Abstract
The conflict between agency and stakeholder theories of the firm has long been entrenched in organizational and management literature. At the core of this debate are two competing views of the firm in which assumptions and process contrast each other so sharply that agency and stakeholder views of the firm are often described as polar opposites. The purpose of this paper is to show how agency theory can be subsumed within a general stakeholder model of the firm. By analytically deconstructing the assumptions of agency theory, it is argued that agency theory: (1) must include a recognition of stakeholders; (2) requires a moral minimum to be upheld, which places four moral principles above the interests of any stakeholders, including shareholders; (3) consists of contradictory assumptions about human nature and which give rise to the equally valid assumptions of trust, honesty and loyalty to be infused into the agency relationship. In this way, stakeholder theory is argued to be the logical conclusion of agency theory. Empirical hypotheses are presented as a means to substantiate this claim.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Anshen, M.: 1970, ‘Changing the Social Contract: A Role for Business’, Columbia Journal of World Business 6, 67–79.
Aoki, M.: 1984, The Co-operative Game Theory of the Firm (Clarendon Press, Oxford).
Axelrod, R.: 1984, The Evolution of Co-Operation (Basic Books, New York).
Clark, R. C.: ‘Agency Costs versus Fiduciary Duties’, in J. Pratt and R. Zeckhauser (eds.), Principals and Agents: The Structure of Business (Harvard Business School Press, Boston).
Barney, J. B. and W. G. Ouchi: 1986, Organizational Economics (Jossey-Bass, San Francisco).
Barney, J.: 1990, ‘The Debate Between Traditional Management Theory and Organizational Economics: Substantive Differences or Intergroup Conflict?’, Academy of Management Review 15, 382–393.
Beauchamp, T. and N. Bowie, N.: 1979, Ethical Theory and Business (Prenctice Hall, New Jersey).
Becker., L. C.: 1978, Property Rights (Routledge and Kegan Paul, London).
Bowie, N. and R. Duska: 1990, Business Ethics (Prenctice Hall, Englewood Cliffs, New Jersey).
Bowie, N. E. and R. E. Freeman (eds.): 1992, Ethics and Agency Theory: An Introduction (Oxford University Press, New York).
Bowie, N.: 1979, ‘Changing the Rules (1978) in Beauchamp and Bowie’, Ethical Theory in Business.
Buono, A. F. and L. T. Nichols: 1985, Corporate Policy, Values and Social Responsibility (Praeger, New York).
Burell, G. and G. Morgan, G.: 1979, Sociological Paradigms and Organizational Analysis (Heinemann, London).
Carroll, A. B.: 1989, Business and Society: Ethics and Stakeholder Management (South-Western, Cincinnati, OH).
Carroll, A. B.: 1991, ‘The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders’, Business Horizons (July-August), 39–48.
Caroll, A. B.: 1979, ‘A Three-Dimensional Conceptual Model of Corporate Social Performance’, Academy of Management Review 4, 497–505.
Caroll, A. B.: 1987, ‘In Search of the Moral Manager’, Business Horizons (March-April), 7–15.
Clarkson, M.: 1995, ‘A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance’, Academy of Management Review 20.
Clarkson, M.: 1995, A Risk Based Model of Stakeholder Theory, published by the Centre for Corporate Social Performance and Ethics, University of Toronto.
Coase, R.: 1937, ‘The Nature of the Firm’, in O. E. Williamson and S. G. Winter (eds.), The Nature of the Firm: Origins, Evolution, and Development (Oxford University Press, New York).
Cyert, R. M. and J. G. March: 1963, A Behvioural Theory of the Firm (Prentice Hall, Englewood Cliffs, NJ).
Davis, K.: 1975, ‘Five Properties for Social Responsiblity’, Business Horizons 18(3), 19–24.
Donaldson, T. and T. W. Dunfee: 1994, ‘Towards a Unified Conception of Business Ethics: Integrative Social Contracts Theory’, Academy of Management Review 19, 252–284.
Donaldson, T.: 1990, ‘Constructing a Social Contract for Business (1982)’, in Hoffman and Moore, Business Ethics.
Donaldson, T.: 1982, Corporations and Morality (Prentice Hall, Englewood Cliffs, NJ).
Donaldson, L.: 1990, ‘The Ethereal Hand: Organizational Economics and Management Theory’, Academy of Management Review 15(3), 369–381.
Donaldson, T. and L. Preston: 1995, ‘A Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications’, Academy of Management Review 20(1).
Eisenhardt. K.: 1989, ‘Agency Theory: An Assessment and Review’, Academy of Management Review 14, 57–74.
