Seminar 2

Critical reflections about prior research

Principles of stakeholder capitalism:
A mixed method study in Stockholm, Sweden

Sudha Agarwal
Jana Hasenberg
Timea Kalmar
Fernando Mosquera Lpez
Katharina Machovsky

14/09/2015

Ume School of Business and Economics

Ume University
1. INTRODUCTION

Research Methodology
Karl Bonnedahl

The introductory chapter for the research topic "Principles of stakeholder capitalism:A
mixed method study in Stockholm, Sweden" is arranged into 5 sections. The first
section provides an understanding of why the particular topic has been selected for
research, and presents the subjects on whom the study will be conducted. The second
and third section chalk out the theories and problem discussion and point out the
research gaps that the authors wish to address. The last two sections highlight the
research questions and objectives while briefly touching upon the methodology
suggested for the study.
1.1 CHOICE OF SUBJECT
We are five Masters students currently undertaking a programme in Strategic Project
Management. As part of our previous studies and nature of the economic system we
come from, which has embraced capitalism as a means to wealth creation, we have an
interest in understanding the underlying mechanism of this system. This mechanism has
generated growing concerns in society about the way business is conducted.
Additionally, research also criticises the defiance of social and ethical elements and
demands their inclusion into business theory and practice (Ghoshal, 2005, p. 87;
Freeman et al., 2007, p.312-313).
As project managers, we need to keep in perspective both internal and external
stakeholders interests and therefore we are especially interested in theories offering
guidance for attending to the needs of various stakeholders. Our personal interest in the
topic and the rising criticism on how business is conducted in capitalistic economies
driven by the self-interest of a particular stakeholder group, have inspired us to explore
the framework of stakeholder capitalism proposed by Freeman et al. (2007, p.311313). Furthermore, we see the need to explore how feasible stakeholder capitalism is in
practice and whether this ideology is currently implemented in business.
The study will be conducted on stakeholders of organisations in Stockholm, Sweden
with the help of the Swedish Research Council - Scientific Council for Humanities and
Social Sciences (Swedish Research Council, 2015). The research will be carried out in
Stockholm in Sweden as it holds a capitalistic system with a well-represented sample of
industry leaders and SMEs, privately and publicly owned businesses and close to Umea
University. As the study requires contacting multiple stakeholders within businesses and
obtaining the accurate unbiased feedback on intangible metrics of the principles of
stakeholder capitalism, the Swedish Research Council will help ease up the process of
data collection. The Swedish Research Council will benefit from this research as this
study will provide a foundation for instilling ethical practices in business, ensure
efficient use of limited resources and make the practice of stakeholder capitalism
applicable to businesses today.
1.2 BACKGROUND
The study of capitalism and markets has intrigued professionals, world leaders and the
academia for fuelling innovation and progress, on one hand, and causing environmental
degradation and an increasing division between rich and poor, on the other hand
(Freeman et al., 2007, p.303; W. Stead & J. Stead, 1994, p.15). While different studies
attempt to address these matters, stakeholder capitalism tries to provide a vision based
on libertarian and pragmatist lines, by encompassing a market system in which
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companies treat the interest of all major stakeholders fairly equally (Freeman et al.,
2007, p. 311; Landry, 2009, p. 1). As Landry (2009, p. 1) states, the trouble with
stakeholder capitalism is not the theory itself but making it work in practice. This is
caused by the different motivations and agenda every group of stakeholders has, which
could pose conflicting views for all the stakeholders involved.
Classic narratives of capitalism labour, government, investor, managerial, and
entrepreneurial have been analysed in order to detect the issues concerning this system
(Freeman et al., 2007, p. 304-307). Each narrative assumes that individual stakeholders
are always guided by self-interest, which are not convergent with the interest of other
groups, that the means of generating economic wealth is not compatible with morality
and is best driven by competition for limited resources (Freeman et al., 2007, p.304307). Freeman et al. (2007, p. 304) emphasise how these narratives of capitalism fall
short in addressing the concerns of a broad set of stakeholders and make
counterproductive assumptions of self-interest, morality, and competition. Ghoshal
(2005, p.87) further criticises the use of such negative assumptions arguing that these
will both lead researchers to blindly theorise without empirical evidence or theoretical
justifications of the assumptions and negatively influence the social and moral conduct
of people.
Four main problems derived from the assumptions aforementioned have been
highlighted by both theoretical studies and practical observations (Freeman et al., 2007,
p.308-311). The first problem is competition, which assumes that a capitalist society
must have competition as a prerequisite in order to exist, thus freeing companies from
moral or ethical responsibilities (Ghoshal, 2005, p.79). Additionally, this capitalistic
perspective does not allow for the presence of any form of collaboration that has been
proven to lead to mutually beneficial trade and economic prosperity (Freeman et al.,
2007, p.308). The second problem of capitalism highlights the ethics crisis signalled by
various scholars (Freeman et al., 2007, p.307; Ghoshal, 2005, p.80; W. Stead & J. Stead,
1994, p.15-29). Ghoshal (2005, p.77) argues that there has been a denial of any role of
moral or ethical consideration in management practices and stresses the need to adopt
positive psychology in practice. The third problem is the dominant group, which
stresses the conflicting interests of various stakeholders and places groups in a win-lose
situation rather than encouraging collaboration between them (Freeman et al., 2007,
p.309). The fourth problem is business in liberal democracy, which is derived from the
former three as it implies that a more invasive government is involved in settling
conflicts between stakeholders, legislating morality of capitalism and redistributing
resources when there is an imbalance. The consequence of such interventions inevitably
leads to further problems, hence shifting away any efforts invested in eliminating
barriers to trade and value creation (Freeman et al., 2007, p.310).
W. Stead & J. Stead (1994, p.19) further explore the limitations of the capitalist
narratives from an environmental perspective arguing that organisations are part of an
economic system, which along with other systems form the society. Various societies
then form the earth placing capitalism within the natural and physical limits of the
planet. This theory stresses the importance of developing a sustainable relationship
between capitalist activities and the earth.
1.3 DISCUSSION AND KNOWLEDGE GAPS

