Week 4: Stakeholder theory

  1. Descriptive vs prescriptive theories
    • Descriptive: Factual
    • What is the case
    • Prescriptive: values based
    • The ideal- what ought to be the case
    • Essentially rules telling us how to behave
    • eg. ethics, law, social norms
  2. Arrow and the justification of the market
    • Contributions: Purchasing labour and goods, Producing goods
    • other: personal meaning, social cooperation, efficiency
    • Profit as a measure of contribution to the common good/value ( in a freemarket of voluntary exchange, assuming consumer rationality)
    • Impact: pollution, congestion
    • Other: thing addiction, undermining relationships, resource depletion
    • Undermined by monopoly
    • Problem of distribution (1%)
    • Undermining altruism
  3. Egoism
    • Descriptive vs prescriptive
    • Descriptive: claims that it is a fact that we do always act in the pursuit of self interest
    • Ethical egoism is the claim that we should always pursue own interests
  4. Descriptive egoism
    A central assumption of economics since Adam Smith
  5. Pareto efficiency
    • A Pareto efficient exchange is one that
    • makes one at least one person better off and no-one worse off (by their own assessment)
    • A state of Pareto optimality (maximum
    • efficiency) is where no one can be madebetter off without anyone else being made
    • worse off
  6. Objecting to ethical egoism
    • It cannot adjudicate conflict (eg. competition over a scarce resource) and as yet markets are not perfect.Self interest may often be acceptable, and up to
    • a point required (eg: self-esteem needs) but to
    • consider altruism to be immoral (ag: Ayn Rand) seems deeply counterintuitive, perhaps nonsensical
    • Shaw – morality is generally seen as a restraint on self interest – hence egoism oxymoronic
  7. Threats to efficiency
    • Overutilisation of (free) public goods (externalising costs)- eg. public highways
    • Information asymmetry and trust (both ways, eg. the disadvantage experienced by those selling quality used cars)
  8. Assumptions of efficient markets
    • No barriers to entry or exit
    •  Low/no transaction costs
    •  Multiple sellers and buyers/ employers and employees
    •  No information asymmetries
    •  No externalities (fully assigned property
    • rights)
    •  Everyone has something to exchange
    • No corporate influence
    • Where these assumptions are not met, must be some regulation
  9. Responses (Arrow)
    • Regulation: addressed assurance problem/prisoners dilemma
    • Good for essentials (eg. product safety)
    • Slow and inflexible or complex
    • Legal liability: incentivises both consumers and good professionals
    • Subject to financial clout 'cost of doing business)
    • Tax: assurance/prisoner's dilemma
    • Flexible and incentivises innovation
    • Subject to financial clout
  10. Stakeholder theory
    Business should be run to create value for all stakeholders.
  11. Whoa re stakeholder?
    • All those who have a stake in or claim upon the corporation, for example
    •  Suppliers
    •  Customers
    •  Employees
    •  Shareholders
    •  Local community
    • A lot more and everyone is not only one type of stakeholder.
  12. Two categories of stakeholder definitions
    • Moral definition: stakeholder owed a corresponding duty. Stakeholder are those who have contributed a stake and, as a result.
    • have a right to benefit or be protected from harm 
    • Strategic definition: stakeholder management is useful who will increase the value of business. 
    • Would define stakeholders as those necessary for the business to exist.
  13. Donaldson and Preston (1995) classify stakeholder theories by their separate levels:
    • Donaldson and Preston (1995) classify stakeholder theories by their separate levels:
    • 1. Descriptive
    •  How do companies respond to stakeholders?
    • 2. Instrumental
    •  How could companies respond to stakeholders?
    • 1 and 2 will consider as 'instrumental'.
    • 3. Normative
    • How should companies respond to
    • stakeholders?
  14. The economic argument for the
    stakeholder view
    • Markets do not operate efficiently where there are
    •  Externalities
    •  Information asymmetry
    •  Monopoly power
    •  Efficiency will be increased if corporations recognise and manage the interests of their stakeholder groups. (Who is a stakeholders and which stakeholder count?)
  15. Instrumental level stakeholder theory
    • That managers attend to stakeholders as a means to achieving other organizational
    • goals such as profit or shareholder wealth maximization
    • Stakeholder management is just good management and will lead to maximizing profits”.
  16. Normative level stakeholder theory
    Kantian deontological principle:
Card Set
Week 4: Stakeholder theory
Week 4: Stakeholder theory