CSR - Shareholder/Stakeholder

Goodpaster's (1991) stakeholder theory

Business managers have fiduciary duties to shareholders only, but they have non-fiduciary duties to other stakeholders which may go above and beyond lawful requirement.

Multi-fiduciary stakeholder theory (Evan, Freeman, 1988)

Companies should be ethically run for the benefit of all stakeholders. Freeman believes it is wrong for businesses to view stakeholders solely as a means to an end. Managers have equally important fiduciary duties to all stakeholders and need to balance these when making decisions.

Fiduciary duty

Corporate officers have a legal duty to act in the best interests of their shareholders, to safeguard their investment and money.

Objections to Goodpaster's (1991) stakeholder theory

Creates a competitive disadvantage - heavy investment in CSR can compromise profits. The term stakeholder is too broad (Sternberg, 1997).

CSR

"The CSR firm should strive to make a profit, obey the law, be ethical, and be a good corporate citizen" (Carroll, 1991)

Stakeholder

"any group or individual who can affect or is affected by the achievement of the organisation's objectives" (Freeman, 1984)

Stakeholder analysis (Goodpaster, 1991)

A process of systematically gathering and analysing qualitative information to determine whose interests should be considered when developing and/or implementing a policy or program.

Multi-fiduciary stakeholder synthesis/theory (Goodpaster, 1991)

All stakeholders treated by management as having equally important interests. Leads to ethics without business because there is no means to make profit when everyone is equal - socialist economy.

Objections to Friedman's (1970) property rights justification

Assumes that shareholders only care for profit maximisation; ignores the business case. Corporate property and personal property are not the same thing (Desjardins, 2009).

Shareholder theory (Friedman, 1970)

Ethical argument against CSR activity. The corporation should ethically be run for shareholder benefit and business managers should seek to lawfully maximise profits. Comprised of property rights justification and utilitarian justification.

Stakeholder theory

Ethical argument for CSR activity. Includes: descriptive stakeholder theory, instrumental stakeholder theory and normative stakeholder theory.

Goodpaster's (1991) Nemo Dat principle

Ethically, I cannot hire someone to do something it wouldn't be ethical to do myself. Ethically, shareholders can't give managers the right to pollute the environment, treat employees unfairly, etc., because shareholders don't have that right themselves. In fact, they have a (non-fiduciary) duty to not do any of these things.

Undemocratic tax

Excecutives are not elected, so the tax is undemocratic. We elect the government so therefore they have a right to spend our money.

Goodpaster's (1991) view on the ethical responsibilities of management

Goodpaster believes we have different duties to each of the parties involved. This is how we get out of the paradox. Fiduciary duties to shareholders/non-fiduciary moral duties to stakeholders. Focuses on negative duties - do not lie, cheat, act fraudulently, steal, etc.

Stakeholder paradox

Goodpaster describes this as a paradox because there is ethical problem which ever approach you take (Goodpaster, 1991, p63). It makes sense that the manager has duties to more than just the shareholders, this seems ethical. However, this would seem to require the manager to break their fiduciary responsibility to the shareholders because they would sometimes have to put stakeholders needs above those of shareholders.

Property rights justification (Friedman, 1970)

Managers have fiduciary duties to shareholders. Assuming shareholders want to maximise profit and CSR doesn't do this, then: spending money on CSR is a violation of fiduciary duties and a form of undemocratic tax.

Desjardins (2009)

Offered a criticism to Friedman's (1970) shareholder theory.

Marcoux (2003)

Offered criticism to Evans & Freeman's multi-fiduciary stakeholder theory (1988), which Freeman (2014) later accepted.

Sternberg (1997)

Offered criticism to Evans & Freeman's multi-fiduciary stakeholder theory (1988).

The stakeholder fiduciary example

Part of multi-fiduciary stakeholder theory. "Management bears a fiduciary relationship to stakeholders/the corporation in an abstract entity" (Evan & Freeman, 1988, p.103)

The principle of corporate legitimacy

Part of multi-fiduciary stakeholder theory. "The corporation should be managed for the benefit of its stakeholders, the rights of these groups must be ensured and the groups must participate in decisions that substantially affect their welfare" (Evan & Freeman, 1988, p.103)

Stakeholder and management Bill of Rights

Present in multi-fiduciary stakeholder theory. Bill of Rights: to elect/recall representatives, allow free speech, grievance procedures, etc.

Stakeholder board of directors

Present in multi-fiduciary stakeholder theory. A board representing shareholders, suppliers, customers, employees, the local community, and the company itself.

Objections to Friedman's (1970) Utilitarian justification

Pursuit of profit doesn't always maximally satisfy consumer demand: monopolies, Tragedy of the Commons. Satisfaction of customer demand is not the same as happiness (Desjardins, 2009).

Normative stakeholder theory

Rejects shareholder theory - corporations have ethical responsibilities to stakeholders that go beyond those required by law.

Strategic stakeholder synthesis/instrumental stakeholder theory (Goodpaster, 1991)

Stakeholder synthesis moves to practical response and considers other groups who are not their direct concern. Stakeholders seen as a means to an end. Leads to business without ethics - if the business case for CSR disappeared, firms would no longer take part in it.

Objections to multi-fiduciary stakeholder theory (Evans, Freeman, 1988)

Takes away from the special shareholder-firm relationship; accountability to multiple parties = no accountability; could just offer employees fair pay, etc. A firm can't have fiduciary duties to more than one party at a time if those parties have conflicting interests (Marcoux, 2003). Difficult to balance interests and Freeman provides no method for balancing them (Sternberg, 1997).

Non-fiduciary duty

The duty not to harm, coerce, lie, cheat, or steal.

License to operate

The public's acceptance of an organisation's impact on society and approval for them to operate.

Utilitarian justification (Friedman, 1970)

Utilitarianism is a moral theory. If business managers concentrate on maximising profits within the law, that will produce the greatest happiness for the greatest number.

Greenwashing

When a company pretends it is doing things for ethical reasons but is really doing it in its own self-interest. Friedman (1970) is against this.