Stakeholding and Corporate Governance in the UK
| Author | Roy Wilkinson,Josephine Maltby |
| Published date | 01 September 1998 |
| Date | 01 September 1998 |
| DOI | 10.1111/1467-9256.00078 |
| Subject Matter | Blind Alleys |
ALLEYS
Blind
Stakeholding and
Corporate Governance
in the UK
Josephine Maltby and Roy Wilkinson
The `stakeholder economy' forms a central
of course, easier, than to make abstraction
part of the New Labour programme for
from their antagonistic character, and to
reforming both the public and private sectors.
transform them by a word into some form of
The present paper considers the potential of
free association (Marx, Capital vol. 1 p. 499)
stakeholding to address the weaknesses of
corporate governance in the UK. It concludes
that stakeholder governance is a concept
Introduction
which owes its appeal to its imprecision, and
is unworkable in practice, and that its
The concept of stakeholding was introduced
deployment, rather than imposing account-
to the general public in the UK in the mid-
ability on capitalism, merely represents an
1990s, ®rst in Hutton's 1995 book and then in
attempt to make free market capitalism look
Tony Blair's 1996 speech in Singapore, in
more acceptable.
which he announced it as a central element
of New Labour policy. Kelly et al's 1996 col-
We need to build a relationship of trust not
lection of papers, together with a website and
just within a ®rm but within a society. By
extensive press coverage, helped to bring the
trust, I mean the recognition of a mutual pur-
idea into the political arena in the dying days
pose for which we all work together and in
of the Major administration, when the debate
which we all bene®t. It is a Stakeholder Econ-
about stakeholding was an important part of
omy, in which opportunity is available to all,
the argument about New Labour's capacity to
advancement is through merit and from
oer a worthwhile alternative to Conservative
which no group or class is set apart or exclu-
policy. Since May 1997, stakeholding has been
ded. (Tony Blair, Singapore, 7 January 1996).
an intrinsic part of the New Labour ethos,
All well-developed forms of capitalist produc-
something that distinguishes it both from Old
tion being forms of co-operation, nothing is,
Labour and from Conservatism.
Josephine Maltby and Roy Wilkinson, University of Sheeld.
# Political Studies Association 1998. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK
and 350 Main Street, Malden, MA 02148, USA.
197
Stakeholder Governance . Maltby and Wilkinson
Politics (1998) 18(3) pp. 197±204
The `stakeholding economy' has a number
monitoring these contracts (`transaction
of facets, involving the management of both
costs'). Stakeholder governance is claimed to
the public sector (via welfare and education)
be more ecient because it promotes co-
and the private sector. The present paper
operative relationships between stakeholders.
examines the arguments for the introduction
This is the argument put forward by Fukuyama
of stakeholding into UK corporate govern-
`(C)ertain societies can save substantially on
ance, and evaluates claims that it will make
transaction costs because economic agents
companies both ecient and more socially
trust one another in their interactions and
responsible.
therefore can be more ecient than low-trust
societies, which require detailed contracts and
enforcement mechanisms' (p. 352).
Stakeholder governance
Kay takes this approach further by asserting
that it is meaningless to speak of a company
Stakeholding is not a new concept in man-
as being property that can be owned; it is `a
agement. The term was ®rst aired in the USA
set of systems and routines . . . a structure of
in 1963, when `stakeholder' was coined as a
relationships' (p. 131). In a public company
play on `stockholder', but as early as the
with a large dispersed body of shareholders,
1930s writers on management had identi®ed
the separation of ownership and control
the groups now de®ned as stakeholders ±
means that title to shares confers almost none
people or entities with an interest, a stake to
of the rights associated with ownership of an
lose, in an organisation. (See Preston &
asset ± shareholders cannot decide to sell
Sapienza 1990 for a brief history of the con-
`their' company and pocket the proceeds;
cept). A distinction may be drawn between
managers exercise day-to-day control, but
primary and secondary stakeholder groups
without legal ownership of the assets. Stake-
(as is done by Clarkson, 1995). Primary sta-
holding governance is needed to compensate
keholders are those `without whose continu-
for the inability of any group to exercise
ing participation the corporation cannot
meaningful ownership over the intangible
survive as a going concern' (Clarkson p.106)
essence of the company. Managers must act
± as well as investors, this group includes
as trustees, co-ordinating the relationship
`employees, customers and suppliers . . . gov-
between the dierent interested parties.
ernments and communities'. Secondary stake-
holders are `those who in¯uence, or aect, or
are in¯uenced by or aected by the corpora-
Stakeholding and UK
tion, but ( . . . ) are not engaged in transac-
corporate governance
tions with the corporation and are not
essential for its survival' (p. 107) ± for
The weakness of UK corporate governance,
instance media and pressure groups.
forcibly expressed by Hutton (1995), is that it
Stakeholder governance implies that the
gives absolute priority to the needs of equity
company is managed in the interests of all its
investors and hence results in short-termism
stakeholders, not merely of its owners. Propo-
i.e. ®xation with dividends. As a result, it is
nents of stakeholding claim that this is not
argued that companies are reluctant to spend
only ethically preferable, but also economically
money on projects which do not yield short-
superior to shareholder governance, given the
term returns ± this has resulted in low spend-
special nature of the large modern corpora-
ing on research and development and on
tion. Large companies involve contracts
training, with adverse eects on UK competi-
between...
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