Stakeholder theory from a management perspective: Bridging the shareholder/stakeholder divide

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Abstract

The law literature posits a wide chasm between the standard doctrine of shareholder primacy/shareholder wealth maximisation and stakeholder theory. In so doing, the law literature largely ignores the contribution of our colleagues in the fields of management and business ethics, many of whom conceive of stakeholder theory as an essential part of the good management necessary to maximise shareholder wealth. This article reviews major contributions from the management literature and explains how they can help lawyers understand the proper role that consideration of stakeholder interests should play in management decision-making. It argues that stakeholder theory as conceived by the management theorists broadly aligns with the legal concept of enlightened shareholder value and does not conflict with the shareholder wealth maximisation objective as currently understood under dominant paradigms of Anglo-Australian corporate law. To the contrary, stakeholder theory supports shareholder wealth maximisation, because shareholder and stakeholder interests are symbiotic. It is impossible to realise shareholder value without taking care of stakeholders. At the extreme, where a company is harmed by a failure to adequately consider and take steps to mitigate the impact of corporate decisions or policies on stakeholders, that failure could potentially attract plausible claims that responsible directors and officers have breached their directors' duties as those duties are currently defined in Australian law. The article concludes that the management literature assists in bridging the divide between shareholder primacy and stakeholder theory because it provides robust support for the contention that considering the impact of corporate decisions on stakeholders and actively seeking mutually beneficial solutions will ultimately enhance shareholder wealth in anything longer than the short-term.
Original languageEnglish
Pages (from-to)187-207
Number of pages21
JournalAustralian Journal of Corporate Law
Volume31
Issue number1
Publication statusPublished - 31 Aug 2016

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Stakeholder theory
Shareholders
Shareholder wealth
Stakeholders
Primacy
Shareholder value
Paradigm
Management ethics
Business ethics
Lawyers
Corporate law
Management decision-making

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title = "Stakeholder theory from a management perspective: Bridging the shareholder/stakeholder divide",
abstract = "The law literature posits a wide chasm between the standard doctrine of shareholder primacy/shareholder wealth maximisation and stakeholder theory. In so doing, the law literature largely ignores the contribution of our colleagues in the fields of management and business ethics, many of whom conceive of stakeholder theory as an essential part of the good management necessary to maximise shareholder wealth. This article reviews major contributions from the management literature and explains how they can help lawyers understand the proper role that consideration of stakeholder interests should play in management decision-making. It argues that stakeholder theory as conceived by the management theorists broadly aligns with the legal concept of enlightened shareholder value and does not conflict with the shareholder wealth maximisation objective as currently understood under dominant paradigms of Anglo-Australian corporate law. To the contrary, stakeholder theory supports shareholder wealth maximisation, because shareholder and stakeholder interests are symbiotic. It is impossible to realise shareholder value without taking care of stakeholders. At the extreme, where a company is harmed by a failure to adequately consider and take steps to mitigate the impact of corporate decisions or policies on stakeholders, that failure could potentially attract plausible claims that responsible directors and officers have breached their directors' duties as those duties are currently defined in Australian law. The article concludes that the management literature assists in bridging the divide between shareholder primacy and stakeholder theory because it provides robust support for the contention that considering the impact of corporate decisions on stakeholders and actively seeking mutually beneficial solutions will ultimately enhance shareholder wealth in anything longer than the short-term.",
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Stakeholder theory from a management perspective: Bridging the shareholder/stakeholder divide. / Baumfield, Victoria.

In: Australian Journal of Corporate Law, Vol. 31, No. 1, 31.08.2016, p. 187-207.

Research output: Contribution to journalArticleResearchpeer-review

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