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the Firm?
Is it Merely
Generating Profits or
Managing
Stakeholders?
Introduction
Stockholders/Shareholders versus Stakeholders
Debate: Do Corporations have any responsibility
towards society?
Stockholders Approach Summed up by Danie De Vito
in Other Peoples Money(
https://www.youtube.com/watch?v=kqeCOv90TUo)
Shareholders Approach Summed up by Gregory Peck
in Other Peoples Money (
https://www.youtube.com/watch?v=xJRhrow3Jws)
Are they dichotomous or the debate generates false
dichotomy?
Stockholders/Shareholders
Approach
Based on Adam Smiths philosophy as enunciated in The Wealth
of Nations which can be summed up in the following 3 premises
Importance of free markets
Invisible hand of self-regulation
Importance of enlightened self-interest
A Brief Timeline
Earliest proponents in 20th century: Austrian School of Economics
(Frederich Von Hayek, Joseph Schumpeter) advocated laissez
faire
Chicago School: Overriding purpose of Firm is maximise
shareholder wealth
TCE and Agency Theory: Form foundations of currently existing
CG practices Focus on a) Monitor manger behaviour and b)
Provide incentives to managers to align interests with those of
stockholders
Stakeholders Approach
Who are stakeholders?: Groups/individuals who are affected by or
can affect the achievement of organizations objectives
Impetus: Build a framework thats responsive to managerial
concerns of being buffeted by unprecedented levels of
environmental turbulence and change
Timeline
Heart of the Stakeholders Approach: clinical studies of
management practitioners carried on over years in the University
of Pennsylvania through the Busch Centre, Wharton Applied
Research Centre and the Managerial and Behavioural
Research Centre
SRI: Pioneering work in 1960s Main contention being managers
needed to understand stakeholders concerns and develop
objectives that the latter would support-Led to emergence of four
distinct research streams during 1960s-80s,namely, a) Corporate
Planning b) Systems Theory c) Organizational Theory and d) CSR
These four went on to constitute the building blocks of the
Stakeholders Approach
Building Blocks of
Stakeholders Approach
Corporate Planning
Environmental scanning to
facilitate prediction and
adaptation
Ansoffs Corporate
Strategy stressed
importance of identifying
critical stakeholders
Stakeholders as constraining
factors in realization of firm's
goals
Management should
understand limits set by
stakeholders and maximise
shareholders stock value
Systems and
Organization Theory
Stresses external links
Identifying stakeholders and
detect linkages b/w them is
critical for firms success
Development of collective
strategies that optimize
network is crucial
Thompson (Clientele)
developed the concept to take
into account groups outside the
traditional boundary of the firm
Limitations
Firms autonomy?
No obvious starting or ending
point
Concluding Thoughts
Stakeholders vs Shareholders Debate is divided to
false dichotomy
Collins and Porras (Built to Last): Strong set
of core values important for long term financial
success of the firm( respect and opportunity in
HP, PPP in 3M, Bring Happiness to Millions in
Disney)
Challenges for Stakeholders
The Separation Thesis
Pragmatist perspective Management