New Jersey City University Stakeholder Theory Discussion

Stakeholder Theory — the notion that a company’s success depends not only on its owners/shareholders, but also on a myriad of groups without whose support it could not exist — is not a new concept. It dates back to the mid-80’s and a landmark book written by R. Edward Freeman, a professor at the University of Virginia. In this publication, Dr. Freeman discusses the strategic importance of relationships with customers, employees, vendors, suppliers, community groups, governmental bodies, the media, the environment, and more. In contrast, the work of Milton Friedman embraces the prevailing shareholder theory of capitalism: that a company’s sole responsibility is to make money for its shareholders. Dr. Friedman believed that a company has no real social responsibility to the public, because the shareholders themselves would take on the social responsibility to other stakeholders. This is the notion that dominated economic thinking for much of the 20th century and continues to be reflected in corporate finance textbooks today! The debate came into sharper focus in the summer of 2019 when the Business Roundtable — a meeting of CEO’s of major corporations — produced a document called the “Statement of Purpose of a Corporation.” The document was signed by 184 CEO’s, led by JP Morgan Chase CEO Jamie Diamond. While it did not specifically use the phrase “stakeholder capitalism,” the statement called for “a fundamental commitment to all of our stakeholders” and mentioned “specific commitments to customers, employees, supplier, communities, and shareholders.” This is an interesting change of heart from 23 years earlier, when the Business Roundtable declared “the paramount duty of management and of Boards of Directors is to the corporation’s stockholders.” What are the issues? Is the movement related to the growing interest in Sustainable-Responsible-Impact Investing? Have the Covid pandemic, economic slowdown, and social unrest intensified the scrutiny? How will the change in administration affect the outcome of the debate? Summarize an article or opinion-piece that weighs in on the discussion and identify any new questions it raises. Please make your inital post within a week, i.e. by September 8, so that the class has ample opportunity to comment on it. Be sure to cite the article in APA 7th format.

BR) Business Roundtable. (2019, August 19). Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’. Retrieved 9/1/2021 from https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans

Freeman, R. E. (Original publication1984, re-issued 2010). Strategic management: A stakeholder approach. Cambridge University Press.

Friedman, M. (2003). Capitalism and freedom. 40th anniversary edition. University of Chicago Press.

Simon, B. (2021). What is stakeholder theory and how does it impact an organization? Smartsheet. Retrieved 9/1/2021 from https://www.smartsheet.com/what-stakeholder-theory-and-how-does-it-impact-organization

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