BUSINESS ETHICS

AND SOCIAL
RESPONSIBILITY
 UNIT III:
The Social Responsibility
of Business
 LESSON 11
Stakeholder Theory:
A Comprehensive
Approach
to Corporate Social
Responsibility
 Lesson Objectives
• To define stakeholder
• To determine who are the typical stakeholders
of a corporation
• To enumerate some of the problems with
corporations’ social initiatives and projects
• To describe briefly the history of stakeholder
theory
• To explain why a comprehensive stakeholder
approach can improve corporate social
responsibility
 Definition of Stakeholder
 The stakeholder concept originated from the
word stake (interest), which stems from a
deliberate will to indicate that other parties
have an interest in the enterprise.
 In 1963, the Stanford Research Institute
introduced the original definition of
stakeholders by designating the groups that
are indispensable to the organization’s
survival.
 In 1965, Swedish business professors Eric
Rhenham and Bengt Stymne insisted on the
variable of “dependence” for survival by
qualifying stakeholders as: (1) the groups that
depend on the company to achieve their own
goals; and (2) the groups on which the
company depends to guarantee its own
existence.
 In 1984, applied ethics professor R. Edward
Freeman defined stakeholders as “any group
or individual who can influence or be affected
by the organization as it achieves its goals.”
 Company Stakeholders
Literature on stakeholders usually distinguishes
between…

• Important stakeholders and unimportant

stakeholders

• Primary stakeholders (whose participation is

required for the company’s survival) and
secondary stakeholders (whose relationship
is not considered as vital for the company)
• Voluntary stakeholders (those taking a risk
by investing a form of capital in the business
and thereby contributing to the creation of
value) and involuntary stakeholders (those
exposing themselves to the consequences of
the company’s activities in seeking to reduce
the negative impact that its actions may have
on their well-being)
 Internal Stakeholders Vs.
External Stakeholders
INTERNAL EXTERNAL

• Owners • Competitors
• Directors • Consumers
• Employees • Governments
• Pressure groups
• Media
• Natural
environment
 Stakeholder Theory
 It is fundamentally about how business works
at its best and how it could work.
 It is descriptive, prescriptive, and instrumental
at the same time, and is also managerial.
 It is about value creation, trade, and managing
a business effectively.
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Stakeholder Approach to Corporate
Social Responsibility (CSR)
 Applied ethics professor R. Edward Freeman
explained that the idea behind the
stakeholder theory is that an organization’s
success is dependent on how well it
manages the relationships with key groups
such as customers, employees, suppliers,
communities, financiers, and others that can
affect the realization of its purpose.
 In order to make stakeholder theory more
aligned with the ideas of justice, fairness,
and human freedom, Freeman and another
stakeholder theory proponent Robert Allen
Phillips (2002) proposed the Principle of
Stakeholder Responsibility, which says that
parties to an agreement must accept
responsibility for the consequences of their
action.
When third parties are harmed, they must be
compensated, or a new agreement must be negotiated
with all of those parties who are affected.
 When a company considers all stakeholders’
interests, it realizes more its social
responsibilities toward them, and is more likely
to undertake CSR initiatives.
 Discussion Questions
1. What is meant by stakeholder? Why are
stakeholders important in a business firm?
2. What one Philippine company can you think
of right now? List down some of its: (a)
primary stakeholders; and (b) secondary
stakeholders.
3. What is the stakeholder theory or stakeholder
approach?
4. What are some of the challenges to corporate
social responsibility (CSR)? How can the
stakeholder approach improve CSR?
5. Can you think of limitations to the stakeholder
theory or stakeholder approach?