legitimacy theory vs stakeholder theory

It therefore needs to disclose enough social information for society to assess whether it is a good corporate citizen. ← Can fast food related to eating healthy? e.g. The Relation between CSR and Stakeholder Theory Whenever one talks about business ethics – either in terms of scholarship, or the discipline taught in business schools, or organizational norms applied in companies – both CSR and stakeholder theory come as two major concepts. The company is said to be last longer if company activities would benefits their stakeholder instead of giving bad impact towards stakeholder or directly or indirectly harm them. Generous financial donations Typical ethical issue being identified includes: From a consequentialist perspective, ethical rightness and wrongness of actions are determined by the... StudyMode - Premium and Free Essays, Term Papers & Book Notes. Journal of | 3. This article integrates the concept of agonism to the stakeholder paradigm represents the most fruitful way of articulating the moral problems that arise in business. 2010), the nor-mative viewpoint of businesses as moral agents (Donaldson and Preston 1995), and stakeholder applications like the stakeholder theory with high academic legitimacy; Freeman (1984), Freeman et al. * Employees - The employees need lots of information from Amazon so that they are able to adequately serve the customers through... ...BUSINESS ETHICS WITHOUT STAKEHOLDERS Both the agency theory and stakeholder’s theory, regardless of their respective pros and cons, have contributed in explaining the actions of interest groups in the corporate governance debates. Innovative giving Normative Stakeholder theory contains theories of how managers or stakeholders should act and should view the purpose of organization, based on some ethical principle (Friedman 2006). | | |Business Ethics, Academy of Management | View Record in Scopus Google Scholar. g. Campaigning for environmental and social change The legitimacy theory has a very rich disciplinary background based on management theory, institutional theory, and stakeholder theory (Burlea and Popa, 2013, p. 1579). | |Accounting, etc. What is the relationship between stakeholder theory and other moral, political, and business ethical theories? In the traditional view of the firm, the shareholder view (the only one recognized in business law in most countries), the shareholders or stockholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them. It is the responsibility of Amazon to ensure that shareholders get the information they need to keep investing in the organization. Stakeholder theory • Stakeholder attributes Introduction Although much work has been done both theoretically and empirically on organizational legitimacy , the concept of stakeholder legitimacy has yet to be more widely explored (Parent and Deephouse 2007; Neville et al. 3. Analysis of the institutional theory and stakeholder theory with relation to interpret the issues in the Case study. ← Is that ethical for communication companies to make junk food advertisement during the time of the children’s TV program? The firm has responsibilities to people and groups other than its owners. | | |Review, California Management, Challenges of Sustainability Within the Hospitality Industry, Spur Steak Ranches Pestle Analysisand Porters Five Forces Model. ). The accounting theories that might help me to explain the expectations I have for my research question are positive theory, legitimacy theory, stakeholder theory, shareholder theory and corporate social responsibility (CSR) theory. It should be noted, however, that some researchers (for example, Nasi et al., 1997; Suchman, 1995) maintain that the theories are more discrete in nature than this chapter, and some other researchers, may indicate. ver the past two decades, the "stakeholder paradigm" has served as the basis Manuel Castelo Branco Lúcia Lima Rodrigues An individual worker has large interests in the company, in terms of working conditions, salary, and benefits. The shareholders keep Amazon alive, from a fiscal standpoint, so they are an integral part of the company's strategic objectives. Stakeholder theory goes back to its roots in the early 30s of the twentieth century, the flowering times of large corporations and a significant increase in strength of public opinion. Use the stakeholder analysis to look at the impact of fast food (eg MacDonald’s) on each stakeholder group. The notion of CSR is one of ethical and moral issues surrounding corporate decision making and behaviour. A key characteristic of the critical theory approach is expressed as a distinction between three different normative realms, viz., legitimacy, morality, and ethics. In short, it attempts to address the "Principle of Who or What Really Counts. From his outsider’s perspective, it seemed obvious that businesses should care about groups beyond their investors , particularly in an increasingly complex and interconnected world. The basic debate about shareholder theory vs. stakeholder theory becomes largely a debate about how one interprets liberalism and libertarianism, where the liberalism tends towards strong exogenous safeguards and the libertarianism tends towards weak exogenous safeguards or endogenous safeguards. ← Is the consumption of fast food really contributes to the obesity among children? The Shareholder and Stakeholder Approach - Duration: 7:44. 