Anita McGahan - The New Stakeholder Theory on Organizational Purpose

Anita McGrahan 

The New Stakeholder Theory on Organizational Purpose 

15:26:20 My name is Anita McGahan and I'm presenting the new stakeholder theory on organization purpose.

15:26:28 This is a new paper that I've just written for this conference, and,

15:26:32 I am looking forward to hearing your feedback. So the paper is about the new stakeholder theory, which really deals with 2 canonical questions.

15:26:40 The first one is which stakeholders are enfranchised in organizations.

15:26:45 There's at least 3 different forms of enfranchisement. One is the enfranchisement of a stakeholder in the joint production that's occurring within organizations.

15:26:54 The second is in franchisement in the governance of an organization, and then the third is enfranchisement in the distribution of value from the productivity of the activity of an organization.

15:27:07 So we're interested in all those questions you know who's in who's out in each of those areas of activity.

15:27:14 The second question is, how should the value be distributed across these stakeholders?

15:27:20 You know, deals with questions such as what's it gonna take to retain key contributors to the organization.

15:27:27 And how should we think about the the the needs and requirements and creams of, and French on the stakeholders who may not have contributed to a production?

15:27:39 But still are morally enfranchised, and deserve to be acknowledged and rewarded.

15:27:46 So those are the 2 canonical questions under this new stakeholder theory.

15:27:50 What distinguishes the new stakeholder theory from its antecedents is kind of reflected in these 3 points that I wanted to go over.

15:28:02 Briefly. The first is that the original stakeholder theory, which had very much a moral and ethical imperative, built-in emanated from Freeman, a 1,984.

15:28:14 And you know the work of Thomas Donaldson and Prescott.

15:28:17 And you know, Harrison and Phillips contributed mightily to this, and so on.

15:28:23 That original stakeholder theory has had a great deal of making a great deal of progress.

15:28:28 You know, we got mixed Williams and Siegel, for example, in 2,001, introducing us to this idea of corporate social responsibility and many important contributions on on on sharing and and and the ethical

15:28:43 foundations of the purpose of the corporation a challenge we face, though emanating from this original stakeholder theory, was in this idea from Freeman, 1,984, for which I have a quote here that

15:28:56 any group or individual who can be a factor is affected by the achievement of the organization's objectives is a stakeholder, and it's hard to rule out or come up with discriminating criteria on

15:29:08 who's in and who's out based on that definition, it's difficult to implement and practice this theory, and so we had calls emanating from the original stakeholder theory such as from Barney and Harrison

15:29:20 and then a relatively recent paper by Amos Barney Mahoney and Wang and the Amr

15:29:27 A great favor by Rudy Durant, Olgaan, and Aani Iano on analytical foundations.

15:29:35 We need analytical descriptive foundations. to to sort of understand, you know, if we look out in practice without a kind of abandoning the moral and ethical lens, but complementing that with a kind of

15:29:51 descriptive understanding of what goes on at the same time and in parallel.

15:29:57 We had a call for work on this from the grand challenges community, you know, thinking about objectives of organizational action more than efficiency and fiduciary or financial outcomes, thinking about the sustainable development

15:30:11 goals. We had a series of papers on the production of inequality by organizations, the importance of that, and how that needed to be understood.

15:30:24 There have been some great books that have come out recently, as well as scholarly articles by the team of Benzel and Dallas and Toffel, and others on the plan.

15:30:33 You know, on the environmental consequences Summarized here is the planets on fire.

15:30:36 As a consequence of the pursuit of profits. And then,

15:30:40 You know a number of scholars, including some of my own work, talking about the institutionalization of these problems and solutions and organizations, so writing on things like privatization of military privatization of policing women's,

15:30:54 police stations, prioritization of prisons, and so on.

15:30:59 Water systems Carlos and newi's article in a Sq.

15:31:04 2,020. So this body of work is looking for an analytical foundation to try to map stakeholder, stakeholder, enfranchisement, and stakeholder claims as 2 canonical questions 2 grand

15:31:17 challenges. and then we also have interest in this kind of descriptive effort.

15:31:21 I mean from the corporate social responsibility and Esg scholarly communities.

15:31:28 To work on public-private boundaries. saying you know well we're doing public organizations have a primary role? where do private organizations engage?

15:31:40 What's the interaction between them that we should be focusing on?

