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Stakeholder theory

The way I see stakeholders theory is, it’s about trying to find a solution to the problem of how are we going to understand business in the 21st century, how can we have an idea about business that offers us hope, that tries to make business better. I really think we can be the generation that makes business better, but we can only do that if we tell a new narrative, a new story about what’s possible for business. And I think that story goes roughly like this: every business always has and always will create, and sometimes destroy, value for customers, suppliers, employees, communities and people with the money for the ?????? bondholders, shares, shareholders, and the interest of these groups go in the same direction. Yes, there’s some conflict, but we need to figure out how to get them going in the same direction. What’s good for customers needs to be good for suppliers. What’s good for shareholders needs to be good for communities. I think we have, in part the global financial crisis because we forgot about that, we looked at either shareholders only, or what’s good for governments only, or what’s good for consumers only. There’s a jointness to these interests. If we’re going to have business in the 21st century, if we’re going to make business better, if we’re going to raise the level of people in societies then we need something like stakeholder theory. It’s a revolution, but it’s a revolution in ideas. We need a new story before we can figure out how to enact that story.

WHAT ARE SOME OF THE CHALLENGES?

Well, stakeholder theory has been developing for the last 35 – 40 years or so, and there are lots of different interpretations of it. Some people see stakeholder theory as about civil society groups, NGOs, governments etc., some people see it as about corporate social responsibility. I see it primarily as about value creation: how do we create value for customers, suppliers, employees, communities and people with the money. And that’s not such an easy idea. There are lots of things that we need to change if we take that idea seriously. For instance, we might want to think about something other than profitability to measure the total performance of a company, because profitability primarily measures performance with investors, and that’s not completely right. But we might need a different way to think about that. We might need even a different way to think about accounting, because our accounting conventions are primarily aimed at investors. The issue that’s most troubling to me, however, is that I think our current way to think about business has a very narrow idea of what a human being is. We’ve turned business into something that’s like, you know, the physics of money, rather than a human institution that’s embedded in society and other institutions. And that’s what we need, we need to explore that challenge: how can we have a business, a story about business, in businesses, that are really fit for human beings. That’s what we’re missing.

 

IF STAKEHOLDER THEORY IS ABOUT ENCOURAGING A “REVOLUTION OF IDEAS”, ARE ENTREPRENEURS IMPORTANT ACTORS IN THIS EVOLUTION?

 

I think one of the most exciting areas in stakeholder theory is its application to starting a business in entrepreneurship. Sometimes it’s hard for large businesses to change, but they can’t change if they’re not conscious of what they’re doing. If I’m not conscious of the fact that something’s wrong with me, I can’t do anything to change it. So the idea of stakeholder theory is to make people conscious that my actions have effects on a broad range of people in the world. Every entrepreneur knows this because every entrepreneur is struggling to get the business to work. Some of the people who see stakeholder theory as primarily about corporate social responsibility say “Oh yeah, you’re talking about social entrepreneurship”. And I’m not so sure what that is. I think entrepreneurship is about changing society. Entrepreneurs have a purpose, they want to make the world a better place for the most part. They have some idea they want to implement in the world. They’re on fire about something and they’ve got to make money. Both those things go together and it doesn’t matter whether you’re a traditional entrepreneur or trying to figure out how to sell a new video camera, or you’re an entrepreneur trying to figure out how to take, how to get more food to a homeless shelter, you’ve still got to figure out how to pay the bills. You’re on fire probably about changing the world. So I think entrepreneurship is an area that’s really important as we go forward with stakeholder theory.

I’m a hopeless optimist about the future and the role of stakeholder theory. I’ve never seen, I’ve been writing about this for a lot of years, and I’ve never seen any more interest in the idea than there is now, both in big companies, in part because people talk about corporate social responsibility, but it’s hard to define that without thinking about concrete stakeholders and what you should do. You know, I want to include in that not just civil society, but the ones that are more traditional business model stakeholders, customers and suppliers etc. Oftentimes CSR leaves those out, and that’s a real problem. I’ve never seen students more interested in starting a business, and in starting businesses, and working for businesses that actually make the world a better place. That’s what they’re demanding more and more, and if you look at the wave of entrepreneurs around the world, social entrepreneurs as they’re called, and others, that’s great, because the only way to rebuild the global economy is to have millions of people start businesses. They won’t all work, but if enough of them will, some of them will be great.

 

DO BUSINESS CHOOLS ALSO PLAY AN IMPORTANT ROLE IN CHANGIG THE WAY WE THINK ABOUT BUSINESS?

 

So you might ask: “What’s the role of business schools in trying to make businesses and institutions of hope. I’ve always taught at business school that’s my life on a good day, which today is. I think there is a lot of hope for business schools, but the change won’t be easy.

I think management in business is more like music, art, theatre, the creative arts, than it is like science, and that what we have to do to create value for multiple stakeholders is we have to build our creative skills. And you can’t do that with spreadsheets and analyses. Those things are really important, I’m not suggesting they’re not, but equally important is building the creative side, building the skills, exercising the muscles that are on the creative side of your brain. I teach a course on theatre, in which I turn BA students into a theatre company, and we write an original work of art, produce it, they act in it and we perform it in front of the whole community. And what they learn in that - I just stumbled into doing - it but what they learn in that is how to exercise these creative muscles. And that’s something that for the most part business schools, they’re beginning to do more and more of it, but it’s not nearly enough, not fast enough. So I’d like to see business schools take on more ideas from the humanities, from the creative arts, and our students need to understand how those creative enterprises work. There’s a lot of work going on in design and innovation, and that’s very positive too. So I think there’s change in business schools. Everyone knows something’s wrong, I think we just can’t quite agree always on what it is. I have my idea but others have equally good ideas about what’s wrong as well.

You know, the idea of value is pretty interesting. Value isn’t just about money. In fact, for the most part, I think we are motivated by our values, but we aren’t motivated by money. There’s nothing wrong with money. It’s a dissatisfier, it can demotivate you if you get it wrong. People have argued that what really drives us is autonomy, mastery of something. That creates value for ourselves, whether it’s mastery of Excel spreadsheets, whether it’s mastery of song writing, whatever it turns out to be. So this idea of mastery and autonomy, having the freedom to do it and having a sense of purpose, those are the things that we have to build into this calculus of value, if you like. We know this, we know this as human beings. We need to remember it when we’re thinking about business as well.

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