Stakeholder Theory Essay Example Pdf

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Introduction

Since renowned economist Friedman (1970) expressed his strong convictions on the need for social responsibility in business, there has been much development in the theory and practical application of social responsible initiatives (McWilliams, Seigel & Wright, 2006). A whole movement has developed to cover a range of ethical practice which is now labelled under the umbrella of Corporate Social Responsibility (CSR). Many executives today face a dilemma between feeling compelled to invest in CSR initiatives whilst maintaining the cost controls so a necessary to maximise shareholder value. This essay first reviews the ideas of Freidman (1970), then the development of alternative theory is outlined, and the shareholder and stakeholder paradox is defined. The motives and actions of CSR policy at the international oil company British Petroleum (BP) are analysed and then related to the shareholder and stakeholder paradox.

The nature and context of Freidman’s views

Friedman (1970) wrote his infamous article in the New York Times Magazine as an explanation of what is known as the agency theory by scholars of CSR (McWilliams, Siegel & Wright, 2006). Agency Theory suggests that it’s not the role of executives in society to make decisions on social welfare of citizens. Since that time there has been a substantial growth in the definition and practical application of CSR policy and many have developed alternative views to Freidman (Crane and Matten, 2007). Freeman (1984) presented the concept of stakeholder theory that managers should consider the interests of all stakeholders other than the shareholders in a corporation. Importantly, Freeman’s ideas suggested that considering the needs of stakeholders is essential to a firm’s long-term success and not a benevolent additional ‘add-on. Stakeholder theory was developed further by Donaldson and Preston (1995) who stressed the ethical nature of CSR as well as the potential for increased financial performance that satisfies the interest of shareholders who invest in a business. Since then there has been a proliferation and transformation of CSR focus by scholars and businesspeople alike with an alignment between CSR practice and objectives in many corporations (Crane, 2013). In developed nations, large firms generally conduct CSR agendas or they feel they risk losing competitive advantage. Today in many markets, a strong CSR focus is a consumer expectation especially in cultures where the behaviour and role of corporations is closely monitored by media and pressure groups. Some businesses have even made the CSR theme central to their core mission, for example The Body Shop and Ben and Jerry’s. However many still have concerns about CSR initiatives in the corporate world and they would support Freidman’s view. Recently, Johnson (2015) suggested that CSR is an indulgence by executives in rich companies who complete to show who is most ethical and caring. Friedman (1970) was dismissive of any attempts by executives to introduce initiatives that could be described as corporate social responsibility. He suggested that not only would CSR be harmful to shareholders who would suffer less returns on their investment, but there would be wider negative connotations for society has a whole as the executive would actually be administering a judgement that should be left to other agencies such as government.

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