The Stakeholder Role. Assume that groups a, b, and c were brought together in a common
undertaking. The inputs of each of these groups are necessary for satisfactory performance. Now for
whom does the system really exist - a? for b? or for c? One cannot answer this. But when we put
labels on a, b, and c - such as stockholder, employee, and customer - the situation becomes clearer.
Tradition has taught us to perceive this system from the viewpoint of the stockholder.2 We “maximize
profits” rather than “wages” or “consumer satisfaction.” What is done becomes a value. A change from
this value is resisted on the basis that economics does not deal with values.
The problem is that the manager is asked to place the welfare of one of the groups in this system
above the welfare of the other groups. In a perfectly competitive market, the manager’s perception of
his role (e.g., to maximize wages or to maximize profits) is of no importance. But the perception is
important where imperfections exist. Here, attempts to place the welfare of one group above another
may lead to irresponsible actions. This is expected no matter which group is given priority. For example,
the Yugoslavian solution to maximize wages rather than profits [6, 67] is not expected to remove
incentives to harm others. It only leads to changes in who is injured.
There are many ways in which one might try to reduce the likelihood of socially irresponsible actions
by managers. One of the most effective ways would be to increase competition. Other approaches
would be class action suits, greater publicity about actions by firms, and strict product liability laws. This
article considers one of the many possible approaches - how one might change the managers’
perception from the stockholder role to one where he views himself as being responsible to those
groups that are affected by the firm’s actions. This is referred to as the “stakeholder role.”
This attempt to change managers’ perceptions of their role is consistent with one of the conclusions
from the obedience studies: “Control the manner in which a man interprets his world, and you have gone
a long way toward controlling his behavior” [42, p. 145] .
In contrast to the stockholder role, or any other “sub-optimization” approach, the stakeholder role
suggests that the manager serves many masters. He is responsible to a and b and c. A distinction is
drawn, however, between primary and secondary interest groups. A primary stakeholder is affected by
the decisions of the firm and also makes some contribution to the firm. A secondary stakeholder is
affected by the firm’s decisions, but makes no direct contribution to the firm. An illustration of
management’s relationship to the primary and secondary stakeholders for a typical firm is presented in
Fig. 2. (The secondary stakeholders are designated by a dotted line.)
Management, under the stakeholder role, should try to ensure that the marginal rate of return on
contributions is equal for each of the primary interest groups. He should also avoid bringing unnecessary
harm to competitors. Two-way arrows are used in Fig. 2 to indicate that management should take the
initiative in keeping the interest groups informed and in providing adequate rewards.
2 According to the survey by Dent [16], the shift from owner-manager to professional-manager has not
led to any shift in the reported profit orientation of the managers.