Crossroads of Philosophy and Economics

Pocket Reference of Business Ethics Theories


Stakeholder Theory (hard)
The welfare of all those individuals and organizations affected by the business.
(Note: Because it’s practically impossible to respect as valuable the entire multitude affected by a company’s actions, attention generally limits to a reduced group of cardinal stakeholders, frequently including: shareholders, workers, customers, suppliers and local community).
Respect stakeholders’ interests when making decisions in the same way deference and obligation are traditionally associated with shareholder interests. In ethical terms and with respect to corporate decisions, shareholders are just one group of stakeholders, among several, and without privilege.
Key concepts

Stakeholder: an individual or organization affected by a company’s actions
Business obligation to stakeholder: Derived from the stakeholders’ existence, companies must endow all stakeholders with the some kind of value attributed to shareholders. (Though their value, and the obligation it entails, are not different in kind from those of shareholders, they may be inferior in degree. For example, a shareholder owning 2 shares is owed more sway in company decisions than the shareholder who owns only one share. Similarly, some stakeholders may hold more sway than others.)
The collective bottom line: the summed affect of a company’s actions on all stakeholders.
The reversal of CSR theory: instead of starting with a business and looking out into the world to see what ethical obligations are there, stakeholder theory starts in the world. It lists and describes those individuals and groups who will be affected by (or affect) the company’s actions and asks: what are their legitimate claims on the business, what rights do they have with respect to the company’s actions, what kind of responsibilities and obligations can they justifiably impose on the business?

Hard questions
Who counts as a stakeholder?
Even though all stakeholders have rights and responsibilities resembling those customarily connected with shareholders, shareholders have a way of weighing the influence of each individual: number of shares owned (translating into shareholder meeting votes). Now that all stakeholders have a direct vote in corporate decisions, how should their influence be allotted?
Does the requirement to treat all stakeholders as, in essence, owners leave the theory inoperable within a capitalism?

Hard stakeholder theory is not implemented in private industry in the United States because it requires eliminating the right to private property ownership as instantiated by law, custom and tradition.
Hard stakeholder theory could be understood to function with respect to government entities when they are understood as a business (as opposed to social) organizations.
Outside the United States, one example of strong stakeholder theory is embedded in the Mexican Constitution. When the indigenous population overthrew the Spaniards, what they especially detested were the absentee landlords. The Spanish owned the farm lands, but lived in the cities, leaving locals to do the work. As a response to the indignation, the new constitution stipulated that those who work the land own it. Ownership and control over land, in other words, is not established by legal deed but by the extent of your personal interaction with the soil. In the world of strong stakeholder theory, the corporation would be like that: essentially owned by those who are affected by it.
(Note: Contemporary globalized reality has forced modification of the Mexican constitution.)

Prime philosophical
theory compatibilities
Utilitarianism, Culturalism
© Ethics Workshop