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DOMINANT THEORY: SHAREHOLDER THEORY |
ALTERNATIVE THEORY: STAKEHOLDER THEORY |
THEORETICAL FOUNDATION OF THE NEW NARRATIVE OF STAKEHOLDER THEORY (San-Jose et al., 2017; Freeman & Ginena 2015) |
GOAL OF THE FIRM |
PROFIT MAXIMIZATION |
VALUE MAXIMIZATION (BENEFIT) |
THE PURPOSE PRINCIPLE |
The main objective of the firm is short-term profit maximization for shareholders. |
Value is not only the financial result, but also the total wealth generated by the firm through all the operations it performs. |
Organizations are driven by a wider purpose than mere profit (Freeman, 1999)). |
PROPERTY RIGHTS |
UNLIMITED |
SHARED |
THE HUMAN COMPLEXITY PRINCIPLE |
Capital is the main resource of the firm. Property rights over capital are converted into property rights over the firm. Shareholders are the owners of the firm. |
The resources used by the firm are broader than just financial capital. Social, intellectual, natural, cultural, and reputational capitals also contribute to the value generation process. |
The reductionism of homo economicus does not correspond to reality; aspects such as career development, social interaction, or even a sense of transcendence, may have much greater value than a mere financial transaction (Freeman, Stewart, & Moriarty, 2009). |
CONTRACTUAL TIES |
UNCONDITIONAL |
SYMMETRICAL |
THE VALUE CREATION PRINCIPLE |
Entrepreneurial relations are formalized through contracts, and the only limits are legal regulations. The firm is defined as a contractual network. Logic of the law. |
Contracts should be ruled by the law and incorporate fair conditions for all parties regarding information, power, and general conditions. Logic of exchange. |
Value creation for stakeholders is the foundation of any business activity (Freeman & Liedtka 1991; Freeman, Kirsten, & Parmar, 2007). Businesses create value, or destroy it, for a broad range of stakeholders: employees, suppliers, customers, the state, society, and so on, and not just for one of them, namely, shareholders. |
VALUE GENERATION |
TRANSACTION COST THEORY |
SOCIAL VALUE THEORY |
THE INTERCONNECTION PRINCIPLE |
Value generation is achieved by the reduction of costs. R&D and technological innovation are directed towards production efficiency. |
Value generation is achieved through higher value that the firm’s products or services create for all stakeholders. |
A corporation creates value through interactions and mutual benefit among people (Freeman, 2008). In this sense, the creation of shared value and the equilibrium in its distribution among shareholders become key elements for managers (San-Jose et al., 2017). |
TRUST |
AGENCY THEORY |
STEWARDSHIP THEORY |
RECIPROCITY PRINCIPLE |
The individual is a rational decision-maker who will try to maximize his/her own interest at the expense of others, even in the case of fiduciary duty on behalf of a principal. |
Egocentric and opportunistic behavior by managers should not be accepted as a rule. Managers should seek shared value for all stakeholders. |
The dealings between customers, suppliers, employees, communities, and financial backers create business operations, and their development not only requires these stakeholders’ involvement, but also has a positive or negative impact upon them throughout the entire value creation process (Freeman, Harrison, Wicks, Parmar, & deColle, 2010). |
GOVERNANCE |
CENTRALITY OF SHAREHOLDERS |
MULTI-STAKEHOLDER GOVERNANCE |
COOPERATION PRINCIPLE |
The rights of stakeholders are contractually guaranteed. Shareholders are the only ones bearing the risks of the firm’s economic activity. As a result, they are entrusted with the governance of the firm. |
If financial capital is not the only resource that generates value and the risk of economic activity is shared by all stakeholders, then governance of the firm should not be associated only with the rights of shareholders. Multi-stakeholder governance is needed. |
The different stakeholder groups in a firm (employees, suppliers, financial backers, customers…) provide resources and capabilities for creating value jointly. Accordingly, cooperation, and not conflict, facilitates the value creation process (Dunham, Freeman, & Liedtka, 2006). |