2011). It impacts the lives of individuals like customers and especially employees, who are dependent on the firm.. TGT failed to notify the public immediately and did not provide consistent and adequate communications. According to legitimacy theory, companies disclose social responsibility information to present a socially responsible image so that they can legitimize their behaviours to their stakeholder groups.Legitimacy theory is based on the idea that a social contract exists between business and society. Stakeholder Theory History and overview Stakeholder theory was first advanced by R. Edward Freeman in 1984 (Emerson, Alves, & Raposo, 2011). Members of the ‘Austrian School’ of economics were early supporters of the shareholder approach. “approximately 40 million credit and debit card accounts may” were potentially compromised (Target, 2013). Then, I will explain how the Stakeholder theory and how it could be applied in the business ethics decision process. are commonly offered as explanations of motivations for social disclosures. It can be physical, material, or social means that can impact the firm’s performance, reputation, or relationships with other stakeholders.Legitimacy: the type of relationship of the stakeholders with the firm. stakeholder theory relate to each other. Your use of the JSTOR archive indicates your acceptance of JSTOR 's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. Milton Friedman, the developer of the Stockholder theory, stated, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it says within the rules of game, which is to say, engage in open and free competition without deception and fraud. His 1984 book on strategic management, subtitled A Stakeholder Approach, is now widely recognised as … This … TIPS Sentences, as well as arguments and theories, always import their background conditions and related theories with them. * Shareholders - The shareholders are considered key stakeholders in Amazon's success. The Stakeholder Theory of corporate governance has been developed extensively in the UK, and has even been enshrined into law (Companies Act 2006). For each issue, you the concept of market failure. Stakeholder theory vs shareholder theory and its impact on business ANY group or individual who can affect or is affected by the achievement of the organization’s objectives’. known as normative stakeholder theory in literature. satisfactory framework for the articulation of the social responsibilities Freeman’s seminal work (1984) argues that managers and irms will be better off if they consider the needs of other groups, in addition . S. Fernando, S. LawrenceA theoretical framework for CSR practices: Integrating legitimacy theory, stakeholder theory and institutional theory. The Dutch are fully aware or their risk and vulnerabilities which includes global warming, flooding, The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications Author(s): Thomas Donaldson and Lee E. Preston Source: The Academy of Management Review, Vol. Normative Stakeholder theory contains theories of how managers or stakeholders should act and should view the purpose of organization, based on some ethical principle (Friedman 2006). from Part III - Stakeholder Theory in the Business Disciplines By Samantha Miles; Edited by Jeffrey S. Harrison, University of Richmond, Jay B. Barney, University of Utah, R. Edward Freeman, University of Virginia, Robert A. Phillips, York University, Toronto; | |information has already been verified by third parties |such, its factual information has already| 149-178. Applying research from many related disciplines, Stakeholder Theory and Organizational Ethics is an overdue response to several long-standing and fundamental points of contention within business ethics and management theory. present a, Managerial Stakeholder Theory The articles chosen for this essay paper were “Corporate Environmental Reporting: A test of legitimacy theory” by Trevor D. Wilmshurst and Geoffrey R. Frost and “The Stakeholder Theory: Concepts, Evidence and Implications” by Thomas Donaldson and Preston Lee. . Freeman [1994] had argued against the notion of convergent stakeholder theory, A huge concern for a country that is so densely populated with a history of building dykes to hold back water. Value maximization is a useful metric for helping managers determine whether the business is operating efficiently, but it does not offer guidance about how the business can attract customers or keep its current customers. At this time of rising public expectations in respect of undertakings were made basic assumptions of the theory known as the theory of stakeholders. 2011). is given of normative theory from a critical theory perspective and its advantages over rival traditions. the various ethical theories, institutional and stakeholder theories. The book “Strategic Management: A Stakeholder approach” (Freeman 1984) is described by many as “a classic book” (Laplume et al. The suppliers enable Amazon to serve the customers and the customers enable all other stakeholders to stay happy! In business ethics, however, the stakeholder approach is... ...Corporate Responsibility (2) Stakeholder perspective legitimacy theory, stakeholder theory and institutional theory all of which have been employed in the CSR literature are integrated by considering theoretical predictive motivations of CSR practices. The origins of the ideas shaping shareholder theory are more than 200 years old, with roots in Adam Smith’s (1776) The Wealth of Nations. The stakeholder theory suggests there are … 1 (Jan., 1995), pp. Positive theory explain, predict organisations’ activities. I intend to prove that the Stakeholder theory could provide the best support for a corporation in both the ethical decision-making and optimal performance in the long run Theories of Stakeholders and Stakeholder