Evan, W. M. and R. E. Freeman: A Stakeholder Theory of the Modern Corporation: Kantian Capitalism', in T. Beauchamp and N. E. Bowie (eds.), Ethical Theory and Business (Prentice Hall, Englewood Cliffs, NJ).
Fama, E.: 1980, ‘Agency Problems and the Theory of the Firm’, Journal of Political Economy 88, 975–990.
Freeman, R. E.: 1984, Strategic Management: A Stakeholder Approach (Pitnam, Boston).
Freeman, R. E.: 1991, Business Ethics: The State of the Art (Oxford University Press, New York).
French, P.: 1970, ‘The Corporation as a Moral Person’, American Philosophical Quarterly 3, 20–215.
Friedman, M.: 1970, ‘The Social Responsibility of Business is to Increase its Profits’, New York Times Magazine (September 13).
Friedman, M.: Capitalism and Freedom (University of Chicago Press, Chicago).
Goodpaster, K. E.: 1991, ‘Business Ethics and Stakeholder Analysis’, Business Ethics Quarterly 1.
Hardin, G.: 1968, ‘The Tragedy of the Commons’, Science 162, 1243–1248.
Hill, C. W. and T. M. Jones: 1992, ‘Stakeholder-Agency Theory’, Journal of Management Studies 29, 134–154.
Hoffman, W. M. and J. M. Moore: 1990, Business Ethics (McGraw Hill, New York).
Jensen, M.: 1989, ‘The Eclipse of the Public Corporation’, Harvard Business Review 67(5), 61–74.
Jensen, M. and W. Meckling: 1976, ‘Theory of the Firm: Managerial Behaviour, Agency Costs, and Ownership Structure’, Journal of Financial Economics 3, 305–360.
Kreps, D. M., P. Milgrom, J. Roberts and R. Wilson: 1982, ‘Rational Co-operation in the Finitely Repeated Prisoner' Dilemma’, Journal of Economic Theory 27, 245–252.
Lawrence, P. R. and J. W. Lorsch: 1967, Organization and Environment: Managing Differentiation and Integration (Division of Research, Graduate School of Business Administration, Harvard University, Boston).
March, J. G. and H. A. Simon: 1958, Organizations (Whitely, New York).
Newton, L.: 1992, ‘Agents for the Truly Greedy’, in N. Bowie and R. Freeman (eds.), Ethics and Agency Theory: An Introduction (Oxford University Press, New York).
Perrow. C.: 1986, Complex Organizations: A Critical Essay (Scott, Foresman, Glenview, IL).
Pfeffer, J.: 1981, Power in Organizations (Pitnam Publishing, Marshfield, MA).
Pfeffer, J. and G. R. Salancik: 1978, The External Control of Organizations: A Resource Dependency Perspective (Harper and Row, New York).
Pfeffer, J.: 1982, Organizations and Organization Theory (Pitnam, Boston).
Pratt. J. and R. J. Zeckhauser: 1985, Principals and Agents: The Structure of Business (Harvard Business School Press, Boston).
Quinn, D. and T. Jones: 1995, ‘An Agent Morality View of Business Policy’, Academy of Management Review 20(1), 22–42.
Rawls, J.: 1971, A Theory of Justice (Harvard University Press, Cambridge, MA).
Ross, S.: 1973, ‘The Economic Theory of Agency: The Principal' Problem’, American Economic Review 63, 134–139.
Savage, G. T., T. W. Nix, C. J. Whitehead and J. D. Blair: 1991, ‘Strategy for Assessing and Managing Organizational Stakeholders’, Academy of Management Executive 5(2), 61–75.
Sethi, S. P.: 1995, ‘Introduction of AMR' Special Topic Form on Shifting Paradigms: Societal Expectations and Corporate Performance’, Academy of Management Review 20(1), 18–21.
Shefrin, H. and M. Statman: 1993, ‘Ethics, Fairness and Efficiency in Financial Markets’, Financial Analysts Journal (November-December), 21–29.
Tosi, H. L. and L. R. Gomez-Mejia: 1989, ‘The Decoupling of CEO Pay and Performance: An Agency Theory Perspective’, Administrative Science Quarterly 34, 169–189.
Williamson, O. E.: 1975, Market and Hierarchies (Free Press, New York).
Wood, D. J.: 1991, ‘Social Issues in Management: Theory and Research’, Corporate Social Performance in Journal of Management 17, 383–406.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Shankman, N.A. Reframing the Debate Between Agency and Stakeholder Theories of the Firm. Journal of Business Ethics 19, 319–334 (1999). https://doi.org/10.1023/A:1005880031427
Issue Date:
DOI: https://doi.org/10.1023/A:1005880031427