The principle of the role of

stakeholders and the concept

of corporate responsibility
Learning Objective: Explain the principle of the role of
stakeholders and the concept of corporate responsibility

A stakeholder in an organization is any group or

individual who can affect or is affected by the
achievement of the organizations objectives (Freeman,
1984, p. 46).

Introduction
A key aspect of corporate governance is concerned with ensuring the flow of
external capital to companies both in the form of equity and credit.
Corporate governance is also concerned with finding ways to encourage the
various stakeholders in the firm to undertake economically optimal levels of
investment in firm-specific human and physical capital.
Corporations should recognize that the contributions of stakeholders constitute
a valuable resource for building competitive and profitable companies.
It is, therefore, in the long-term interest of corporations to foster wealthcreating co-operation among stakeholders.
The governance framework should recognize the interests of stakeholders and
their contribution to the long-term success of the corporation.
The central role of business has extended from that of the traditional
economic actor to being a political and social actor.

OECD Principle No 4
The corporate governance framework should recognize
the rights of stakeholders established by law or through
mutual agreements and encourage active co-operation
between corporations and stakeholders in creating
wealth, jobs, and the sustainability of financially sound
enterprises.

OECD Principle No 4
A. The rights of stakeholders that are established by law or through mutual
agreements are to be respected.
B. Where stakeholder interests are protected by law, stakeholders should have the
opportunity to obtain effective redress for violation of their rights.
C. Mechanisms for employee participation should be permitted to develop.
D. Where stakeholders participate in the corporate governance process, they
should have access to relevant, sufficient and reliable information on a timely and
regular basis.
E. Stakeholders, including individual employees and their representative bodies,
should be able to freely communicate their concerns about illegal or unethical
practices to the board and to the competent public authorities and their rights
should not be compromised for doing this.
F. The corporate governance framework should be complemented by an effective,
efficient insolvency framework and by effective enforcement of creditor rights.

The Stakeholders Conceptual Model

There are two important dimensions of stakeholder governance: power
and scope. Power refers to the level of influence stakeholders are
granted in corporate decision making (Burchell and Cook, 2006; Jonker
and Nijhof, 2006; Burchell and Cook, 2008). The two extreme poles of
power in corporate decision making are:
1. non-participation in which stakeholders do not have any voice in decisions; and
2. stakeholder power in which stakeholders possess the power to decide (Arnstein,
1969).

Scope refers to the breath of power in corporate decision making and

usually spans along the line of deciding on isolated local issues to
decisions affecting the general business model of the organization
(Kaptein and Van Tulder, 2003; Jonker and Nijhof, 2006; Money and
Schepers, 2007).

Who are the stakeholders?

Example of stakeholders mapping

Stakeholders matrix

CG and CSR

Corporate Social Responsibility

Studies on company efforts to integrate the CR concept into their organizational practices have
shown that lack of understanding of the rising demands of stakeholders, ethical values and
commitment backed by the top management, among other things, often lead to a failure of CR
implementation (see CBSR, 2001; Nattrass and Altomare, 2002; Willard, 2005).
This indicates a need to make internal organizational changes in corporate management, and
therefore much greater attention to such things as aspects of organizational learning (e.g., Kell,
2003; Waddock, 2003).
Analysis of the corporate responsibilityfinancial performance relationship can be approached
theoretically from three main stand points.
First, the trade-off hypothesis reflects Friedman's neo classical argument (1970) that the social responsibility of
business is to increase profits and assumes that the increasing cost of CR investment inevitably reduces
corporate profitability.
Second, the profit-maximizing conjecture, the anticipated benefits of actions are a consequence of
implementing company strategy and not mere company-level altruism. The challenge being to convert
business social responsibility into business opportunities
Third, the CR social impact hypothesis, which assumes that meeting the needs and expectations of various
stakeholders affects firms positively, for instance, though better employee retention, decreased business risk or
providing access to ethical investment funds.