Researching the Notion of the Stakeholder Theory Essay (Literature Review)

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Literature search report

In researching this paper I relied on Sciencedirect database that has hundred of thousand of journal articles in almost every subject especially in management studies. Initially I used the key words “stakeholder theory” to run the first search which gave me 28,253 peer reviewed journal articles my objective in this case was to identify studies that had my research topic as its theme. However, these were too many literature sources which I needed to narrow down. So in the second round of my literature research I introduced another term on the earlier ones and ended with “stakeholder theory CSR” as my key words. This time my intention was to identify papers that had both of the two concepts as the main focus. This way I was able to narrow down my search drastically and ended up with 669 results of peer reviewed journal articles, out of this I disqualified all those journal articles which were indicated as “in press, corrected proof” and those which were for sale.

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This way I remained with about 400 sources; it is from these sources that I picked the initial 11 articles out of the first 25 sources which proved to be most relevant. I picked the first 25 research papers because the search engine on this database is designed to rank the most relevant paper first, and the least relevant last. Finally, from these 11 sources I identified 3 journal articles that had a common theme which I will discuss below, and that is how I ended up with these three articles. The ABS ranking was only available for two of the papers while the third was not yet ranked; the ratings for the two papers are as follow.

  1. Business ethics and stakeholder theory by Cragg 2002 was rated 3 – meaning “A highly regarded journal”.
  2. Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts by Mitchell et al 1997 was rated 4 – meaning “a top journal”.

Stakeholder theory

For many years stakeholder theory has been used repeatedly in explaining business environment, but the theory until now had never completely achieved theoretical status (Buchholz and Rosenthal, 2005). Because of this Mitchell, Agle and Wood (1997) carried out a study with the aim of adding to the body of knowledge regarding the stakeholder recognition and salience. In their stakeholder identification they used three related attributes; “legitimacy, power and urgency” which they later combined to generate stakeholders’ prepositions about their salience towards firm’s managers as well as research and administration implications (Mitchell et al, 1997). Since the firm’s attributes in a business environment as well as in problems variation is vital to manager striving to match legitimate claims against legitimate interests, the researchers carried out this study in order to provide a means of understanding of who counted in a stakeholder theory similar to other related studies (Weber, 2008).

All in all, Mitchell et al (1997) contends that the theory of stakeholder should exhibit the characteristics of power, legitimacy also mentioned in Phillips et al (2003), in addition to urgency regardless of how objectionable or disconcerting the outcome. Managers should identify individuals in their operating environment that have the ability to enforce their will on the company (Freeman, Wicks and Parmar, 2004). Thus, urgency as well as power should be emphasized if the stakeholders’ moral and lawful interests are to be met by the firm’s managers (Freeman et al, 2004).

Mitchell et al (1997) study was further developed by Cragg (2002) who contended that companies owned by shareholders or investors are legal entities with both private and public element by the virtue of their structure. The private element is comprised of wealth from the shareholders’ point of view where competition must play a key role in order for shareholders to earn returns from the financial investment. On the other hand, public element is development of wealth from the point of view of the public policy wherein the firm must meet the government requirements in order to attain the societal responsibility (Moir, 2001). Therefore, according to Cragg (2002) both elements (private and Public) must exist in order for the shareholders’ owned company to be defined sufficiently since both elements offer a normative framework for explaining fiduciary responsibilities of directors, managers and the corporation (Kochan and Rubinstein, 1997).

These obligations require the directors and managers of a company to operate within the foundation of law in order to advance private and public interests. In the twentieth century, developed nations viewed moral systems as “fundamental ethical matters, everyone ought to count, and all ought to count in the same way” which means respect for other individuals (Cragg, 2002). In this research study Cragg (2002) also proposed that this principle is the main driver of stakeholder theory and that every stakeholder should not be treated equally during firm’s decision making but all their legitimate interests should be fairly addressed.

But currently firms have ceased to be legal institutions through which business transactions are carried on by individuals (Freeman and McVea, 2001). A firm has turned out to be a mean of acquiring property and organizer of economic life; thus, the corporation has attracted a mixture of power and attributes and has achieved an important status that enables it to be a social institution where all the stakeholders have unique relationship (Jensen, 2000). Since shareholders own the company, they have specific privileges and rights, which management and others are obliged to grant them. Thus, the corporation’s laws try to enforce the presumption of shareholder dominance and it is for this reason that Freeman (2002) attempted to pose some challenges to such an assumption, starting from the managerial capitalism framework to suggestion of a new stakeholder theory that can be applied in a modern firm.

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Therefore, Freeman (2002) sought to transform the modern firm to embrace new way of viewing at stakeholders by defining stakeholders as “groups who have a stake in or claim on the firm such as suppliers, customers, employees, stockholders and local community”. Freeman (2002) contended that economic, legal, political as well as moral challenges should be incorporated in the firm’s theory. To be precise, all the stakeholders have rights to determine the direction of the corporation in which they have interest. Thus, Freeman (2002) intended to seek answers to a question that wanted to identify the stakeholder group that benefited or was disadvantaged by the firm’s operations. To carry out such a re-conceptualization he set out to study the concept of “stakeholder theory of the firm” which generated important findings that are widely used in the capitalist system.

In conclusion, the firm should use its power, legitimacy and urgency to identify the stakeholder groups that have interest in the firm’s existence and operations so as to enable it meet its moral interests equitably and in the process achieve both private and public interests.

References

Buchholz, R. and Rosenthal, S., 2005. Toward a contemporary conceptual framework for stakeholder theory. Journal of Business Ethics, Vol.58:137- 148.

Cragg, W. 2002. Business ethics and stakeholder theory. Business Ethics Quarterly, 12 (2):113-142.

Freeman, E. 2002. Stakeholder theory of modern corporation. New Jersey, Prentice Hall.

Freeman, E. and McVea, J., 2001. A stakeholder approach to strategic management. The Darden Business School Working paper No. 01-02.

Freeman, E., Wicks, A. and Parmar, B., 2004. Stakeholder theory and “The corporate objective revisited”. Organization Science, Vol.15(3):364-369.

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Jensen, M., 2000. Value Maximization and the corporate objective function. Harvard business School Working Paper No. 00-058.

Kochan, T. and Rubinstein, S., 1997. Toward a stakeholder theory of the firm: The case of the Saturn Partnership. Organization Science, Vol. 11(4):367-386.

Mitchell, R., Agle, B. and Wood, D. 1997. Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts. The Academy of Management Review, Vol. 22(4): 853-886.

Moir, L., 2001. What do we mean by corporate social responsibility? Corporate governance: International Journal of Business in Society, Vol. 1(2):16-22.

Phillips, R., Freeman, E. and Wicks, A., 2003. What stakeholder theory is not. Business Ethics Quartely, Vol. 13(4):479-502.

Weber, M., 2008. The business case for corporate social responsibility: A company-level measurement approach for CSR. European Management Journal Vol. 26 (4): 247-261.

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IvyPanda. 2022. "Researching the Notion of the Stakeholder Theory." June 21, 2022. https://ivypanda.com/essays/stakeholder-theory-analysis/.

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