The forefathers of stakeholder capitalism

R. Edward Freeman - a man with a vision
R. Edward Freeman – a man with a vision

Stakeholder capitalism has become fashionable. Businesses, often led by family-controlled ones, but also those linked to the so-called B Corporation movement, are increasingly talking about the idea, as shareholder value comes under great scrutiny. But who are the people behind the idea, and what did they have in mind when they put the concept forward?

One of the main academics associated with stakeholder theory is R. Edward Freeman. A professor at the Darden School of Business at the University of Virginia, Freeman wrote a book in 1984 called Strategic Management: A Stakeholder Approach. Still published today, his book is regarded by many as the seminal work on stakeholder theory. Interestingly, A Stakeholder Approach came out when the concept of shareholder value was about to reach its peak period of acceptance, under the economic policies promoted by President Ronald Reagan in the US and Prime Minister Margaret Thatcher in the UK.

“These ideas (stakeholder theories) have become much more mainstream over the past 25 years,” Freeman told Family Capital. “The underlying narrative of business is slowly changing so that creating value for stakeholders (one of whom is shareholders) is much more the norm today.”

But Freeman doesn’t claim to be the father of stakeholder theory. “I just wrote a book about what business could be like if we took the stakeholder theory seriously,” he says. “The real pioneers of stakeholder theory are the Swedish theorist Eric Rhenman, the people at Stanford Research Institute in the 1960s, and mentors of mine like Russell Ackoff, James Emshoff, Ian Mitroff, and many others. I get far too much credit.”

That may be the case, but Freeman is a good cheerleader for the stakeholder cause – he’s also one of the few pioneering thinkers on the subject still alive. The thick grey-haired and bearded academic’s approach to stakeholder theory is full of common sense. And that makes it easier to turn the theory into practice like many companies are doing today. A good introduction to Freedman’s thinking on business ethics is portrayed on his directory entry video at the Darden School of Business – complete with his “I grew up in a dirt farm in Georgia…” introduction. Clearly, Freedman is no blue-blood American academic, and that is part of his appeal.

But what does Freeman think of the current popularity around the concept of the long-term in business decision making, which, like stakeholder values, is also fashionable these days?  “I am distrustful that when the ‘short-term vs. long-term’ distinction is introduced, it is simply an excuse for not figuring out what to do now. Obviously, you have to balance what works today with what will work tomorrow, but the short term/long term distinction is another one of those false choices.”

For Freeman stakeholder values are about the here and now – after all, in the long-term we are all dead, as the economist John Maynard Keynes said.

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