15:31:45 So we need some discriminating alignment, and some criteria for understanding stakeholder action in each of those domains.

15:31:53 And then, really, some good papers on investor salience.

15:31:57 In this effort. papers by Mackey Mackie and Barney Flammer and Luo Porter and Kramer, and then, of course, Sarah Kaplan's 2,019 great books called 360

15:32:09 corporation talking about Csr and esg as innovation challenges this consonant commitment to your stakeholders makes you more innovative.

15:32:19 So that's all sort of by way of background, is where this came from, the new stakeholder theory really is, is seeking to build on the original stakeholder theory and in and to meet the needs of these other

15:32:33 traditions by seeking analytical foundations and by engaging in descriptive rather than primarily normative or prescriptive analysis, still acknowledging the moral foundations.

15:32:47 But looking to just describe what's going on so let me see here, we've got a view here of the purpose of the firm as enabling collective action by stakeholders that the purpose of the organization is to

15:33:05 make a group of stakeholders able to accomplish.

15:33:11 Certain outcomes that they couldn't do if they didn't set up the organization as they are unifying.

15:33:21 You know they're unifying collective here organizations noticed organizations.

15:33:26 Here are subsidiary to the value, creation, and stakeholder agenda.

15:33:31 We see them as tools for enabling value creation.

15:33:34 And this takes us to the issue of trying to compare and and contrast different organizational ports.

15:33:42 As approaches for getting things done very much in the spirit of Ostrom and Purdue and Stoolhurst have a great paper on this.

15:33:49 I think it's in 2,022 amr on this.

15:33:54 So you know, organization, organizational forms, like the publicly trading corporation versus a cooperative versus, you know, embodiment in the public sector.

15:34:05 All those organizational forms compete as venues or areas where the work can get done.

15:34:12 There are already been quite a few important contributions to the new stakeholder theory.

15:34:17 I mentioned Purdue instruments. They have a number of great papers stool.

15:34:20 Horace has a new paper that's just coming out I believe in in Amr as well.

15:34:27 That address, this question, of which stakeholders are in terrific work by Garcia, Castro, and Aguilera, and so on.

15:34:36 We also have some work on how we can think of stakeholders as teammates in a joint production function, going all the way back to Alkin and dem sets in 1,972 and then great contributions

15:34:45 from legal scholars, Blair and Stout and Joe Mahoney has a 2,012 book chapter.

15:34:52 That, I think is actually quite brilliant on this, on this front.

15:34:55 And then Sophie back, and Ruth Eller have a new paper on this as well.

15:34:59 How do we think of stakeholders as teammates in a joint production function?

15:35:03 The distributional question has been analyzed by some exciting you know, scholarship on, it seems to integrate value, creation and value.

15:35:16 Capture non-corporative game theory inspired value analysis into this conversation.

15:35:23 And there's also some work here by Russ cough and other contributors to human capital as a foundation for stakeholder contributions.

15:35:32 And so we have here a number of papers on value distribution, and then we also have some papers on the incentives for stakeholders to collaborate, given their outside alternatives and complementarities and at least a

15:35:46 couple of papers here in including work by Lendo Punjalu Bay, my doctoral student in the context of the Favelas of Brazil, and and thinking about also the contributions of New Torah which is a

15:36:03 Brazilian firm that operates in the Amazon to collaboratively with communities, to create stakeholder collaboration arrangements that are sustainable.

15:36:16 This effort has been animated by practitioner's interest.

15:36:20 Beginning with Larry thinks 28 letters to Black Rock shareholders.

15:36:24 Larry thinks pictures up on the right here, and then in 2019.

15:36:28 The business roundtable, a group of 181 large companies, over which let Jamie don't preside in 2,019, issued a statement of their principles and corporate governance that emphasize

15:36:43 stakeholders over shareholders as primary beneficiaries of management. and the Ceos.

15:36:50 Of these important large companies, 181 large companies committed to those principles and gave rise to this interesting descriptive analysis.

15:36:57 And then I think there was some interesting contribution that occurred with the pandemic response.

15:37:02 We had this unprecedented public-private collaboration at scale on accelerated timetables, with important successes from the private sector, such as in the development of vaccines, and then some notable failures I would say, in

15:37:16 the public sector. especially, I would say, around, you know, warning systems and, the, you know, enactment of of of pandemic protections, especially in vulnerable low income. countries.

