Stakeholder Theory
Summary
TLDRThis 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
📚 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.
🔍 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.
Mindmap
Keywords
💡Stakeholder Theory
💡Corporate Governance
💡Board of Directors
💡Primary Stakeholders
💡Normative Stakeholder Theory
💡Descriptive Stakeholder Theory
💡Instrumental Stakeholder Theory
💡Stakeholder Representation
💡Corporate Social Responsibility (CSR)
💡Organizational Performance
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
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