Ethics Theory and

Business Practice

10.2 The Responsibilities of Business Executives – Part Two

Specifying Normative Stakeholder Theory

aims

• to describe how normative stakeholder theory differs from instrumental stakeholder theory and enlightened shareholder theory

1. distinguishing normative stakeholder theory from instrumental stakeholder theory

• instrumental stakeholder theory: highlighting the instrumental importance of influential stakeholders

• normative stakeholder theory: highlighting the ethical importance of all stakeholders

why this distinction matters

• instrumental stakeholder theory offers no reason for executives to take into account affected stakeholders who are not in a position to influence the success of a company

• normative stakeholder theory suggests that executives should take all affected stakeholders into account, regardless of whether they are in a position to influence the success of a company

theory in practice

do banks have a responsibility to provide all customers with free access to their funds?

2. distinguishing normative stakeholder theory from enlightened shareholder theory

enlightened shareholder theory: highlighting the potential commercial importance of all stakeholders• influential stakeholders matter because of

their instrumental importance• non-influential stakeholders matter because

influential stakeholders may care about how the company treats them

• enlightened shareholder theory: the ethical importance of stakeholders derives from the ethical importance of shareholders

• normative stakeholder theory: stakeholders have intrinsic ethical importance

www.youtube.com/watch?v=KToV-c8uvPc www.youtube.com/watch?v=htF5XElMyGI

why this distinction matters• it is often suggested that there is no conflict between

shareholder theory and normative stakeholder theory • that looking after stakeholders and looking after

shareholders amount to the same thing• but this is only the case insofar as influential stakeholders

are concerned• or insofar as influential stakeholders know or care about

the plight of non-influential stakeholders• the interests of other stakeholders may well conflict with

those of shareholders • so enlightened shareholder theory should not be used as

a basis for dismissing the relevance of normative stakeholder theory

key points

• instrumental stakeholder theory and enlightened shareholder theory are often used to downplay conflicts between the interests of shareholders and those of other stakeholders

• however, conflicts between the interests of shareholders and those of some stakeholders frequently occur

• therefore, the shareholder theory – normative stakeholder theory debate is an important one