Business Ethic Paper!!!
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freeman.pptxBusiness Ethics
STAKEHOLDER tHEORY
Freeman’s Main Claim
“We argue that the primary responsibility of the executive is to create as much value for stakeholders as possible, and that no stakeholder interest is viable in isolation of the other stakeholders.” (72)
In this article, Freeman develops a new management model (the Stakeholder Approach) and gives reasons for thinking that it is better than the old/dominant model (the Shareholder Approach).
The Shareholder Approach
The old/dominant model of managing views the primary role of executives to be creating value for shareholders.
“Meeting Wall Street targets, and forming a stable and predictable base of quarter-over-quarter increases in earnings per share has become the standard for measuring company performance.” (73)
Ethics is seen as “a side constraint on making profits” (77).
The Stakeholder Approach
Freeman’s stakeholder approach to managing views the primary role of the executive to be creating value for all stakeholders without privileging any one group of stakeholders.
Ethics is seen as integrated with business.
The Stakeholder Approach
Freeman does not think that the executive’s role is to make trade-offs between the conflicting needs of stakeholder groups and decide which group’s needs are more important in a given situation.
Freeman thinks the needs of the various stakeholder groups are tied together and an executive must create value for all of these groups.
“Where stakeholder interests conflict, the executive must find a way to rethink the problems so that these interests can go together, so that even more value can be created for each. If trade-offs have to be made, as often happens in the real world, then the executive must figure out how to make the trade-offs, and immediately begin improving the trade-offs for all sides.” (82)
The stakeholder approach is easier to accomplish when a business has a sense of purpose that is shared by its stakeholders.
The Stakeholder Approach
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The Stakeholder Approach
One of Freeman’s main messages is to remember that businesses are “human institutions populated by real live complex human beings” (82). Stakeholders all have names and faces.
Businesses on this model are built on cooperation, not competition. They should be understood as a set of relationships between groups working together to create value.
With this understanding of business, an executive’s roles is to manage these relationships and make sure that everyone is working together to create as much value as possible for everyone involved.
What is a Stakeholder?
The nature of each group’s stake in the business determines what responsibilities the group has to the business and what responsibilities the business has to the group. It also determines what value is being created for that group.
Stakeholder theory is founded on the idea that people are responsible for the effects of their actions. Thus, responsibilities arise whenever any group can affect the business, or the business can affect any group.
Who is a Stakeholder?
What groups count as stakeholders will change based on the business. There is no “one size fits all” approach to managing for stakeholders.
Primary stakeholders: groups without whose support the business would cease to be viable
Ex. Financiers, Employees, Customers, Suppliers, Local Community
Secondary stakeholders: groups or individuals that can affect or be affected by a business, or that affect primary stakeholders
Why is the Stakeholder Approach better than the Shareholder Approach?
1. It allows a business to change more easily.
Why is the Stakeholder Approach better than the Shareholder Approach?
1. It allows a business to change more easily.
2. It more accurately reflects what is legally required of businesses.
Why is the Stakeholder Approach better than the Shareholder Approach?
1. It allows a business to change more easily.
2. It more accurately reflects what is legally required of businesses.
3. It is more ethical.
Any situation in which humans are affecting one another is one in which ethical concerns arise due to the Responsibility Principle. The stakeholder approach allows us to think about what responsibilities arise in the context of business activities and how to navigate them.
Ultimately, Freeman thinks that the stakeholder approach is more ethical because it better enables people to work together to create value for themselves and others.
“Ethics is about the rules, principles, consequences, matters of character, and so forth, that we use to live together. …One might define ‘ethics’ as a conversation about how we can reason together and solve our differences, recognize where our interests are joined and need development, so that we can all flourish without resorting to coercion and violence.” (77)
Freeman’s Ethics
There are two main principles that ground Freeman’s business ethics:
1. The Responsibility Principle: People should be responsible for the effects of their actions.
2. Pragmatism: Whatever in practice helps people live and work better together is ethical. We arrive at ethical rules and principles by talking and reasoning with one another to see what works best for all of us.
