Reimagining Profits and Stakeholder Capital to Address Tensions Among Stakeholders

Abstract

In this article, we use ideas from stakeholder capital maintenance theory to address tensions in allocating firm profits between stockholders and other stakeholders. We utilize a mediative thought experiment to conceptualize how multiple stakeholder interests might better be served, such that genuine firm profits (from new value creation) versus artificial firm profits (from non-wealth-producing transfers) may be identified and incentivized. We thereby examine how such accounting transfers can be envisioned as stakeholder capital to be maintained for the benefit of both the firm and the economy. We present examples to illustrate the hypothetical model proposed and its implications.

Stakeholder Theory at the Crossroads

“…We will simply mention here those we feel are most promising. As mentioned previously, Freeman and colleagues (2020) and Hatherly and colleagues (2020) both suggest that adjusting accounting methods to make them more stakeholder oriented is a subject of great importance. Freeman and colleagues also suggest focusing on the human elements of stakeholder theory (echoed also in Bridoux & Vishwanathan, 2020) and on the linkages between the firm and other societal elements such as public policy.…”

“…In the next article, “Reimagining Profits and Stakeholder Capital to Address Tensions Among Stakeholders,” David Hatherly, Ronald Mitchell, Robert Mitchell, and Jae Hwan Lee (2020) utilize a meditative thought experiment to shed light on the tension between people and profits. They break away from conventional logic about accounting for profits and capital through a series of “what if” propositions.…”

Does the stakeholder engagement result in new drinks? Evidence from family owned SMEs

“…In today's complex, dynamic, and interconnected environment (Curado, Munoz-Pascual & Galende, 2018), companies widely embrace the concept of stakeholders (Hatherly, Mitchell, Mitchell, & Lee, 2017). Thus, companies cooperating smoothly with their stakeholders can achieve success, as the central idea of stakeholder theory suggests (Henisz, Dorobantu, & Nartey, 2014;Minoja, 2012;Tullberg, 2013).…”

From Financial to “Sustainable” Capital Maintenance

“…Even before the influence of Company Law, theories varied greatly through time and space. 7 The brief overview regarding capital maintenance in this section reflects the development of accounting in Germany, France, Great Britain, the United States, and Japan since the 19 th century.…”

“…The purpose was to "prevent shareholders' contributions (from) being distributed as pretend profit". 9 At that time, accounting principles regarding the recognition 7 Dynamic View (the 1930s). After the Great Depression, the "dynamic" theory elaborated by E. Schmalenbach 11 spread in accounting systems.…”