LESSON 11:

STAKEHOLDER THEORY:
A COMPREHENSIVE APPROACH
TO CORPORATE SOCIAL
RESPONSIBILITY
BY: Nicole Ybañez
Abegail Benavente
Diana Janine Calzada
12-GASII PURITY
“Business management cannot concern itself only
with the interests of the proprietors, but must also
assume responsibility for all the other stakeholders
who contribute to the life of the business: the
workers, the clients, the suppliers of various elements
of production, the community of reference“
- Caritas In Veritate, n. 40
Today's leaders act in a global, complex, uncertain, and
interconnected business environment. Among the challenges in
this context is the need to reduce complexity and uncertainty
for people and provide a desirable picture of the future, which
is shared by the people they lead. In a global stakeholder
society, where companies are expected to be accountable not
only to shareholders for financial performance, but to
stakeholders for their wider economic, environmental and
societal impacts, commercial viability and long-term business
success depend on the ability of the firm and its leadership to
act responsibly with respect to all stakeholders in business,
society, and the environment (Maak and Pless, 2006).
 DEFINITION OF
STAKEHOLDER
 The stakeholder concept originated from the word stake
(interest). It stems froma deliberate will to indicate that other
parties have an interest in the enterprise.
 Company managers should exert effort in incorporating social
and environmental preoccupations into the management of the
firm. These preoccupations may be linked to business activities
or torelations with all internal actors. However, they may also be
associated with any "actors” outside the scope of the company
who may be affected by its operations. These actors (both inside
and outside the organization) are called stakeholders.
 The development of the term stakeholder began in the 1960s
with the research carried out by Ansoff (1968), who considered
that an enterprise is obliged to adjust its objectives to balance
out the satisfaction of stakeholders.
 In 1963, the Stanford Research Institute introduced the original
definition of stakeholders by designating the groups that are
indispensable to the organisation's survival.
 Rhenman and Stymne (1965) insist on the variable of
"dependence" for survival by qualifying stakeholders as: (1)
the groups that depend on the company to achieve their own
goals, and (2) the company depends on its groups to guarantee
its own existence.
 From the end of the 1970s and the beginning of the 1980s,
the term stakeholders began to occupy a significant place
in the literature.
 The stakeholder concept really gained a foothold in
management literature with the publication in 1984 of
Freeman's work Strategic Management:A Stakeholder
Approach, which marked a first stage in conceptual
construction by being anchored strategically in the
management of stakeholders.
 Freeman defined stakeholders as "any group or individual
who can influence or be affected by the organization as it
achieves its goals."
 COMPANY STAKEHOLDERS
The responsibility principle states that "Most people
most of the time, want to and do accept responsibility for
the effects of their actions on others.“ People engaged in
value creation and trade are responsible precisely to
"those groups and individuals who can affect or be
affected by their actions;" that is, the stakeholders.
Literature on stakeholders usually distinguishes between
important and unimportant stakeholders.
Sometimes, this ranking is refined further by
distinguishing primary stakeholders (whose participation
is required for the company's survival) and secondary
stakeholders (whose relationship is not considered as vital
for the company). Secondary stakeholders may have a
potential influence (in the event of boycotts for example)
and may emerge rapidly as players capable of influencing
the company's performance. Other works also make a
distinction between voluntary and involuntary
stakeholders, which is based primarily on the notion of
risk.
 CHALLENGES IN CSR
CSR is of pressing importance as it significantly influences the sort
of lives we will lead in the future. Furthermore, the distinctive
nature of entrepreneurial action leads to adistinctive set of ethical
problems and ethical obligations. When the ethics of corporations
is not properly and sufficiently discussed, then sustainability could
mean anything from"exploit as much as desired without infringing
on future ability to exploit as much as desired" to "exploit as little
as necessary to maintain a meaningful life.” It is widely accepted
today that true sustainability includes valuing ecosystem health,
human needs, economic development, and social justice. (Dunham,
2007; Vucetich and Nelson, 2010; Racelis, 2012: Melé and Von
Weltzien Hoivik, 2009).
Especially in the global market place, human rights have come
to be a crucial issue in business. A concrete example of
disrespect for the dignity and rights of persons is when an
entrepreneur while having a magical way of building something
out of nothing-engages in behaviors that negatively impact
business. When entrepreneurs are underenormous pressure to
produce "sales, two things generally happen: (1) they develop
tunnel vision and often become extremely forgetful about
anything other than what they are focused on at the moment,
and (2) their type-A tendencies go into overdrive and they
bulldoze their way through decisions, forgetting that actual
human beings with thoughts and feelings are on the other end
(lliff, 2014; Garriga &Melé, 2004).
WHAT IS STAKEHOLDER
THEORY?
Stakeholder theory is fundamentally about how
business works at its best and how it could work. It is
descriptive, prescriptive, and instrumental at the same
time, and as Donaldson and Preston (1995) have
argued, it is managerial. Stakeholder theory is about
value creation, trade, and managing a business
effectively. Effective can be seen as “create as much
value as possible.”
If stakeholder theory is to solve the problem of value
creation and trade, it must show how business can in
fact be described through stakeholder relationships.If
it is to solve the problem of the ethics of capitalism, it
must show how a business couldbe managed to take
full account of its effects on and responsibilities
toward stakeholders.if it is to solve the problem of
managerial mindset, it must adopt a practical way of
puttingbusiness and ethics together that is
implementable in the real world.
Stakeholder theory does not mean that representatives of
these groups must sit on governing boards of the firm, nor
does it mean that shareholders (we prefer "financers" as a
more inclusive term) have no rights. It does imply that the
interests of these groups are joint and that to create value,
one must focus on how value gets created for each and
every stakeholder. They have tried to use the idea to
address issues such as "corporate social responsibility”,
"corporate legitimacy”, “theory of the firm" and even
macro-sociefal issues such as "building the good
society(Freeman et al., 2010).
 STAKEHOLDER APPROACH TO
CORPORATE SOCIAL
RESPONSIBILITY (CSR)
Following the stakeholder theory, a socially responsible
firm requires simultaneous attention to the legitimate
interests of all appropriate stakeholders and has to balance
such a multiplicity of interests and not only the interests
of the firm's stockholders. A generic formulation of
stakeholder theory is not sufficient. In order to point out
how corporations have to be governed and how managers
ought to act, a normative core of ethical principles is
required.
To this end, different scholars have proposed differing
normative ethical theories. There isthe theories of justice
expounded by John Rawls, for whom it is necessary that
each citizen be assured of an equal claim to a fully
adequate scheme of equal basic rights and liberties.
Freeman (1994) proposed the doctrine of fair contracts
and Phillips (1997, 2003) suggested introducing the
fairness principle based on six of Rawls' characteristics of
the principles offair play: mutual benefit, justice,
cooperation, sacrifice, free-rider possibility, and voluntary
acceptance of the benefits of cooperative schemes.
In order to make stakeholder theory more aligned with the
ideas of justice, fairness,and human freedom, Freeman and
Philips (2002) proposed the Principle of Stakeholder
Responsibility, which says that parties to an agreement must
accept responsibility for the consequences of their action.
Argandona (1998) suggested the common good notion which
takes into consideration the common and thereby
contributing to the creation of value. Later in 1997, Carroll
and Nasi put forward a classification that opposed internal
stakeholders (owners, directors,and employees) to external
stakeholders (competitors, consumers, governments, pressure
groups, media, and the natural environment) (EI Abboubi
and Cornet, 2012).
THE END