Positioning Stakeholder Theory Within the Research Paper

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If the enhanced stakeholder perspective is truly the best for corporate social responsibility, this has significant implications not only for management but also for corporate governance. While Nohria (no date) argues that corporate governance is a hygiene factor in that its absence is a problem for companies but its presence did not correlate with improved performance, this is only for basic levels of governance. For a board to truly adopt a broad stakeholder perspective, it must be built better. Nadler (2004) argued that a well-constructed board will be one that helps to deliver superior results to the firm. Taking a broad stakeholder perspective, this means that the board should be capable of understanding the perspectives of different stakeholders rather than simply those of the shareholder. Building a board in this way, however, is constrained by the fact that the shareholders vote for the board. At times, other stakeholders may gain seats on the board (especially labor) but for the most part the shareholders dominate the board and therefore dominate the corporate interest.

When Branco and Rodrigues argue in favor of a stakeholder approach to corporate social responsibility, they are essentially arguing for boards that are structured to the needs of multiple stakeholders. The change needs to be made at the board level, because the board hires the CEO and the CEO hires the other executives. There are logistical issues in managers applying stakeholder theory and in doing so making decisions that restrict profit from flowing to the shareholders, unless the shareholders themselves dictate these terms. It is unlikely, however, with the prominence of institutional investing that the shareholders would have any interest in anything other than rational returns.

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This brings us back to the core stakeholder/shareholder debate. Branco and Rodrigues argue that only the stakeholder perspective can be relevant in any debate about CSR. The shareholder view essentially rejects any notion of a CSR debate -- there is nothing to debate as there is only one social responsibility for business. Ideally, a firm could find some common ground. The main point of common ground is when CSR issues not related to profit begin to impact profit, for example in the Nike supplier ethics scandals. However, such risks are difficult to quantify, which makes it difficult for management to make the case to the board that a stakeholder approach genuinely improves profits. This is the primary challenge for advocates of stakeholder theory -- the arguments have been made, now some evidence needs to be presented.

The strategic decisions that companies make always carry with them ethical consequences. Every output that a company generates has an impact on somebody or something somewhere. It is from this understanding that the stakeholder theory is derived. The challenge for management then is to find more effective ways of determining the intersection between each individual output, ethics and the bottom line. There is a price to be paid in the long-run for every activity. The stakeholder theory will be a more effective way to govern a company's CSR when the cost of all outputs is better understood.

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