Stakeholder Theory

Summary

This video explores the stakeholder theory of corporate governance, emphasizing the corporation's responsibility to all stakeholders, not just shareholders. It defines stakeholders broadly, including anyone who can affect or be affected by the corporation. The video discusses three models: normative, focusing on moral responsibilities; descriptive, examining stakeholder power and impact; and instrumental, linking stakeholder engagement to improved corporate performance. It concludes with recommendations for board composition, suggesting stakeholder representation to ensure diverse interests are addressed.

Takeaways

• 📚 Stakeholder Theory offers a broader perspective on corporate governance, focusing on the duty of care towards all stakeholders, not just shareholders.
• 👥 Stakeholders are defined as those with a legitimate stake in a corporation and those who can affect or be affected by the corporation.
• 🔍 Primary stakeholders are considered indispensable to an organization's existence, including shareholders, management, employees, customers, suppliers, community residents, and government.
• 🤝 The theory argues for good relations with all stakeholders to achieve and sustain organizational performance.
• 📊 Three models of stakeholder Theory are discussed: normative, descriptive, and instrumental, each focusing on different aspects of stakeholder relationships and corporate performance.
• 🧘 Normative stakeholder Theory emphasizes the moral responsibility of a corporation towards its stakeholders and debates stakeholder legitimacy.
• 🔎 Descriptive stakeholder Theory examines the power and influence of different stakeholder groups and how their interests impact the corporation.
• 📈 Instrumental stakeholder Theory suggests that catering to stakeholder interests enhances corporate performance and competitive advantage.
• 💼 Recommendations from stakeholder Theory include having stakeholder representation on the corporate board to better address their interests and facilitate performance.
• 🌟 The role of the board of directors, according to stakeholder theorists, is to advocate for corporate social responsibility and ensure the interests of a broader set of stakeholders are met.

Q & A

What is the stakeholder theoretical perspective in corporate governance?

The stakeholder theoretical perspective in corporate governance views a corporation through a wider lens, focusing on the duty of care towards every stakeholder, not just shareholders. It emphasizes the corporation's responsibility to all individuals, groups, and entities that have a legitimate stake in the corporation.

Who are considered stakeholders in the context of stakeholder theory?

Stakeholders are defined as those who have a legitimate stake in a corporation and those who affect and can be affected by a corporation, formally or informally. This includes shareholders, management, employees, customers, suppliers, community residents, government, and more.

What are primary stakeholders according to stakeholder theory?

Primary stakeholders are those who are indispensable to an organization and to which an organization owes its continued existence. This typically includes shareholders, management, employees, customers, suppliers, and community residents.

How does stakeholder theory argue for managing the interests of stakeholders?

Stakeholder theory argues that maintaining good relations with all corporate stakeholders is crucial for achieving and sustaining organizational performance. It suggests that corporations, their management, and boards of directors must cater to the interests of stakeholders to enhance corporate reputation and competitive advantage.

What are the three stakeholder models discussed in the video?

The three stakeholder models discussed are normative stakeholder theory, descriptive stakeholder theory, and instrumental stakeholder theory. Each model provides a different perspective on how to understand and manage the interests of corporate stakeholders.

How does normative stakeholder theory define the corporation's moral responsibility?

Normative stakeholder theory argues that corporations have a moral responsibility to balance and cater to the legitimate demands and interests of their stakeholders, leading to intrinsic benefits for the corporation.

What is the focus of descriptive stakeholder theory?

Descriptive stakeholder theory examines the stakes, power, and salience of different stakeholder groups. It looks at how corporations, their management, and boards of directors balance the interests of stakeholders while considering their impact on the corporation.

What does instrumental stakeholder theory propose about corporate performance?

Instrumental stakeholder theory suggests that catering to the demands and interests of different corporate stakeholder groups leads to enhanced corporate performance. It posits that addressing stakeholder concerns can improve corporate reputation, access to resources, and competitive advantage.

What recommendations do stakeholder theorists have for the composition of the corporate board of directors?

Stakeholder theorists recommend allowing stakeholder representation on the corporate board of directors. This is believed to facilitate performance and ensure that the interests of a broader set of stakeholders are catered for.

How does stakeholder theory view the role of the board of directors in corporate governance?

According to stakeholder theory, the role of the board of directors is to advocate for and ensure corporate social responsibility and tend to the interests of a broader set of stakeholders, including employees and society at large.

Outlines

00:00

📚 Introduction to Stakeholder Theory in Corporate Governance

This paragraph introduces the concept of Stakeholder Theory within the framework of corporate governance. It contrasts this theory with others like agency and stewardship theory, which emphasize shareholder interests. Stakeholder Theory broadens the scope to include all parties with a stake in the corporation, not just shareholders. The paragraph defines stakeholders as those with a legitimate interest in the company and those who can influence or be influenced by it. It also outlines the challenges in managing the diverse interests of stakeholders and introduces the concept of primary stakeholders, which includes shareholders, management, employees, customers, suppliers, community residents, and government entities. The paragraph sets the stage for a deeper exploration of the theory and its implications for corporate boards.

