From the Editor: Stakeholders – a return to core values

Professional Adviser | 27 May 2010 | 09:00

The “stakeholder” concept was coined over 25 years ago by the academic and business thinker Ed Freeman and since then it has been much misused and abused.

The UK market saw the introduction of Stakeholder pensions earlier in the Labour Government’s administration and they largely failed to make an impact on their desired market.

Since then the phrase ‘stakeholder’ has been used by every institution or body from central and local government, through to regulators and product providers.

But Freeman argues that the phrase has been misused and the subsequent ‘show trials’ of the likes of Goldman Sachs in the name of defending the stakeholders are ultimately only addressing the symptoms and not the cause so are doomed to failure. He has now written, with two other academics Dr Jeff Harrison and Andrew Wicks, an updated and modernised version of the theory called Stakeholder Theory: The State of the Art.

They argue that government and business needs to embrace the logic of Freeman’s original stakeholder theories and ask a different question. Namely “how do I create value for my customers and how does this value creation affect the public trust?” If the banks are the main culprit the three authors have in mind, then their comments contained in a manifesto-type format in the book, are surely true for the broader financial services industry.

While no large UK insurer needed to be bailed out by the government, there has been an undercurrent of general mistrust in the industry ever since the 1980s with the miss-selling of personal pensions or endowment mortgages.

Arguably the independent financial advice sector has taken a disproportionate amount of the blame for these wrong-doings, and many product providers have not accepted their full responsibilities.

However if the industry is to prosper for the long-term it has to go back to Freeman’s basic principle of stakeholders – namely that business operates for the long-term welfare for all those involved.

This benefit has to be proportionate and not as it often appears at the moment to be loaded in the interests of one stakeholder group or another.

Stakeholder is a good concept that has been abused, advisers can go a long way in their dealings with clients to return to the core values.

Stakeholder Theory: The State of the Art Edited by R. Edward Freeman, Jeffrey S. Harrison, Andrew C. Wicks, Bidhan L. Parmar, Simone de Colle Paperback Cambridge University Press UK Publication date: 27th May 2010 £23.99.

Lawrence Gosling, editorial director, Professional Adviser

Categories: Better Business

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