Thursday, March 16, 2006

Cracks in the Foundation of Stakeholder Theory by: Andrew R. Weiss Introduction

Some time ago I looked at the Stakeholder Model in the light of the Relationship Value Model. My conclusion is that Freedman's idea is OK as far as it goes but is not a complete theory. Great for Guru's bad for Companies....

Anrew Weiss has also found problems and here is what he is saying.

Cracks in the Foundation of Stakeholder Theory by: Andrew R. Weiss Introduction: Stakeholder Theory has become an established framework within which to identify and examine the impact of organization action. It has been used to inform discussion of corporate governance, business ethics, strategic management and organizational effectiveness.

Donaldson and Preston note that 'a dozen books and more than 100 articles with primary emphasis on the stakeholder concept have appeared and that 'the stakeholder model has become a standard element of 'Introduction to Management' lectures and writings' (1995:65-66).

In fact, one might argue that Stakeholder Theory is approaching paradigm status. It consists of a general system of ideas and assumptions, standard examples and established assertions.

Given its broad impact, the general foundation and assumptions on which the broad outlines of Stakeholder Theory rest warrant examination.

Stakeholder Theory posits a model of the enterprise in which 'all persons or groups with legitimate interests participating in an enterprise do so to obtain benefits, and there is no prima facie priority of one set of interests and benefits over another' (Donaldson and Preston, 1995:68).

The model rejects the idea that the enterprise exists to serve the interest of its owners, be that maximizing their wealth or some other reason for being in business. Rather, the model is based on the idea that the enterprise exists to serve the many stakeholders who have an interest in it or who in some way may be harmed"