Shareholder and Stakeholder Theory

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/1755-4179.htm

Shareholder and stakeholder theory: after the financial crisis Terence Tse
ESCP Europe, London, UK
Abstract
Purpose – The recent financial crisis has restarted the debate of the value of both shareholder and stakeholder theories. This paper aims to continue this discussion. Design/methodology/approach – The paper reviews existing literature and examines the benefits and problems associated with these frameworks through the lens of the recent events which have taken place during the financial crisis. Findings – The main assertion of this paper is that shareholder theory is in itself a sound theory. Yet, some executives following this theory could have brought disrepute to it. In contrast, the stakeholder theoretical framework has yet to assert its influence because the concept is not yet unambiguously defined, which makes it difficult for the framework to become operational in practical business settings. Research limitations/implications – Future research should seek consensus on the scope and definition of the stakeholder model, as well as who the stakeholders should include. It should also focus on developing the tools and techniques necessary for the incorporation of stakeholder theory into business operations. Social implications – Policy makers could work with industry bodies and business leaders to encourage them to place greater emphasis on the interests of non-shareholders and encourage collaboration between various groups of stakeholders to achieve corporate goals. Originality/value – The paper continues the shareholder and stakeholder theory debate in light of the recent economic crisis. Keywords Shareholder value analysis, Stakeholder analysis, Financial services, Economic theory Paper type Research paper

Shareholder and stakeholder theory 51

1. Introduction In June 2009, more than 1,000 MBA students from several top business schools signed an oath that declared the rejection of the shareholder-oriented business approach and vowed to give equal importance to “shareholders, co-workers, customers and the society in which we operate” (Skapinker, 2009). Whether this is a knee-jerk reaction of MBA students to mitigate the blame of the latest economic crisis on senior executives or the pursuit of a new ideal is beyond the scope of this paper. However, it is clear that these students, among many corporate executives, are opting for the main contending alternative to shareholder- stakeholder theory. The debate between these two theories is not unprecedented. The scandals at Enron, Global Crossing, Tyco International and WorldCom sparked fierce debate as to which of these two theories is superior to the other (Smith, 2003). The decline of many seemingly successful UK banks before the latest financial crisis such as Northern Rock, Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS) reminded us that this debate is far from over. Indeed, in view of the various characteristics of the crisis, there is an urgency to continue this discussion. This paper aims to serve this purpose by reviewing some of the existing literature of both shareholder and stakeholder theories and discussing the benefits and problems associated with these frameworks through the lens of the recent financial crisis.

Qualitative Research in Financial Markets Vol. 3 No. 1, 2011 pp. 51-63 q Emerald Group Publishing Limited 1755-4179 DOI 10.1108/17554171111124612

QRFM 3,1

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It concerns particularly the UK banking and financial services sector because this industry is considered to be one of the primary catalysts of this crisis. Perhaps, more importantly, the problems that plague this sector seemingly epitomise the misguided use of shareholder theory. The main assertion of this paper is that shareholder theory is in itself a sound theory and it is likely that some executives following this theory, rightly or wrongly, have...
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