Law
Anniedd
CorporateGovernance-Stakeholdermodels.pptxCorporate Governance
Stakeholder Theory
Professor John Paterson
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Directors’ duties
Recall the Dodd-Berle debate on directors duties
Whereas Berle said duties were owed only to shareholders, Dodd concluded that they were owed to the community
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The rise of stakeholder theory
Dodd’s ideas find modern expression in stakeholder theories of the company
Whatever the company is, it is surely more than the relationship between shareholders and directors, as the economic theories appear to suggest
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Problems for stakeholder theory
Who exactly is included and what are the arrangements for their inclusion in governance?
There are many different theories and ideas but a lack of clarity about how these questions can be answered
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Donaldson & Preston’s approach
Divides stakeholder theories into three categories
Descriptive
Instrumental
Normative
What do they mean by each of these terms?
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Descriptive theories
Descriptive
Theories which claim to based on descriptions of existing examples of stakeholder organisation
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Instrumental theories
Instrumental
Theories based on a hypothetical (if, then) proposition, suggesting adherence to theory results in some desirable business outcome
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Normative theories
Normative
Theories based on moral or philosophical foundations, suggesting adherence to a stakeholder approach is required because it is “right” in some respect
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The need for clarity
If we are not clear what sort of theory we are dealing with, it is not easy to reach clear conclusions about its value for informing corporate governance reform
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Problems with descriptive theories
The naturalistic fallacy
Just because something is does not mean that it ought to be
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Problems with instrumental theories
We lack empirical evidence that the stakeholder theories actually produce the desired effects
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Hidden normativity?
Do the problems with descriptive and instrumental theories mean that they are really based on their authors’ normative beliefs?
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Problems with normative theories
If all normative theories are based on a moral or philosophical conception of what is right or good, what happens if that conception is not accepted by others?
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A fundamental problem?
If Donaldson and Preston are right that all stakeholder theories ultimately depend on a normative foundation, does that mean that all are equally likely to be rejected?
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A solution?
Can stakeholder theory be based on property rights?
Seems unusual, given that this was an approach adopted by at least one economic theorist (Hart)
But D&P’s idea of property as a bundle of rights and duties looks interesting…
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A property rights approach
Property rights are not unlimited
The limitations reveal the rights of other stakeholders as well as notions of distributive justice
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Conclusions
Could an analysis of the company from this perspective identify the stakeholders and the mechanisms for integrating their interests in governance arrangements?
What are D&P’s views?
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