Donaldson and Preston: Stakeholder Theory in Triadic Form - Corporate Governance and Business Ethics

Donaldson and Preston aver that the normative, instrumental, and descriptive strands of stakeholder thinking yield the aspectual theses of an omnibus stakeholder theory, at the center of which lies the normative thesis. The theses are interrelated and mutually supporting meaning, presumably, that there exist some logical relationship among them. Evaluating these claims requires identification and analysis of the three theses. Identification is the task of the present part.

Normative Thesis

Donaldson and Preston (1995) claim that the normative thesis is the “fundamental basis” of stakeholder theory and involves acceptance of the following ideas:

  • Stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity. Stakeholders are identified by their interests in the corporation, whether the corporation has any corresponding functional interest in them.
  • The interests of all stakeholders are of intrinsic value. That is, each group of stakeholders merits consideration for its own sake and not merely because of its ability to further the interests of some other group, such as the shareowners. (Emphasis in the original)

Normative stakeholder theory “attempts to interpret the function of, and offer guidance about, the investor-owned corporation on the basis of some underlying moral or philosophical principles”. Normative justifications of stakeholder theory “appeal to underlying concepts such as individual or group ‘rights’, ‘social contract’, or utilitarianism”.

The normative thesis finds its practical upshot in stakeholder management. Stakeholder management requires, as its key attribute, simultaneous attention to the legitimate interests of all appropriate stakeholders, both in the establishment of organizational structures and general policies and in case-by-case decision making If true, the normative thesis underwrites morally the practice of stakeholder management.

Instrumental Thesis

Donaldson and Preston’s instrumental thesis is the view that stakeholder theory establishes a framework for examining the connections, if any, between the practice of stakeholder management and the achievement of various corporate performance goals. The principal focus of interest here has been the proposition that corporations practicing stakeholder management will, other things being equal, be relatively successful in conventional performance terms (profitability, stability, growth, etc.).

Instrumental stakeholder theory makes a connection between stakeholders approaches and commonly desired objectives such as profitability. Instrumental uses usually stop short of exploring specific links between cause (i.e., stakeholder management) and effect (i.e., corporate performance) in detail, but such linkage is certainly implicit.

Instrumental justifications of stakeholder theory “point to evidence of the connection between stakeholder management and corporate performance”.

Descriptive Thesis

Donaldson and Preston’s descriptive thesis is the view that stakeholder theory presents a model describing what the corporation is. It describes the corporation as a constellation of cooperative and competitive interests possessing intrinsic value. This descriptive aspect “reflects and explains past, present and future states of affairs of corporations and their stakeholders” ibid. Descriptive justifications of stakeholder theory “attempt to show that concepts embedded in the theory correspond to observed reality”.

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