15:37:36 So we have. We have, you know, a kind of amplified interest from print practitioners in the Nst here.

15:37:44 So we're organizational purpose you know What the implication of the new stakeholder theory for our thinking about organizational purpose is.

15:37:54 As I mentioned, we think of organizations as tools for getting things done as vehicles that enable stakeholders to work together as kinds of sets of rules.

15:38:04 So we're or tools they're not you know we don't have as an objective under this theory there sustained their sustainability.

15:38:15 We're not interested in sustaining organizational forms we're interested in sustaining the work that organizations enable. we see many different types of organizations out there as many different types as there are systems for governing

15:38:27 human interaction, you know. and so you know, we see

15:38:33 As I mentioned, collaboratives, private companies, publicly traded companies, and companies that are are are launched under different in different countries or in different.

15:38:44 You know, municipalities, even under different sets of rules.

15:38:49 For what's possible within the organization and of course the purpose of the firm in the society is emerging from the system of rules.

15:38:58 Society tolerates firms and enables what firms can do.

15:39:02 Based on what that society values. So the And then, within that kind of conceptualization of the purpose of of the organizational structure for the society, you get unique purposes emerging for individual organizations that come from the experiences of

15:39:21 the people that operate within them. The the meetings practices and experiences that occur over time among the people that are involved.

15:39:29 So there's a sort of animating purpose of the each organization individually over time.

15:39:36 From this experience, and we we of course, know that society is enabling this for many reasons, including to promote prosperity or mutual defense and safety.

15:39:47 And, you know, social exchange such as things through a community meeting or education, religious practice, scientific advancement.

15:39:54 We could go on for a long time listing of why society enables these these rules to emerge.

15:40:02 So what are some strengths? The strengths of this conceptualization also, you know, reflect the same things.

15:40:08 To make this conceptualization strong also, you know, create weaknesses here.

15:40:14 So, as I mentioned, we have this kind of comparative governance idea here, which is the organization is subsidiary and or different.

15:40:22 Organizational forms can emerge to support stakeholders that want to work together.

15:40:27 There's nothing that guarantees that the emergent form is going to be fair, or even optal.

15:40:35 So let's say that I get the together with a couple of friends, and we want to pursue an idea and we exclude certain stakeholders from the joint production function that you know a social planner would include or that somebody other

15:40:50 than say a desktop like me might include there's no guarantee that the stakeholders that are included are selected because they're self selected.

15:41:03 There's no guarantee that they're selected fairly or optimally.

15:41:08 Even so, there's a strength in the comparative governance agenda.

15:41:11 But there's also some weakness in it another strength is we have clarity about which stakeholders are in, and which are out.

15:41:19 But that clarity also may have obscure. You know valid claimants that have it yet been acknowledged or recognized.

15:41:28 People who have been excluded out of myopia or unfairnesses, or privilege, or some other sort of social setup, socially systemic kind of factors, such as communication or you know, expediency, that

15:41:46 you know where we may not identify all of the relevant stakeholders, either immediately or even over time.

15:41:55 Another advantage is, we think, of stakeholders as multi-dimensional.

15:41:59 You know there are different ways that we can co specialize with each other and with the firm.

15:42:04 There are different ways we transact. There are different types of contributions to doing joint production.

15:42:09 But and then there's also, this multi-dimensionality makes it hard to describe everything that stakeholders are going through and contributing and and and experiencing and the organizations.

15:42:21 That we study. So the strengths also constitute weaknesses.

15:42:25 But the bottom line here for me anyway. is that there's excitement here.

15:42:30 This could constitute a turning point in the field. We are focusing on real prosperity, real value, creation and thinking kind of of the purpose of the organization that enabling this real prosperity as opposed to making more

15:42:47 money, or, you know, perpetuating its existence.

15:42:49 We see technology and efficiency taking an enabling role as opposed to a driving role.

15:42:57 We're we're not we're thinking of we're putting people first.

15:43:03 We're thinking of human experience both. as a stakeholder, and as experiencing, you know, in a name sense, the action of the organization and the most important thing this does have the capacity or is at least the potential to be applied

15:43:21 to grand challenges where we have really big complex problems where multiple organizations have to be deployed in the interests of creating something important in collaboration with each other.