05:00

🔍 Stakeholder Theory Models and Board Composition Recommendations

The second paragraph delves into the three models of Stakeholder Theory: normative, descriptive, and instrumental. The normative model emphasizes the moral responsibilities of corporations towards stakeholders, advocating for balance and consideration of their interests. The descriptive model examines the power dynamics and influence of different stakeholder groups on the corporation. The instrumental model suggests that addressing stakeholder interests can enhance corporate performance. The paragraph concludes with recommendations from stakeholder theorists on the composition of corporate boards, advocating for stakeholder representation to ensure that their interests are catered to and to facilitate better organizational performance. It summarizes the key points about defining stakeholders, the importance of the three models in understanding corporate governance, and the role of boards in advocating for corporate social responsibility and broader stakeholder interests.

Keywords

💡Stakeholder Theory

Stakeholder Theory is a concept in corporate governance that broadens the focus from just shareholders to include all parties who have an interest or stake in a company. The video explains that this theory views a corporation through a wider lens, emphasizing the duty of care towards every stakeholder, not just shareholders. It is central to the video's theme as it underpins the discussion on the role of boards of directors and their responsibility towards various stakeholders.

💡Corporate Governance

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. In the video, corporate governance is discussed in the context of the stakeholder theory, highlighting how it should be managed to balance the interests of all stakeholders, not just shareholders.

💡Board of Directors

The board of directors is a group of individuals elected by the shareholders to oversee the management of a company and protect the interests of stakeholders. The video discusses how the board's composition and role are influenced by the stakeholder theory, emphasizing the need for stakeholder representation to ensure the interests of a broader set of stakeholders are catered for.

💡Primary Stakeholders

Primary stakeholders, as mentioned in the video, are those who are indispensable to an organization and to which an organization owes its continued existence. This includes shareholders, management, employees, customers, suppliers, community residents, and government. The video argues that these stakeholders are crucial for the corporation's survival and should be a focus of the board's attention.

💡Normative Stakeholder Theory

Normative Stakeholder Theory is one of the models discussed in the video, which argues for balancing and catering to the legitimate demands and interests of corporate stakeholders. It is used to highlight the moral responsibility of a corporation towards its stakeholders and to debate the legitimacy of various stakeholder groups.

💡Descriptive Stakeholder Theory

Descriptive Stakeholder Theory examines the stakes, power, and salience of different stakeholder groups. The video explains that because stakeholder groups have different interests, their impacts on the corporation are also differentiated. This theory is used to understand how corporations manage these varying interests.

💡Instrumental Stakeholder Theory

Instrumental Stakeholder Theory is the most prominent model discussed in the video. It argues that catering to the demands and interests of different corporate stakeholder groups will lead to enhanced corporate performance. The video suggests that when a corporation attends to the various demands of stakeholders, it leads to a favorable corporate reputation and competitive advantage.

💡Stakeholder Representation

Stakeholder representation on the corporate board is a recommendation made by stakeholder theorists, as discussed in the video. It suggests that allowing stakeholders to have a seat on the board facilitates the co-opting of external resources, establishing business affiliations, and enhancing the organization's reputation.

💡Corporate Social Responsibility (CSR)

Corporate Social Responsibility is the idea that corporations should be accountable for their impact on society and the environment. The video mentions that stakeholder theorists argue the board's role is to advocate and ensure CSR, tending to the interests of a broader set of stakeholders, including employees and society at large.

💡Organizational Performance

Organizational performance refers to how well an organization achieves its goals and objectives. In the context of the video, stakeholder theorists argue that managing stakeholder relationships effectively can lead to improved organizational performance, as it can enhance the corporation's reputation and access to resources.

Highlights

Introduction to the stakeholder theoretical perspective of corporate governance.

Definition of stakeholders as individuals, groups, and entities with a legitimate stake in a corporation.

Differentiation between primary and secondary stakeholders in corporate governance.

The role of the board of directors in managing relationships with all corporate stakeholders.

Explanation of normative stakeholder theory and its focus on moral responsibility.

Descriptive stakeholder theory's examination of stakeholder power and salience.

Instrumental stakeholder theory's argument for enhanced corporate performance through stakeholder engagement.

Recommendations on the composition of the corporate board of directors for effective stakeholder representation.

The board's role in advocating for corporate social responsibility and broader stakeholder interests.

The importance of stakeholder representation on corporate boards for resource co-opting and reputation enhancement.

The stakeholder approach to corporate governance for achieving and sustaining organizational performance.

The duty of care towards every stakeholder as opposed to just shareholders in stakeholder theory.

The problem of managing an exhaustive list of stakeholders and the concept of primary stakeholders.

The impact of stakeholder management on corporate reputation and resource access.

The argument that a corporation's performance is enhanced by catering to stakeholder demands and interests.

The summary of stakeholder theory, including the definition of stakeholders and the three streams of research models.

The conclusion of the video and a thank you to viewers for watching.

