54 Reading: Stakeholder Theory and Corporate Social Responsiblity
54 Reading: Stakeholder Theory and Corporate Social Responsiblity
Stakeholder Theory
Instead of starting with a business and looking out into the world to see what ethical obligations are there, stakeholder theory starts in the world. It lists and describes those individuals and groups who will be affected by (or affect) the company’s actions and asks, “What are their legitimate claims on the business?” “What rights do they have with respect to the company’s actions?” and “What kind of responsibilities and obligations can they justifiably impose on a particular business?” In a single sentence, stakeholder theory affirms that those whose lives are touched by a corporation hold a right and obligation to participate in directing it.
Corporate Social Responsibility
As a simple example, when a factory produces industrial waste, a CSR perspective attaches a responsibility directly to factory owners to dispose of the waste safely. By contrast, a stakeholder theorist begins with those living in the surrounding community whose environment might be poisoned and begins to talk about business ethics by insisting that they have a right to clean air and water. In other words the community members are stakeholders in the company and their voices must contribute to corporate decisions. It’s true that they may own no stock, but they have a moral claim to being involved in the decision-making process. This is a very important point. At least in theoretical form, those affected by a company’s actions actually become something like shareholders and owners. Because they’re touched by a company’s actions, they have a right to participate in managing it.
Who are the stakeholders surrounding companies? The answer depends on the particular business, but the list can be quite extensive. If the enterprise produces chemicals for industrial use and is located in a small Massachusetts town, the stakeholders include:
- Company owners, whether a private individual or shareholders
- Company workers
- Customers and potential customers of the company
- Suppliers and potential suppliers to the company
- Everyone living in the town who may be affected by contamination from workplace operations
- Creditors whose money or loaned goods are mixed into the company’s actions
- Government entities involved in regulation and taxation
- Local businesses that cater to company employees (restaurants where workers have lunch, grocery stores where employee families shop, and similar)
- Other companies in the same line of work competing for market share
- Other companies that may find themselves subjected to new and potentially burdensome regulations because of contamination at that one Massachusetts plant
The first five on the list—shareholders, workers, customers, suppliers, and community—may be cited as the five cardinal stakeholders.
In an abstract sense, it’s probably true that everyone in the world counts as a stakeholder of any sizable factory—we all breathe the same air, and because the g