Stakeholder Management as a Theory of Added Value - Corporate Governance and Business Ethics

From an economic perspective, stakeholder management is strategic management, based on the central idea that the economic success or failure of a company is determined by those actors that take an interest in the company’s success because it Simultaneously helps them realize their own interests. Management theories that deal with the function of stakeholders are basically specific value-added theories whose main assumption is that taking into account and integrating the interests of the actors involved in company decisions and transactions creates economic value and new docking points for economic transactions, both for the company and the involved actors. This version of stakeholder theory is not interested in economic democracy, co-determination, corporate social responsibility, etc. (Freeman 2004), but in shaping the conditions for the economic success of a network of economic actors (Freeman et al. 2011). According to Freeman, these conditions are essentially described by three principles, the “principle of stakeholder cooperation”, the “principle of stakeholder responsibility”, and the “principle of complexity”.

  1. The “cooperation principle” says,
  2. This is the contractual theory component of the stakeholder theory; it is irrelevant whether the mutual agreements and promises are based on formal or informal contracts.

  3. The “responsibility principle” says,
  4. This is the consequentiality component of the stakeholder theory; it plays a role in answering the question of who among the many potential stakeholders will become actual stakeholders of an organization, namely those who are willing to take responsibility for the results of the stakeholder cooperation.

  5. The “complexity principle” says,
  6. This is the behavioral theory component of the stakeholder theory; it essentially argues that one-sided concepts such as the maximization of benefit are not sufficient to understand the behavioral dimensions of economic actors; this incomplete understanding can negatively influence an organization’s ability to generate added value, because it excludes too many options for action and too narrowly defines the expected range of advantages.

It is not difficult to establish that all three principles are based on an integration of economic and ethical decision-making logic, of economic and moral values as prerequisites for added value and exchange in modern economies. While the “complexity principle” focuses the aspect that actors have and want to act upon their moral preferences, the “responsibility principle” comprises the actors’ moral responsibility for their actions. The theoretical core of the integration of economic calculation and ethical claims, and thus also of the economics of governance and the ethics of governance, is the “cooperation principle” based on contractual theory because every form of contract always automatically includes moral ideas and responsibilities: Sharing this perspective, the economic as well as the ethical theory of governance emphasize that cooperation is a quality of social life which cannot be further interrogated or reduced (Wieland 2001, 2005). Indeed, cooperation is the ultimate driving force of economic and moral development. It also determines the nature of the stakeholder management. The management of stakeholder relations, which satisfies the three principles mentioned above, refers to three areas that need to be differentiated, i.e., a) the company as an organization, b) its processes and procedures, and c) its specific transactions (Freeman 2004). The reference unit is the interests and resources relevant to each area, being components of the added-value process taking place in that area. Here, the management has to take into account that not all stakeholders are able or willing to make a positive contribution to the cooperation project. Acknowledging this fact, Freeman et al. draw a distinction between “definitional” and “instrumental stakeholders”. While the former group comprises customers, employees, suppliers, shareholders, and local communities, which play a key role for the growth and survival of the company, the latter group includes competitors, the media, government and administrative bodies, and non-governmental organizations (NGO's), which are able to positively or negatively influence the relationship of the company to its primary stakeholders (“definitional stakeholders”) and thus the primary stakeholders’ willingness to contribute their interests and resources. Seen from this perspective, governments and state administrative bodies which act in a law-making and law enforcing capacity cannot be stakeholders of a company because they are as such not voluntary contractual partners (van Oosterhout et al. 2006).

To summarize the discussion so far, the stakeholder theory as a theory of added value and of exchange is based on three fundamental assumptions about the nature of the firm and the management of this firm:

  1. The nature of the firm is defined as a collaborative process among stakeholders (mostly customers, suppliers, employees, creditors, communities) that aims to deliver success and growth for all stakeholders involved and to create added value.
  2. Consequently, the nature of management can only be understood as the strategic management of social relations with the goal of:
  3. “Creating values for stakeholders” (Freeman et al. 2011), i.e., a cooperation rent. These two assumptions about the nature of the firm and its management correspond to an integrative methodology, which seeks to define the relationship between corporate and social interests, business and ethics, or strategic management and organizational ethics.

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