TITLE:
Should the Evolution of Stakeholder Theory Be Discontinued Given Its Limitations?
AUTHORS:
Frederic Narbel, Katrin Muff
KEYWORDS:
Corporate Social Responsibility, Creating Shared Value, Corporate Finance, Stakeholder Theory, Short-Termism
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.5,
August
7,
2017
ABSTRACT: Evolving views of stakeholder theory propose ways to
transform societal problems into win-win solutions for the firm and society
alike. Yet, and despite its success in expanding the understanding of the role
of the firm in society, stakeholder theory has two main limitations. First, it
is anchored in the traditional view of the firm defining it as an entity whose
legitimate purpose is the generation of economic value for itself and its
owners. Second, it relies on regulation as a compensatory mechanism for the
externalities it generates. It is therefore fair to argue that at its current
stage of development, stakeholder theory never leaves the confines of economic
value maximization. As a result, stakeholder theory generates discussion on how
to make its different interpretations comply with and serve the economic
purpose instead of proposing a solution creating societal value. We therefore
propose to interrupt the evolution of stakeholder theory and suggest a
conceptual model derived from the study of best practices of successful firms
using an outside-in approach to governance as an alternative. The intent is to
redefine the purpose of the firm as one guided by societal goals instead of one
driven by the pursuit of profit maximization.