Ed Freeman and his stakeholder theory
Origins of CSR
At first, CSR developed in the United States, at least from a conceptual perspective. Why, may you ask, did it so tastefully choose to appear in the land of Uncle Sam?
Two cultural reasons can answer the question of how CSR practices bloomed at the end of the 19th century in the United States:
- Religion was very important for company directors and and it encouraged philanthropy, particularly via foundations (Rockfeller, Carnegie and Ford are the most renowned examples of this movement, carried on today by leading figures like Bill Gates and Warren Buffet)
- There is strong sense of mistrust towards the State. The dominant ideology is that the State will do things badly, and so logically, businessmen prefer to do things themselves.
Freeman is a philosopher. His work is the field of moral philosophy and more precisely in business ethics. He became known in 1984 with his founding book which really generalised the word stakeholder. At that time, he is professor and researcher at Wharton Business School. Now, he teaches at Darden Business School in Virginia.
The specifics of the stakeholder theory
Freeman's stakeholder theory was first created to put forward another vision of what a company's objective, its raison d'être, is.
At the time when he wrote this theory, the dominant ideology, upheld by figures like Milton Friedman, is the idea that a company's aim is to accumulate profit so it can then be redistributed amongst the shareholders.
EdFreeman says that this is a mistake. Profit is a consequence of the company's activity, not is primary cause. From his point of view, Friedman's idea means that companies only focus on the shareholders and not the others also impacted by the company's activity, such as the clients, the employees and the suppliers. And yet, without them, the company would go bankrupt.
Freeman concludes that the company's aim is to meet the needs of stakeholders, that is any person who is affected by the decisions made by the company; if this is done, profit will be made.
Freeman's vision is revolutionary because it gives us a completely different perception of companies. His vision includes three key points which make the whole coherent:
- Freeman supports the names and faces approach: stakeholders are people with names. The company must accept to negotiate with them (and identify the relevant representatives of the different stakeholder issues to make this possible).
- Freeman is pragmatic. From a philosophical perspective, Freeman considers that there must be no absolute decision principles. The company must accept to challenge each of its opinions, in order to really take its stakeholders' needs into account. Of course, it is not expected to give up all its principles, but at least, it will have questionned their relevance.
- Freeman believes that an agreement is always possible. If there are conflicting interests between stakeholders, the company must not choose one over the other but must find a compromise, a third way which will satisfy both interests. Therefore, Freeman maintains that CSR encourages innovation because it opens the door to a world of possibilities.
His life after he wrote his theory
Ed Freeman is unusual in the sense that he has answered most of the criticisms of his stakeholder theory. He is an extremely active author in research journals specialised in business and management ethics. In 2010, he also wrote a book with his colleagues from the Darden Business School which summarised his work - Stakeholder Theory, "State of the art", published by Cambridge University Press.
Finally, we would not have payed true tribute to Ed Freeman without speaking of his undeniable orator skills, which make him a particularly valued participant at conferences throughout the academic and professional world. Freeman is also a researcher who prefers teaching to purely research work; this meant that he was always very involved in his students' work.
The stakeholder theory is now widely circulated and is included in ISO 26000, the international standards providing guidelines for corporate social responsibility.