What Stakeholder Theory is Not

Excerpted from an article by Robert Phillips, R. Edward Freeman and Andrew C. Wicks

circlesThe word “stakeholder” has become a commonly used term in business and in other sectors. The term means many different things to many different people and hence evokes praise or scorn from a wide variety of scholars and practitioners of myriad academic disciplines and backgrounds. Such breadth of interpretation, though one of stakeholder theory’s greatest strengths, is also one of its most prominent theoretical liabilities as a topic of reasoned discourse. Much of the power of stakeholder theory is a direct result of the fact that, when used unreflectively, its managerial prescriptions and implications are nearly limitless.

At its current stage of theoretical development, stakeholder theory may be undermined from at least two directions: distortions and friendly misinterpretations.

Critical Distortions:

  1. Stakeholder theory is an excuse for managerial opportunism (Jensen 2000; Marcoux 2000; Sternberg 2000).
  2. Stakeholder theory cannot provide a sufficiently specific objective function for the corporation (Jensen 2000).
  3. Stakeholder theory is primarily concerned with distribution of financial outputs (Marcoux 2000).
  4. All stakeholders must be treated equally (Gioia 1999; Marcoux 2000; Sternberg 2000).

Friendly Misinterpretations:

  1. Stakeholder theory requires changes to current law (Hendry 2001a, 2001b; Van Buren 2001).
  2. Stakeholder theory is socialism and refers to the entire economy (Barnett 1997; Hutton 1995; Rustin 1997).
  3. Stakeholder theory is a comprehensive moral doctrine (Orts and Strudler 2002).
  4. Stakeholder theory applies only to corporations (Donaldson and Preston 1995).

Read the full article, “What Stakeholder Theory is Not.” Originally published in Business Ethics Quarterly, Vol. 13, No. 4, Oct., 2003.

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