Legitimacy theory and stake holder theory definition pdf

Robert phillips provides an extended defense of stakeholder theory. The cost of producing goods and services is the opportunity cost of the resources i. It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and. The stakeholder theory evolved in different forms over the period, has assumed much popularity and a distinct place in the business ethics literature. There are many books and articles on the subject and most cite freeman as its father. This paper focuses attention on the stakeholder attribute of legitimacy. Islam, muhammad azizul, csr reporting and legitimacy theory.

Drawing upon institutional and stakeholder theories, i develop a framework of stakeholder legitimacy based on its three aspectslegitimacy of the stakeholder as an entity, legitimacy of the stakeholders claim, and legitimacy of the stakeholders behavior. Supportive of the view that csr reporting has gained more prominence among researchers in recent years, parker 2005, p. The stakeholder theory is a theory of organizational management and business ethics that accounts for multiple constituencies impacted by business entities like employees, suppliers, local communities, creditors, and others. Dec 10, 2018 stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. Conceptualizing legitimacy as a thing an asset or characteristic to be gained, increased and lost clearly emphasizes some attributes of a phenomenon at the. Stockholder theory, also known as shareholder theory, says that a corporations managers have a duty to maximize shareholder returns. Apr 10, 2017 islam, muhammad azizul, csr reporting and legitimacy theory. In neoclassical theory, economic value is created when the price that consumers pay for goods and services is greater than the cost of producing them. Stakeholder theory is a prominent popular and academic way of understanding business ethics, however no fullscale defense of stakeholder theory exists examines stakeholder theory from the perspective of several fields of study including strategic management, economics, moral and political philosophy, social psychology, and.

There are four general perspectives on stakeholder theory, discussed fully in chapter 2. Stakeholder theory and organizational ethics provides the most comprehensive, theoretical treatment of the stakeholder framework to date. The legitimacy theory has a very rich disciplinary background based on management theory, institutional theory, and stakeholder theory burlea and popa, 20, p. The analysis may be done for simply informational purposes but is rarely acted on. The main aim of this thesis was to refine and develop legitimacy theory as an explanation for voluntary corporate envirormiental disclosures in the armual report.

However, under stakeholder theory, suppliers should also be operating their own businesses ethically, fairly, and equitably. According to legitimacy theory, companies disclose social responsibility information to present a socially responsible image so that they can legitimize their behaviours to their stakeholder groups. The stakeholder theory was first proposed in the book strategic management. The main benefit is that it forces the corporation to act in the interests of all the stakeholders. The findings show that there is no universal theory applicable on corporate social responsibility disclosure for all situations or societies.

According to the theory, which was first introduced by milton friedman in the 1960s, a corporation is primarily responsible to its stockholders due to the cyclical nature of business hierarchy. The characteristics of power, legitimacy and urgency of stakeholders and the actions of corporate social responsibility of companies edna ribeiro alves, m. In response to corporate scandals of recent years including. Over the last twentyfive years a distinctive answer to this question has emerged in a body of ideas known as stakeholder theory. Greater clarity regarding the idea of legitimacy will provide some. The stakeholder theory suggests there are differences between. We can make the definition for stakeholder theory more suitable for events and tourism, and in these contexts it is considered to be essential to encompass. It is a key aspect of stakeholder management as it is common for highly vocal stakeholders to try to define requirements and make decisions beyond their expertise and authority resulting in issues.

A story of reporting social and environmental matters within the australian food and beverage industry professor james guthrie discipline of accounting, the university of sydney associate professor suresh cuganesan macquarie graduate school of management and leanne ward cocacola amatil corresponding author. It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and social contract theory. If the point of stakeholder theory is to take seriously the responsibilities the corporation has towards the various stakeholder groups this has to entail more than simply enumerating them. Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions suchman, 1995, p. When this environment is, at the microlevel, engagement with identified stakeholders, a stakeholder approach is suggested as the best theory to explain managerial behaviour. Consider what is at stake for each of the following groups of people. Stock markets reaction to disclosure of environmental violations. A stakeholder approach is widely cited in the field as being the foundation of stakeholder theory, although freeman himself credits several bodies of literature in the development of his approach, including strategic management, corporate planning, systems theory, organization theory, and corporate social.

Robert phillips provides an extended defense of stakeholder theory as the preeminent theory of organizational ethics today. Three elements of stakeholder legitimacy springerlink. In political science, legitimacy usually is understood as the popular acceptance and recognition by the public of the authority of a governing regime, whereby authority has political power through consent and mutual understandings, not coercion. In short, for whose benefit ought a firm be managed. Some thoughts on future research agenda april 6, 2017. Aug 05, 2019 the agency theory looks to outline the interests of a principal and an agent, which can include an individual and a financial planner. The stakeholder perspective is an alternative way of understanding how companies and people create value and trade with each other. A conceptual framework of business ethics and organizational management which addresses moral and ethical values in the management of a business or other organization. It is a concept that is found in different theories, such as institutional theory, legitimacy theory and stakeholder theory to mention a few see 10, 11 3 12. Evidence from china changes in value of the chinese market are much lower than changes in the markets values of other countries legitimacy theory is the theoretical basis in this article. These are the basic principles of the stakeholder theory and the model certainly offers us an alternative to the stockholder model.

