Donaldson and Preston (1995) proposed three theoretical approaches to stakeholder claims, each offering a different perspective on how businesses should prioritize and respond to the interests and claims of stakeholders. These approaches vary in their ethical implications based on their underlying principles and priorities. Here are the three theoretical approaches:
1. Descriptive Stakeholder Theory
- Description: Descriptive stakeholder theory focuses on identifying and describing the actual relationships and interactions between a business and its stakeholders.
- Ethical Implications: This approach is primarily descriptive rather than normative, aiming to understand stakeholder relationships and their dynamics without prescribing how businesses should prioritize or respond to stakeholder claims. Ethical implications arise from the ethical standards applied in observing and reporting these relationships accurately.
2. Instrumental Stakeholder Theory
- Description: Instrumental stakeholder theory suggests that businesses should consider and prioritize stakeholder claims based on their potential to influence or impact the achievement of the firm’s strategic goals and financial performance.
- Ethical Implications: From an ethical standpoint, instrumental stakeholder theory evaluates the moral rightness of prioritizing stakeholders based on their instrumental value to the business (e.g., customers for revenue, employees for productivity). The ethical implications focus on whether the outcomes achieved through prioritizing certain stakeholders justify the means and the potential trade-offs involved.
3. Normative Stakeholder Theory
- Description: Normative stakeholder theory argues that businesses have a moral obligation to consider and balance the interests of all stakeholders, not just shareholders, in their decision-making processes.
- Ethical Implications: Normative stakeholder theory emphasizes ethical principles such as fairness, justice, and respect for rights in determining how businesses should prioritize stakeholder claims. It advocates for decision-making that considers the broader societal impacts and long-term sustainability rather than solely focusing on short-term financial gains. Ethical implications involve assessing whether businesses uphold moral duties and obligations towards stakeholders beyond legal requirements.
Ethical Contrasts:
- Descriptive vs. Normative: Descriptive stakeholder theory primarily observes and describes existing stakeholder relationships, while normative stakeholder theory prescribes how businesses ought to prioritize stakeholders based on ethical principles.
- Instrumental vs. Normative: Instrumental stakeholder theory prioritizes stakeholders based on their strategic importance to business outcomes, whereas normative stakeholder theory prioritizes stakeholders based on moral principles of fairness, justice, and respect.
- Trade-offs and Justifications: The ethical implications of these theories involve considering trade-offs between stakeholder interests, evaluating the justification for prioritizing certain stakeholders over others, and assessing the long-term impacts on stakeholders and society.
Practical Application:
- Businesses applying these theoretical approaches must navigate ethical dilemmas by balancing stakeholder interests in ways that uphold ethical standards, maintain corporate integrity, and contribute positively to societal well-being.
- Stakeholder engagement strategies and corporate governance practices can be aligned with these theoretical perspectives to enhance transparency, accountability, and trust among stakeholders.
In summary, Donaldson and Preston’s theoretical approaches provide frameworks for understanding and evaluating how businesses should address stakeholder claims, each offering distinct ethical implications regarding fairness, accountability, and the balance of interests in corporate decision-making.