It has become a common trend in various industries to measure profit and business
performance by shareholder value. Therefore, investors generally have the last word in
the decision-making process. In this regard, according to Ghoshal (2006, p. 79),
managers follow the guideline that their job is to maximise shareholder value given that
investors are the owners of the financial capital. To compensate and motivate the
alignment of their interests with those of investors, it is a common practice that
managers are offered stock options as a significant part of their pay (Ghoshal, 2006, p.
75). Still, if managers do not align or comply with shareholders interest, the latter can
exert their right to move and replace managers as they see fit. In this way, the approach
takes into consideration the participation of investors as owners of the capital and
managers as directors of the human capital, but disregards the contribution of other
stakeholders in the value creation process. This scenario emphasises the need for
redefining the underlying assumptions of capitalism.

Freeman et al. (2007, p. 311) proposes a framework for stakeholder capitalism

comprising of six principles, which build on voluntary agreements sustainable over
time, the rights that protect individuals engaged in such agreements and obligations to
assume responsibilities included in written or social contracts. Firstly, stakeholder
cooperation states that stakeholders abide by voluntary agreements to jointly create
value and fulfill their needs. The term "need" instigates the question of what is needed
and how much can be satisfied (W. Stead & J. Stead, 1994, p. 18). Secondly,
stakeholder engagement proposes the participation of stakeholders in the process of
value creation. While the principle is known in practice,it does not specify which
stakeholder groups should be engaged proactively for constructive value creation.
Thirdly, stakeholder responsibility draws on the proactive action taken by primary
stakeholders to compensate any harm done to tertiary stakeholders. Such a situation has
been conceptualised as an "economic myth" by W. Stead & J. Stead (1994, p.28), which
requires a paradigm shift to be realised. Fourthly, complexity interprets discrimination
arising from human psychology as a reminder of the impact of one's actions on one's
society. However, there is still a huge gap between realisation and adaptation of
"positive psychology" (Ghoshal, 2005, p.86). Fifthly, continuous creation builds on the
principle of cooperation and postulates prolonged value creation through it. There is a
lack of understanding on whether the principle hints towards long-term voluntary
agreements. Lastly, emergent competition, which deduces that competition is not an
innate property of capitalism but rather an emergent actuality, can be questioned, as
competition is a market reality for entrepreneurial ventures.