Doc a critique of stakeholder theory samuel mansell. We conclude that the three aspects of stakeholder theory are mutually supportive and that the normative base of the theory which includes the modern theory of property rightsis fundamental. If the condo company truly wants longterm success, stakeholder theory holds, it should treat suppliers and vendors well, but also do due diligence on how the supplier companies themselves do business. If we want value to be created for stakeholders, we need to. Stakeholder theory and organizational ethics robert. We conclude that the three aspects of stakeholder theory are mutually supportive and that the normative base of the theorywhich.

Thus, this gives rise to a network of dyadic obligations among the stakeholder groups of the corporation. While stakeholder theory constitutes an effective way to understand the complex. A number of scholars have applied stakeholder theory to marketing. In our conception, legitimacy theory has the role of explaining the behavior of organizations in. Differentiate between the systems theory, social network theory, collaboration theory and social exchange theory. Stakeholder theory and the corporate objective revisited 366 organization science 153, pp. Integrating legitimacy theory, stakeholder theory and institutional theory article pdf available january 2014 with 25,462 reads how we measure reads. Discover the secret language the universes uses to send us guided messages and watch as. Stakeholder theory is a view of capitalism that stresses the interconnected relationships between a business and its customers, suppliers, employees, investors, communities and others who have a stake in the organization. Concepts, evidence and implications by thomas donaldson and preston lee. Stakeholder theory and legitimacy theory have developed from the broader political economy perspective gray et al, 1996. Legitimacy theory is based on the idea that a social contract exists between business and society. Mar 05, 2019 the list of who the stakeholders are is not universally agreed upon, and even the definition of a stakeholder remains contested by some. While there are differences between stakeholder and legitimacy theory, they both focus attention on the nexus between the organisation and its operating environment neu et al, 1998.

Stakeholder salience is the extent to which the stakeholders are vocal, visible and important to a project. Indeed, it is probable that legitimacy theory is the most widely used theory to explain environmental and social disclosures campbell, craven and shrives, 2003, p. Part a section i the articles chosen for this essay paper were corporate environmental reporting. The agency theory looks to outline the interests of a principal and an agent, which can include an individual and a financial planner. Smiths moral insights help us to propose a practical framework of legitimacy in stakeholder claims that can help managers select appropriate and responsible csr activities. On the other hand, donaldson and preston 1995 expand the conceptualization.

The ultimate theories in corporate governance started with the agency theory, extended into stewardship theory and stakeholder theory and evolved to resource dependency theory, political theory, legitimacy theory and social contract theory. In the second section, the outlines of a theory of stakeholder management are provided. The definition adopted by this research expands on type iii defining project stakeholder as. This paper is a preliminary attempt to better understand the concept of legitimacy in stake holder theory. A notable exception is driscoll and starik 2004 who supplemented power, legitimacy, and urgency with proximity. In this regard, researchers on both topics are quick to point out that csr and stakeholder theory are not the same thing. Stakeholder theory an overview sciencedirect topics. On the other hand researchers prove that recent developments in corporate social responsibility and ethics save organizations from down fall in economic recession. Objections to friedmans shareholderstockholder theory. Kenneth goodpaster seems to think so and his article tries to address this problem. The definition adopted by this research expands on type iii defining project stakeholder as individuals, or groups, or organizations. To specifically examine this stakeholder analysis method in a research context. Murphy, stevens, mcleod, and andersen 1997 contend that the fundamental change is the concept of the entire organisation contributing to create value for the customer, and it includes all the stakeholders who are associated with the organisation.

Many authors have different concern about each theory but directly or in directly linked it with the shareholder and profit maximization. The role of theory in explaining motivation for corporate. Freeman, harrison and zyglidopoulos discuss the foundation concepts and implementation of stakeholder management as well as the advantages this approach provides to firms and their managers. The framework by mitchell and colleagues 1997 presents a definition of stakeholders, describes how the attributes of power, legitimacy and urgency can be used to identify relevant stakeholders and shows how prioritising which stakeholders to engage. Legitimacy is a value whereby something or someone is recognized and accepted as right and proper. The legitimacy theory and csr disclosure accounting essay. Stakeholder theory looks at the relationships between an organization and others in its internal and external environments. Their jobs, and therefore their very livelihood, is at stake. A key characteristic of the critical theory approach is expressed as a distinction between three different normative realms, viz. May 28, 2012 part a section i the articles chosen for this essay paper were corporate environmental reporting. Those who own shares of stock in a company stand to lose money if that business does poorly. Stakeholder theory and the corporate objective revisited organization science 153, pp. Stakeholder theory and the corporate objective revisited.