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Stakeholder Theory vs. Stockholder Theory: What's the Core Difference?

In the business landscape, two prominent theories guide corporate decision-making and relationships: Stakeholder Theory and Stockholder Theory. While they both revolve around relationships and interactions in the business world, their approach, principles, and goals stand in stark contrast.

The Normative Aspect of Stakeholder Theory

One of the defining characteristics of Stakeholder Theory is its normative aspect. In simpler terms, this refers to the "should" component of how businesses relate to those they impact. As pointed out in the provided transcript, regardless of a manager's personal beliefs about the intrinsic value of stakeholders, they cannot ignore them. Stakeholders—whether they're employees, customers, suppliers, or the community at large—play an integral role in the daily operations of a business.
The normative element is further emphasized when considering how these stakeholders are regarded and treated. The principle of Stakeholder Theory argues for the fair and equitable treatment of stakeholders—not merely because they exist but because there is an ethical duty to do so. This treatment is not just based on how stakeholders are currently approached or even on the mere fact of their existence. Instead, Stakeholder Theory promotes the idea that businesses should actively and ethically engage with their stakeholders.

Stockholder Theory: A Different Objective

On the other side of the spectrum lies the Stockholder Theory. At its core, this theory prioritizes the interests of stockholders, typically understood as shareholders or those who have invested money into the company. While it's true that advocates of the Stockholder Theory also recognize the existence and importance of stakeholders, their reasons for doing so differ markedly.

Under Stockholder Theory, the interaction with and consideration of stakeholders is primarily a means to an end—that end being the enrichment of stockholders. In essence, stakeholders are engaged not for their well-being but for the potential benefits their involvement or satisfaction might bring to the shareholders. Whether it's optimizing supply chain efficiencies or ensuring positive public relations, stakeholders are valued as long as they contribute to the bottom line and the enhancement of shareholder value.

In this video Professor Thomas M. Jones discusses the difference between Stakeholder Theory and Stockholder Theory

Watch on YouTube https://youtu.be/k44WifxDSX4?si=KeJXfRuULinWtt33

Video transcript

Well stakeholder theory, the biggest difference is normative, and the reason for that is, as I have said before, everybody has to deal with stakeholders.

Managers that don't believe that stakeholders have any intrinsic value have to deal with them anyway.

So the question becomes how to you regard them? And Stakeholder Theory in its important facets, the one that matter have a normative aspect.

And that is these are the ways, these ways, are the ways that you should treat stakeholders as opposed to the way that you do treat them or they just happen to be in your environment and you can't ignore them. So this is what distinguishes stakeholder theory from stockholder theory.

Now Stockholder Theory, advocates of Stockholder Theory have to take account [of stakeholders] as well, the difference is that they are doing so for the purpose of enriching stockholders as apposed to doing it for the purpose of enhancing the well-being of themselves, but also their stakeholders, also these groups [with] which they interact in the wealth creation process - as we call it in the trade.

In Conclusion

In drawing a distinction between these two theories, the foundational difference emerges from their guiding principles and objectives. Stakeholder Theory operates on the normative principle that stakeholders should be treated ethically and with respect because it's the right thing to do. In contrast, Stockholder Theory emphasizes the enrichment of stockholders, with stakeholder engagement serving primarily as a means to achieve that objective.

While both theories recognize the importance of relationships and interactions in business, their perspectives on the "why" and "how" of those relationships are fundamentally different.

About Professor Thomas Jones

A screenshot of Professor Thomas Jones's video interview
Professor Thomas M. Jones is a prominent figure in the field of business ethics, known for his significant contributions to our understanding of ethical management and corporate social responsibility (CSR). His work has been influential in shaping modern perspectives on how businesses should ethically interact with their stakeholders.

Stakeholder Theory resources