tions are chartered not by the federal government but by the states), most states have passed laws that permit managers to consider a wide range of other stakeholders’ interests, including those of employees, customers, creditors, suppliers, and commu- nities. In addition, many federal laws extend specific protections to various groups of 3 Novartis Corporation Code of Conduct, online at: . 4 The descriptive, instrumental, and normative arguments are summarized in Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications,” Academy of Management Review 1995 (20:1), pp. 65 – 71. See also: Post, Preston, and Sachs, Ch. 1. 5 Curtis C. Verschoor, “A Study of the Link between a Corporation’s Financial Performance and Its Commitment to Ethics,” Journal of Business Ethics 17 (1998), pp. 1509 – 16. Law81305_ch01pg02_21 2/17/04 5:31 PM Page 6
Chapter 1 The Corporation and Its Stakeholders 7 stakeholders, such as those that prohibit discrimination against employees or grant consumers the right to sue if harmed by a product. In other nations, the legal rights of nonowner stakeholders are often more fully devel- oped than in the United States. For example, a number of European countries, including Germany, Holland, Denmark, Finland, and Sweden, require public companies to include employee members on their boards of directors, so that their interests will be explicitly represented. Under the European Union’s so-called harmonization statutes, managers are specifically permitted to take into account the interests of customers, employees, credi- tors, and others. In short, while the law requires managers to act on behalf of stockholders, it also gives them wide discretion — and in some instances requires them — to manage on behalf of the full range of stakeholder groups. The next section provides a more formal definition and an expanded discussion of the stakeholder concept. The Stakeholder Concept The term stakeholder refers to persons and groups that affect, or are affected by, an orga- nization’s decisions, policies, and operations. 6 The word stake , in this context, means an interest in — or claim on — a business enterprise. Those with a stake in the firm’s actions include such diverse groups as customers, employees, stockholders, the media, govern- ments, professional and trade associations, social and environmental activists, and non- governmental organizations. The term stakeholder is not the same as stockholder , although the words sound similar. Stockholders — individuals or organizations that own shares of a company’s stock — are one of several kinds of stakeholders. Business organizations are embedded in networks involving many participants. Each of these participants has a relationship with the firm, based on ongoing interactions.
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