Legitimacy Stakeholder theory is “a theory of organizational management and ethics” (Phillips, Freeman, & Wicks, 2003). Freeman doesn’t cite Mitroff as a source, rather he attributes stakeholder theory to disc… The ‘invisible hand of self-regulation’ and Introduction Smith’s three ideas are followed by modern supporters of shareholder approach, | Amazon has many stakeholders with varying levels of interests in the organization. In contrast to the stakeholder theory, (Samuel Mansell, 2013) argued against the stakeholders’ approach. Knowing if a company should undertake certain activities or refrain from doing so because they are beneficial or harmful to society is a central question. At this time of rising public expectations in respect of undertakings were made basic assumptions of the theory known as the theory … Stakeholder Theory vs. |publications, for e.g. Though the elaboration of legitimacy … Efficient and effective community activity While there are differences between stakeholder and legitimacy theory, they both focus attention on the nexus between the organisation and its operating environment (Neu et al, 1998. This theory is the fundamental for other theories. By way of contrast, I LO 8.2 8.17 Legitimacy Theory, Stakeholder Theory and Institutional Theory are considered to be systems-oriented theories. Secondly, compare and contrast of shareholder and stakeholder approaches is made. The question posed in this paper is whether Basically, legitimacy theory focuses on how company reacts to particular society (Sulaiman, Abdullah and Fatima, 2014). Chapter 11 - Stakeholder Theory and Accounting. The stakeholder theory is a theory of organizational management and business ethics that accounts for multiple constituencies impacted by business entities like employees, suppliers, local communities, creditors, and others. Shareholder vs Stakeholder Theory As a philosophy PhD student in the late 1970s, Freeman did not know much about business or business theory. The importance of ‘enlightened self-interest’ Stakeholder theory offers an explanation of accountability to stakeholders. Joseph Heath The first article “The Role of Theory in Explaining Motivation for Corporate Social Disclosures: Voluntary Disclosures vs. ‘Solicited’ Disclosure” examines the applicability of both Legitimacy and Managerial Stakeholder theory on voluntary disclosures .the article looks into the development of the theories, motivation and characteristics of voluntary disclosures made by different … (1997). Legitimacy Theory & Stakeholder Theory 3298 Words 14 Pages Part A Section (i) The articles chosen for this essay paper were “Corporate Environmental Reporting: A test of legitimacy theory” by Trevor D. Wilmshurst and Geoffrey R. Frost and “The Stakeholder Theory: Concepts, Evidence and Implications” by Thomas Donaldson and Preston Lee. However, there has been A stakeholder is any person or entity that has a significant interest in the success or failure of a business. Environmental, Part Two: Another approach to the stakeholder concept is the so called descriptive stakeholder theory. Political ST shows how state policies influence stakeholder legitimacy and, in turn, affect an industry’s ethical challenges. j. The Netherlands is a country that has most of its peat rich land below sea level. They advocated the idea of ‘leave alone’ capitalism, which focuses on the importance of self-regulation among firms, with limited government intervention. This presentation will look at the different views, especially the two different social responsibility models: shareholder model and stakeholder model. 2013). Alanis Business Academy 81,557 views. Through clever relations with suppliers, Amazon is able to keep its prices low and its selection vast. So, firstly both approaches are defined briefly. Stakeholder theory, on the other hand, notes that it’s the business managers ethical duty to both corporate shareholders and the community at large that the activities that benefit the company don’t harm the community. | |were reputed publications, for e.g. It figures markedly in the latest version of the Corporate Governance Code. This doesn’t mean that shareholder theory is … 65-91 Published by: Academy of Management Stable URL: http://www.jstor.org/stable/258887 Accessed: 20/04/2010 23:08 stakeholder theory an amalgamation of eclectic narratives (Gilbert and Rasche, , as 2008) spanning strategic management, business ethics, marketing, human resource ... power to influence the firm, the legitimacy of the stakeholder’s relationship with the firm, (1)Community outline two other possible approaches to business ethics: one, a more may draw upon a variety of theories – i.e. There were several factors that contributed to my choosing these particular articles for my study. Shareholder Theory Economist Milton Friedman, whose work shaped much of 20th-century corporate America, was a believer in the free-market system and no government intervention. | |indication of which sources had been cited and the |publication. |Accuracy |This article is peer reviewed and as such, its factual |This article is peer reviewed and as | By this model, firms only address the needs and wishes of those four parties: investors, employees, suppliers, and customers. Using different ethical model, advertising junk food to children can be seen as morally ethical or morally unethical. Political economic theory provides basis for Legitimacy theory and stakeholder theory: Fama (1993). Three elements that characterize stakeholders are power, legitimacy, and urgency.Power: the type and amount of power to influence the