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Stakeholder model of the corporation (stakeholder capitalism)
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See also: Shareholder model of the corporation
The stakeholder model of the corporation is a term referring to a theory of corporate governance that argues the firm should serve the wider interests of stakeholders rather than those of shareholders only.[1] The stakeholders in this model include shareholders, employees, creditors, suppliers, customers, and the local community, according to R. Edward Freeman, one of the scholars who developed much of the theory.[1]
Scholars often contrast the stakeholder model with the shareholder model of the corporation, which "regards the corporation as a legal instrument for shareholders to maximise [sic] their own interests—investment returns."[1]
Background
History of the stakeholder model of the corporation
Originally, the concept of a stakeholder was more limited than those considered stakeholders by later scholars. “The actual word 'stakeholder' first appeared in the management literature in an internal memorandum at the Stanford Research Institute (now SRI International, Inc.), in 1963. The term was meant to generalize the notion of stockholder as the only group to whom management need be responsive. Thus, the stakeholder concept was originally defined as ‘those groups without whose support the organization would cease to exist,'" according to Elaine Sternberg, a business scholar writing about the stakeholder model developed by R. Edward Freeman.[2]
According to a 2004 Corporate Governance article, the stakeholder model of the corporation emerged toward the end of the 20th century and “views the corporation as a locus in relation to wider external stakeholders’ interests rather than merely shareholders’ wealth. Employees, creditors, suppliers, customers, and the local community are major stakeholders often mentioned and emphasized within a broad definition of stakeholding.”[1]
Theory of the stakeholder model of the corporation
According to the stakeholder model, the corporate firm should look beyond shareholders to appreciate sources of long-term success. "Stakeholders such as employees, creditors, suppliers, customers and local communities have long-term relationships (both contributions and risk-sharing) with the firm and affect its long-term success. Their welfare must be taken into account in corporate decision-making,” according to the academic authors of the Corporate Governance article.[1]
Sternberg wrote, "Stakeholder theory is the doctrine that businesses should be run not for the financial benefit of their owners, but for the benefit of all their stakeholders. It is an essential tenet of stakeholder theory that organisations [sic] are accountable to all their stakeholders, and that the proper objective of management is to balance stakeholders’ competing interests."[2]
Professor Collins G. Ntim said in a 2017 article that the stakeholder model contains the following considerations: "For example, it is suggested that shareholders supply the firm with capital. In exchange, they expect to maximise [sic] the risk-adjusted return on their investments. Creditors provide the firm with loans. In return, they expect their loans to be repaid on time. Local communities supply the firm with location and local infrastructure. In exchange, they expect the firm to improve their quality of life. Managers and employees provide the firm with time and skills. In return, they expect to receive a sustainable income, and this has been argued to be true for every reasonably conceivable constituency of the firm."[3]
See also
External links
Footnotes
- ↑ 1.0 1.1 1.2 1.3 1.4 Corporate Governance, "Shareholding Versus Stakeholding: a critical review of corporate governance," accessed February 8, 2021
- ↑ 2.0 2.1 Corporate Governance: An International Review, "The Defects of Stakeholder Theory," December 16, 2002
- ↑ Global Encyclopedia of Public Administration, Public Policy, and Governance, "Defining Corporate Governance: Shareholder Versus Stakeholder Models," accessed February 9, 2021
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