The framework of stakeholder capitalism proposes a way to foster value creation based
on freedom, rights and cooperation, infused by ethics at its foundation (Freeman et al.,
2007, p. 311). According to Parmar et al. (2010, p. 404), it also gives the opportunity to
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reinstate the trust in companies shuttered in recent years by corporate scandals and the
financial crisis. However, as mentioned by Ghoshal (2006, p. 76), there is a
preconceived ideological view of how the elements of self-interest, competition and free
markets shape the amoral nature of capitalism, causing participants to set loose their
sense of moral responsibility. While the framework of stakeholder capitalism seems to
be a favourable solution to capitalist markets thriving on opportunistic behaviour, it can
be seen as idealistic and open to multiple interpretations. Furthermore, Parmar et al.
(2010, p. 431-433) highlights the lack of practically oriented empirical studies in the
context of stakeholder capitalism which point towards the lack of research on best
practices and the views of managers and stakeholders. Subsequently, the recency and
lack of empirical studies on the concept, with just 34 publications until 2014 as shown
by Web of Science (Thomson Reuters, 2015), pose gaps, thus providing an opportunity
for conducting relevant research.

Since the gaps identified above aim to develop the stakeholder capitalism framework
proposed by Freeman et al. (2007, p. 311) that can be generalised over capitalist
markets, a robust methodology needs to be chosen. While different techniques have
been criticised for their ineffective usage for generalisability studies (Lukka and
Kasanen, 1995, p.71), the authors of this thesis propose a mixed-method study to
examine internal and external stakeholders of various firms in Stockholm, Sweden.
1.4 RESEARCH QUESTION
Which of the principles of stakeholder capitalism should be and are currently employed
in business?
1.5 PURPOSE
The main research aim of this thesis is to describe, explore and analyse the principles of
stakeholder capitalism applied by businesses in Sweden. In order to answer the above
stated research question the following sub-objectives have to be achieved:
(i) To check the principles of stakeholder capitalism for completeness, coherence of
interpretation and practicality through a literature review.
(ii) To gain an understanding of the feasibility and applicability of the principles of
stakeholder capitalism in business by conducting a mixed-method study.
(iii) To modify the proposed principles based on the findings of the mixed-method
study and the literature review.
(iv)To outline a practical guide with recommendations for managers on how to apply
stakeholder capitalism.
The above objectives will be obtained through a mixed-method study which will
involve a qualitative methodology using the technique of interviews and a quantitative
methodology using the technique of questionnaires. The research will result in a
framework that can be implemented in organisational culture and will draw upon
industrial practices and experiences, thus making it prescriptive and advisable. By
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informing the research through existing literature on different types of capitalism, the
authors aim to grow the field and open up possibilities for further research and good
management practices encompassing ethics and ecological sustainability in business.
REFERENCES
Freeman, R.E., Martin, K. & Parmar, B. (2007) Stakeholder capitalism. Journal of
Business Ethics, 74, 303314.
Ghoshal, S. (2005) Bad management theories are destroying good management
practices. Academy of Management Learning & Education, 4(1), 75-91.
Landry, J. (2009) Stakeholder Capitalism and Chrysler. Harvard Business Review,
[Online].
Available
via:
https://hbr.org/2009/05/stakeholder-capitalism-at-chry.
[Retrieved 2015-09-08].
Lukka, K. &Kasanen, E. (1995) The problem of generalizability: Anecdotes and
evidence in accounting research. Accounting, Auditing & Accountability Journal, 8(5),
71- 90.
Parmar, B. L., Freeman, E., Harrison, J. S., Wicks, A. C., Purnell, L. & de Colle, S.
(2010). Stakeholder Theory: The State of the Art. The Academy of Management Annals,
4(1), 403-445.
Seth, A. & Thomas, H. (1994) Theories of the firm: Implications for strategy research.
Journal of Management Studies, 31(2), 165-192.
Stead, W.E. & Stead, J.G. (1994) Can Humankind Change the Economic Myth?
Paradigm Shifts Necessary for Ecologically Sustainable Business. Journal of
Organizational Change Management, 7(4), 15-31.
Swedish Research Council (2015, May 05). Scientific Council for Humanities and
Social
Sciences.
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Research
Council.
Available
via:http://www.vr.se/inenglish/aboutus/organisation/scientificcouncilsandcommittees/sci
entificcouncilsandcommittees/scientificcouncilforhumanitiesandsocialsciences.4.69f66a
93108e85f68d4800011579.html [Retrieved 2015-09-08].
Thomson Reuters (2015). Web of Science. Thomson Reuters. Available via:
http://apps.webofknowledge.com.ezproxy1.hw.ac.uk/Search.do?
product=UA&SID=S1t559AoCD1JAIPDl82&search_mode=GeneralSearch&prID=493
f0532-c489-46d8-9bd4-83c05cf29ff6[Retrieved 2015-09-08].
Whetten, David A. (1989) What constitutes a theoretical contribution? Academy of
Management Review 14(4): 490-95.