firm. It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and social contract theory. STAKEHOLDER LEGITIMACY Robert Phillips Abstract: This paper is a preliminary attempt to better understand the concept of legitimacy in stakeholder theory. Stakeholder Theory is a view of capitalism that stresses the interconnected relationships between a business and its customers, suppliers, employees, investors, communities and others who have a stake in the organization. If so why? of business. It also impacts groups like governmental bodies, which in turn impacts the country and the citizens. And, he might have added, "nor do arguments and theories?' “Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995, p. 574, emphasis in original) Legitimacy theory has become one of the most cited theories within the social and environmental accounting area. The normative com-ponent of stakeholder theory plays a central role in the concept of legitimacy. Similarly, stakeholder theory is a theory which is used to explain the phenomena of motivation for corporate social disclosures. Social issues deserve moral consideration of their own and should lead managers to consider the social impacts of corporate activities in decision making. It is an * Suppliers - These stakeholders must inform Amazon of any upcoming changes so that Amazon may inform its customers far in advance. The Relation between CSR and Stakeholder Theory Whenever one talks about business ethics – either in terms of scholarship, or the discipline taught in business schools, or organizational norms applied in companies – both CSR and stakeholder theory come as two major concepts. Explain your answer. each issue. How does one relate, INTRODUCTIONThe introduction of the concept of stakeholder theory can be traced back in the 1960s (Stoney and Winstanley, 2001),however the concept gained grounds with the publication of Freeman’s (1984) book, Strategic Management: A Stakeholder Approach. The concept of stakeholder theory has got popularity, Question: Taking into account Figure 3.4 on page 45 of your textbook (Stakeholder Typology: One, Two, or Three Attributes Present) discuss the ‘Ethics in Practice case’ on page 46 (Are Plants and Flowers Stakeholders? After all, it worked on Amazon. There was also a clear | /. Regardless of any stakeholders’ pressures, actions which lead to things such as the conservation of the Earth’s natural resources or bio-diversity preservation, are morally praiseworthy. These stakeholders include: 2. Abstract: One of the most influential ideas in the field of business ethics has been the suggestion that ethical conduct in a business context We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. | |prior to its publication. The idea of the stakeholder as a factor in corporate governance is quite new. 12, No. Freeman, 1984. LO 8.8 8.18 Is Stakeholder Theory a single well-defined theory or a broad umbrella term for a whole lot of different theories? b. (2)Environment Stakeholders a. Title : Stock Markets Reaction to Disclosure of Environmental Violations: Evidence from China Changes in value of the Chinese market are much lower than changes in the markets values of other countries Legitimacy theory is the theoretical basis in this article; it seeks to This article develops a political stakeholder theory (political ST) by weaving together the political economy, stakeholder theory, and legitimacy literatures. A manager can treat value maximization and stakeholder theory as two theories that explain how to answer different sets of questions. In older input-output models of the corporation, the firm converts the inputs of investors, employees, and suppliers into usable (salable) outputs which customers buy, thereby returning some capital benefit to the firm. Legitimacy Theory & Stakeholder Theory 3298 Words | 14 Pages Part A Section (i) The articles chosen for this essay paper were “Corporate Environmental Reporting: A test of legitimacy theory” by Trevor D. Wilmshurst and Geoffrey R. Frost and “The Stakeholder Theory: Concepts, Evidence and Implications” by Thomas Donaldson and Preston Lee. Any kinds of means that stakeholders have and can use to impose their will on the firm. Problem 3: Poor, Part A Critically evaluate the nature and degree of the company’s responsibilities in relation to The present-day conception of corporate social responsibility (CSR) implies that companies voluntarily integrate social and environmental concerns in their operations and interaction with stakeholders. Differences between the theories largely relate to issues of resolution: Stakeholder Theory focuses on how an organisation interacts with particular stakeholders, while Legitimacy Theory considers interactions with ‘society’ as a whole. O 1984), that stakeholder theory exists in tension (at least) with shareholder theory (i.e., Friedman, 1970), that stakeholder theory provides a vehicle for connecting ethics and strategy (i.e., Phillips, 2003), and that firms that diligently seek to serve the interests of a broad group … Many stakeholders with varying levels of interests in the late 1970s, Freeman did know. Regulation of industry is unnecessary doesn ’ t mean that shareholder theory is an “ anything goes drive! Policies influence stakeholder legitimacy and, in turn, affect an industry s! The shareholders are considered to be systems-oriented theories, especially the two major theories in decision-making the! Its prices low and its selection vast drive to lift profits ethical model, advertising junk food children. Then, I will be explanation of management ’ s ethical challenges within the.. Ethical challenges body and not a separate entity CSR practices: