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green@work : Magazine : Back Issues : Mar/Apr 2003 : Frankel-y Speaking

Frankel-y Speaking

The Six Billion Stakeholder Theory
Today, more than ever, the business of business is relationship.


By Senior Columnist Carl Frankel

Frankel-y Speaking

Business needs to serve the greater public good.” “Business needs to maximize social benefit.” I’ve said these words more times than I can count—and believed them, too. But something the other day, maybe it was too much pepperoni in the pizza, caused me to sit up and think, “Wait a minute. What do these words mean? What is the ‘greater public good?’ What is the “maximization of social benefit? And why does business have to do these things, anyway?”

I’ve given the matter some thought since then and decided that the terms do have real meaning. But only conditionally, because of something new to the world—our global interdependence.

My inquiry started with a quote from the economist Milton Friedman: “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much for their stockholders as possible.” Don’t pull your punches, now, professor! In Friedman’s view, if you have a direct financial interest in a company, you’re an owner. If you don’t, you’re not—and management needn’t concern itself with you.

But even Friedman would agree that shareholders are not the only people with a vested interest in a company’s performance. There are also stakeholders, defined by business professor R. Edward Freeman as “any group or individual who can affect or is affected by the achievement of the organization’s objectives.” Freeman cites a “Big Five” of stakeholder categories: shareholders, employees, suppliers, customers and the communities in which the firm operates. According to Freeman, companies have a duty to all stakeholders, not just those with a formal ownership interest. His is a stakeholder theory of corporate responsibility, compared to Friedman’s shareholder theory. By implication, this makes stakeholders owners with the sanction of law; they are “virtual owners.”

It is usual to view a company’s stakeholders (or “stakeholder-owners”) as a limited set of people—sizable, perhaps, but in the end limited. If we were to add up all the stakeholders of a behemoth like General Motors, the number might add up to, say, a billion people. That’s a huge number, but only a fraction of the total global population.

Even if we believe in stakeholder theory, this leaves us with a sizable conceptual chasm to cross. How do we get from the stakeholder theory’s implied duty to a minority of people to a responsibility to “maximize social benefit” or “serve the greater public good?” Don’t
terms like this imply a responsibility to everyone?

It’s a mighty big gap, but one we can leap over. Let’s take a closer look at Freeman’s fifth stakeholder category—the communities in which a firm operates—and ask just what “community” means today. Sure, we know what it used to mean: a community was a town or a subset of a town, an Oshkosh or East Side. Now, though, we live in a world where pollution knows no boundaries, and where our global industrial system is so massively interdependent as to be, for all intents and purposes, a single massive organism. The “global village” has gone beyond cliché and become a reality. The Asian nomad whose habitat is being transformed by climate change has a very big vested interest in the Mexican auto-repair shop that keeps gas guzzlers on the road. The Arctic polar bear whose PCB load came to him on the wind from Texas lives just up the road from Houston.

In consequence, everyone has become a stakeholder in every company. Whether you’re a mom-and-pop store or a General Motors, so long as you’re a cog in the global industrial system, you’ve got six billion stakeholders, more or less. Six billion “owners.”

This, I’ve come to believe, is what is meant by “serving the greater public good” and “maximizing social benefit”—serving these owner-stakeholders. The “greater public good” is six billion two-footeds, each with its own wants and needs. It’s that Asian nomad and that Mexican mechanic. It’s everyone and everything, polar bears included, joined at the global industrial hip, connected through interdependence.


Carl Frankel’s next book, Out of the Labyrinth: Who We are, How We Go Wrong and What We Can Do About It, will be published in 2004. Frankel can be reached at: carl.frankel@manyone.net.

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