Transcripts

welcome to this video in this video we

will discuss another theory of corporate

governance that holds a broader view of

a corporation and the role of boards of

directors the theory discussed in this

video is the stakeholder theoretical

perspective of corporate governance in

this video we will identify individuals

groups and entities that are

stakeholders to a corporation we will

also discuss the types of stakeholder

theoretical models and how these models

are used to understand the role of the

board of directors within a corporation

so without wasting more time let's begin

this video properly so what is the

stakeholder theoretical perspective in

corporate governance stakeholder Theory

views a corporation through a wider lens

it goes beyond the focus of theories

such as agency and stewardship theory

that overemphasizes the duty of care

towards

shareholders stakeholder Theory rather

focuses on the duty of care towards

every stakeholder to a corporation in

other words stakeholder theory is used

to argue to whom an organization or a

corporation is

responsible to understand the arguments

of stakeholder Theory it is imperative

to Define what we mean or who we refer

to as stakeholders in this context in

this context we Define stakeholders as

those who have a legitimate stake in a

corporation and you already know to whom

we refer these are the

shareholders we also Define stakeholders

as those who affect and can be affected

by a corporation formally or informally

in other words nearly everyone is a

stakeholder to a

corporation considering these

definitions of who stakeholders to a

corporation are a problem emerges as to

how to manage these inexhaustable list

of

stakeholders for this reason stakeholder

theorists have narrowed down corporate

stakeholders to primary

stakeholders primary stakeholders are

those indispensable to an organization

and those to which an organization owes

its continued existence apart from the

shareholders who have a legitimate stake

these include the management employees

customers suppliers Community residents

government and so

on having identified who corporate

stakeholders are stakeholder theorists

argue that the corporation its

management and the board of directors

must maintain good relations with all

corporate stakeholders not just to

shareholders who have a legitimate stake

in the corporation

it is also argued that this approach to

stakeholder management would be useful

in achieving and sustaining

organizational performance this

justification for a stakeholder approach

to corporate governance is explained

further using three stakeholder models

namely normative stakeholder Theory

descriptive stakeholder Theory and

instrumental stakeholder Theory now

let's consider these stakeholder models

one after the other normative

stakeholder Theory when Bal balancing

and Catering to the legitimate demands

and interests of corporate stakeholders

the normative approach argues that this

leads to Intrinsic benefits to a

corporation the normative stakeholder

approach is also used to highlight moral

responsibility of a corporation to its

stakeholders and to debate the

legitimacy of various stakeholder groups

descriptive stakeholder Theory this

stream or model of stakeholder theory is

used to examine the stakes power and

salience of different stakeholder groups

as stakeholder groups have different

interests their impacts on the

corporation are also differentiated to a

lesser or a greater degree finally the

instrumental stakeholder Theory this is

probably the more prominent stakeholder

model or perspective the instrumental

stakeholder Theory argues that the

catering for the demands and interests

of different corporate stakeholders

groups will lead to enhance corporate

performance in other words when a

corporation attends to the various

demands of stakeholders it leads to

favorable corporate reputation a

corporation's access to resources

controlled by stakeholders and this

eventually leads to an enhanced

competitive Advantage how these models

of stakeholder Theory are applied to

corporate governance has led to

recommendations on the composition of

the corporate board of directors the way

the board of directors is composed will

allow the board to carry out their roles

in tending to the interests of different

stakeholder groups effectively regarding

the comp position of the board

stakeholder studies in corporate

governance recommend allowing

stakeholder representation on the

corporate board stakeholders

representation on corporate boards has

been classified as one of the service

roles of the board of directors with

stakeholder representation on the

corporate board this is argued to

facilitate the co-opting of external

resources establishing business and

non-b business affiliations and

enhancing the organization's

reputation Also regarding the role of

the board of directors according to

stakeholder theorists their role is to

Advocate and ensure Corporate social

responsibility and tend to the interests

of a broader set of stakeholders

including the employees and Society now

let's stop here regarding this Theory

and summarize what we have learned so

far about stakeholder Theory first we

Define to whom we refer using the term

stakeholders stakeholders are those who

have a legitimate stake in a corporation

and those who affect and can affect an

organization achieving its corporate

goals we then identified the three

streams of research or models of

stakeholder Theory these are normative

stakeholder Theory which highlights the

moral responsibility a corporation its

management and the board of directors

have towards their corporate

stakeholders descriptive stakeholder

Theory which refers to how the

corporation its management and its board

of directors balance the interests of

stakeholders while taking into

consideration their impact on the

corporate ation lastly instrumental

stakeholder Theory which focuses on how

catering for stakeholders interests

leads to enhanced organizational or

financial

performance we then finally discussed

the recommendation of stakeholder

theorists regarding the composition of

the board of directors the

recommendation is to have stakeholder

representation on the corporate board to

facilitate performance and ensure that

the interests of stakeholders are

catered for that will be all for this

video one once again it is lovely to

have you with us thank you for watching

and see you in the next

video