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.