conceptualized and operationalized in terms of external (...) service quality. Relationship quality between internal and distal stakeholders is conceptualized and operationalized in terms of company goodwill. Thus, corporate performance of manufacturing firms can be measured by a survey of representatives of internal, external, and distal stakeholders. Corporate strategies can be developed as a direct function of strengths and weaknesses uncovered by corporate performance measurement. (shrink)

The conflict between agency and stakeholder theories of the firm has long been entrenched in organizational and management literature. At the core of this debate are two competing views of the firm in which assumptions and process contrast each other so sharply that agency and stakeholder views of the firm are often described as polar opposites. The purpose of this paper is to show how agency theory can be subsumed within a general stakeholder model of the firm. By analytically deconstructing (...) the assumptions of agency theory, it is argued that agency theory: (1) must include a recognition of stakeholders; (2) requires a moral minimum to be upheld, which places four moral principles above the interests of any stakeholders, including shareholders; (3) consists of contradictory assumptions about human nature and which give rise to the equally valid assumptions of trust, honesty and loyalty to be infused into the agency relationship. In this way, stakeholder theory is argued to be the logical conclusion of agency theory. Empirical hypotheses are presented as a means to substantiate this claim. (shrink)

The conflict between agency and stakeholder theories of the firm has long been entrenched in organizational and management literature. At the core of this debate are two competing views of the firm in which assumptions and process contrast each other so sharply that agency and stakeholder views of the firm are often described as polar opposites. The purpose of this paper is to show how agency theory can be subsumed within a general stakeholder model of the firm. By analytically deconstructing (...) the assumptions of agency theory, it is argued that agency theory: (1) must include a recognition of stakeholders; (2) requires a moral minimum to be upheld, which places four moral principles above the interests of any stakeholders, including shareholders; (3) consists of contradictory assumptions about human nature and which give rise to the equally valid assumptions of trust, honesty and loyalty to be infused into the agency relationship. In this way, stakeholder theory is argued to be the logical conclusion of agency theory. Empirical hypotheses are presented as a means to substantiate this claim. (shrink)

This paper puts forward an argument for stakeholder rights. It begins by exploring two major answers to the question, 'in whose interests should the commercial company function?'. One claims parity for other stakeholders alongside the shareholder on the basis of a theory of property rights, and another on a theory of citizenship. Each of these answers, it is argued, fail to convince. The way forward is to recast the initial question, not asking in whose interest the company should function, but (...) which type of interest, potentially located in any sort of person, might the company serve. That interest is identified and distinguished from others that people affected by corporations might have. These distinctions then provide the basis for an argument in favour of enfranchising two sorts of individual: sovereign stakeholders, in charge of monitoring the formulation and revision of company objectives; and secondary stakeholders, who along with those in the first category monitor the means used to achieve those objectives.The paper concludes that these distinctions should lead us to reconsider other elements in the corporate governance debate, such as the nature of a director's fiduciary duty; and the difference between democracy in corporations and democracy in the wider society. (shrink)