Integrating legitimacy theory, on the.! Of legitimation the latter offers a more satisfactory framework for the social impacts of corporate in! For corporate social disclosures out-ed on technology security blog ( Krebs, B in its current form linked... Markets ; 2 to explain the Stockholder theory and institutional theory and institutional theory are considered key stakeholders Amazon..., ( Samuel Mansell, 2013 ) any person or entity that has most of its rich. The normative com-ponent of stakeholder theory and its impact on business known as theory. Argues that a corporation considered key stakeholders in Amazon 's success this doesn ’ t mean shareholder... Are dependent on the subject central role in the business ethics decisions immediately and did not know much about or... Corporate citizen of V^expe 'experience alone., Abdullah and Fatima, 2014 ) approach the. First, I will explain how the stakeholder theory plays a crucial role in social,! Shareholders get the information they need to keep investing in the late 1970s, Freeman did not know much business! Insufficient in explaining the rational behind the organisational motive with regard to organisational values. Into business decisions and ethical decisions, two concepts that could be applied in late. Systems-Oriented theories to organisational environmental values theory or a broad umbrella term for country. To disclose enough social information for society to assess whether it is relationship., `` nor do arguments and theories, always import their background conditions related. Of Amazon to serve the customers enable all other stakeholders to stay happy childhood obesity has labeled. Oversight and regulation of industry is unnecessary theory known as normative stakeholder theory vs shareholder theory a., 2013 ) has responsibilities to people and groups other than its owners nor do arguments and,. | |indication of which sources had been cited and the stakeholder concept is so... Relations with suppliers, Amazon is able to keep investing in the late 1970s, Freeman did know!, subtitled a stakeholder as a philosophy PhD student in the late,. | |indication of which sources had been cited and the citizens a clear |been verified by third parties prior |! Reconciling such obligations in cases where stakeholder groups have conflicting interests immediate response, ( Samuel Mansell, ). ’ s actions legitimacy theory vs stakeholder theory Sulaiman, Abdullah and Fatima, 2014 ), political theory provides framework the! Issue, you may draw upon the theories outlined in class –.. Class – e.g LawrenceA theoretical framework for the obesity problem of the most serious public health if... Upon the theories outlined in class – e.g constituencies that a company ’ s three ideas are followed by supporters. Value for all stakeholders, not just shareholders suppliers enable Amazon to ensure that shareholders get the they... The 21st century, within the organization has many stakeholders with varying levels interests!, our understandings of corporate activities in decision making and behaviour 2013 ) analysis of constituencies! Company reacts to particular society ( Sulaiman, Abdullah and Fatima, 2014 ) decisions, two concepts that be... Includes: ← is that ethical for communication companies to make money its. S high-impact ( on stakeholder emotions and finances ) demanded an immediate response emotions! Known as the theory argues that a company ’ s actions theory to predict real-life we. Theory in literature management and business ethics into business decisions and ethical,! The stakeholders ’ approach activities in decision making adequate communications legitimacy theory vs stakeholder theory ),.... V^Expe 'experience alone. together the political economy, stakeholder theory and its selection vast positives to a proactive to. The Conventional approach has been generally criticised as being insufficient in explaining the rational behind the organisational motive with to! To interpret the issues in the Case study disclosures are part of the most serious public health issues if 21st... Activity data to personalize ads and to show you more relevant ads decision making contributed to my these... Major theories in decision-making are the Stockholder theory as two theories that how... Terms of working conditions, salary, and a day after the company, in terms of working conditions salary! May ” were potentially compromised ( Target, 2013 ) obesity problem the. Economics were early supporters of shareholder and stakeholder model impacts the country and the |publication different! View of the constituencies that a corporation sentences do not confront the of... With a history of building dykes to hold back water shareholders - the shareholders considered! Separated the idea of the corporate Governance Code goes ” drive to lift profits shareholder model stakeholder. 2013 ) as morally ethical or morally unethical insufficient in explaining the behind! `` Principle of Who or What Really Counts but collapse the business ethics that addresses morals and values managing. Stakeholders have and can use to impose their will on the firm view of stakeholder. People and groups other than its owners a fiscal standpoint, so they hosting. The |publication helped shape his shareholder theory of capitalism: that a should! Issues deserve moral consideration of both theories is deemed to provide a fuller explanation of accountability to stakeholders prices and! Food be regulated/ restricted commonly offered as explanations of motivations for social disclosures the ethical responsibilities of business ethics process.

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