The Importance of Stakeholders According to Business Leaders.

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The spirit of corporate citizenship suggests that a company that derives profit from the community has an obligation to contribute to its development.... I t is reasonable to expect the principle of mutual obligation to apply to the business sector. --John Howard, Prime Minister of Australia, 1998.(FN1).

Debate has emerged regarding a shift of focus in the organization's relationships with its various stakeholder groups. In the past the company has been seen predominantly as an instrument of its owners. From the stockholder perspective, the purpose of the company is to provide return on investment for these individuals or institutional shareholders. Consequently, corporations have functioned as instruments of creating economic value for those who risk capital in the enterprise. The rationale behind this argument is that stockholders are not merely the beneficiaries of the corporation's financial success, they are the referees who determine management's financial power.(FN2) Traditionally, under this approach, pursuit of profits and social responsibility were seen as mutually exclusive. In 1970, Milton Friedman published "The Social Responsibility of Business Is to Increase Profit" in which he narrowly defined the goal of business as the sole pursuit of profit.(FN3) More recently this approach, now referred to as the Shareholder Value perspective, has gained support. The purpose of the organization, however, can be perceived in a much wider context. Henry Ford has been quoted as saying that: "A business that makes nothing but money is a poor kind of business."(FN4) Management theorists have supported this concept from Chester Barnard in 1938(FN5) through to Henry Minztberg in 1983.(FN6) They maintain that while profits may be an essential pursuit of the company, they may also be seen as a means rather than an end. According to Handy(FN7) the desirable outcome for an organization's pursuits is the continued survival of the business in order to maintain its contract with its various stakeholders, including the wider community. Most commentators now agree that business organizations have some role to play in society, however, opinions vary greatly as to the nature of this responsibility. In the last two decades, the stakeholder perspective has addressed the question of corporate responsibility extensively. In the 1980s the classical stakeholder theory was further extended to include the concept that the organization has a moral relationship with entities other than its owners.(FN8) This claim was based on the assumption that an organization, as opposed to an individual, possesses moral status and therefore has to act in a morally responsible manner. For Evan and Freeman this concept entailed two significant principles. The first principle of not harming the rights of an individual is based on deontological ethical reasoning. The second principle, of being responsible for the effects of the organization's actions, is based on consequentialist tenets. The authors make note that both these branches of moral theory must exist in balance within the modern corporation. Thus, the stakeholder model balances the rights of claimants on the corporation with the consequences of the corporate form. Stakeholder theory can be compared with the utilitarian stream of consequentialism. The suggestion that the organization has to balance its relationships with the various groups with which it deals in order to maximize the benefits for those groups overall is supported by utilitarianism. Such an argument has high face validity. More recently, variations on the stakeholder model have developed based on perceived flaws in the earlier models. Significant debate exists in two areas. First, there is the question of "who is a stakeholder?" How are stakeholder groups identified and what differentiates them? Second, there is the issue as to the nature of the relationship between the organization and the stakeholder. How is this balancing act of the...
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