THEORIES OF STRATEGY · UVA MSC BA STRATEGY · MEETING 3.2
The stakeholder view
What happens to competitive advantage when you stop treating the firm as one rational actor
and start seeing it as a coalition of people who create value together but fight over who gets it.
Stakeholder view.pptx Bargaining view.pptx Coff (1999) Stoelhorst (2023)
Lecture 6.ppt Notes on lectures – Lecture 6 Reading guide · Study guide
Case meeting 3.2 (sums)
Colour key: ■ shareholder / agency view · ■ stakeholder / team production view · ■ Coff's bargaining view · ■ Stoelhorst's
stakeholder RBT
Why this meeting matters Reading guide
Every positional theory so far (Porter, the High Church RBV, Brandenburger & Stuart) quietly assumed the firm is a unitary
agent: one actor that "earns" profit. The stakeholder view drops that assumption, which the reading guide calls arguably the most
problematic one in the model of perfect competition.
CORE TENSION
Employees, managers and investors play a win-win game when they create value together, and a zero-sum game when
they divide it. Higher wages mean lower profits for shareholders, and the other way round.
Once you see this, "the purpose of the firm is to maximise profit" is no longer neutral. It puts one stakeholder group,
shareholders, above the others. Strategy scholars are now making a "stakeholder turn": they ask how all stakeholders
(customers, managers, employees, investors, suppliers, governments, communities) cooperate to create value and compete to
appropriate it.
The lecture places this in the list of neoclassical limitations the course works through:
Limitation of the neoclassical / positional view Response in the course
Firm treated as a black box Knowledge and capabilities views (Low Church, meetings 5.1–5.2)
Static equilibrium logic Dynamic views: Schumpeter, Austrians, dynamic capabilities (block
3)
Firm treated as a unitary agent: value appropriation inside the firm is Bargaining / stakeholder view (Coff 1999; Stoelhorst 2023) – this
ignored meeting
Sources: Reading guide – Meeting 3.2; Notes on lectures – Lecture 6
,Descriptive vs normative theory Lecture 6
The lecture opens with two different questions. Keep them apart in essays: much confusion in this debate comes from mixing
them.
Descriptive theory Normative theory
What is a firm? How do firms actually work, who What should the purpose of the firm be? Statements
actually appropriates value? with should / ought.
Example: Coff explicitly analyses rent Example: Jensen says managers should
appropriation "in a descriptive (rather maximise shareholder value; Freeman says
than a normative) sense". they should balance stakeholder interests.
The lecturer also notes that the positional theories in the course (Porter, RBV, CGT) work as normative theories in the sense that
they tell firms what to do to be profitable at a moment in time, and they carry a hidden normative assumption: that profit for
shareholders is the goal.
The debate: shareholder vs stakeholder view
Stakeholder view.pptx
The slides start with two propositions most people accept without thinking: "Shareholders are the owners of the firm" and "The
job of the manager is to maximize shareholder value". The rest of the meeting takes both apart.
SHAREHOLDER VIEW STAKEHOLDER VIEW
Agency theory · Michael Jensen Stakeholder theory · Ed Freeman
Normative claim: the firm should maximise Normative claim: the firm should balance all
shareholder value. stakeholder interests.
Jensen calls this the "Hippocratic oath" of Stakeholders: customers, employees, suppliers,
management: it is the morally right thing to do. communities, shareholders (and governments).
Rests on Adam Smith's invisible hand: maximising Value creation is joint, so no single group should
profit is supposed to maximise the total pie and so automatically come first.
social welfare. Barney (2018) argues the RBV itself should take a
The firm is a nexus of contracts; shareholders are the stakeholder view to be consistent.
principals, managers their agents. Business Roundtable (2019): US CEOs committed to
Shareholders are the residual claimants. lead "for the benefit of all stakeholders".
Government handles market power and externalities Lecture caveat: many firms adopted the language as a
(taxes, regulation, antitrust). signal, while behaviour changed little.
Debate label: shareholder primacy – the public Debate label: team production theory / stakeholder
corporation as a vehicle for advancing shareholder theory – the public corporation as a vehicle for joint
interests. value creation.
, CRITIQUE OF THE SHAREHOLDER VIEW (LECTURE)
The "profit = welfare" link only holds in a world close to perfect competition. In reality firms have market power and
create externalities (pollution) that prices do not include. Relying on government to fix this assumes one well-informed,
fully rational government. So economic profit does not automatically lead to societal welfare.
Political economics: the battle between capital and labour
The slides frame the debate as an old one. Adam Smith, David Ricardo and Karl Marx all argued about how the pie is split
between capital (shareholders) and labour (employees). The stakeholder debate is the modern version of that same question.
The traditional Dutch outlook
An ING CEO in the mid-1990s said every stakeholder group complaining was a sign the bank had done well: it meant no
single group had been favoured over the others.
This is the "Rhineland" stakeholder model in practice: shareholders wanted more dividend, employees higher wages, creditors
lower interest, savers more interest. Balance was the goal. Compare the German co-determination system Coff mentions, where
employees sit on the board and wages are relatively high.
Sources: Stakeholder view.pptx slides 3–14; Notes on lectures – Lecture 6 (Business Roundtable
case)
Unitary agent vs nexus of contracts Jensen & Meckling 1976
Coff 1999
This is the conceptual pivot of the whole meeting. Agency theory (Jensen & Meckling, 1976) defines the firm as a "nexus for a
set of contracting relationships among individuals". The firm is a legal fiction, and it makes little sense to separate what is
"inside" the firm from what is "outside".
Unitary agent view Nexus of contracts view
Porter, High Church RBV, most CGT work Coff 1999, Stoelhorst 2023
Buyers Buyers Managers
"THE FIRM" Firm
= shareholders · earns the profit
Employees Shareholders
legal fiction
Suppliers (external)
Suppliers Community
Employees and managers hidden inside the box
Every line is a contract; shareholders are one node among many
Based on Bargaining view.pptx slide 4, Coff (1999, §1) and Stoelhorst (2023, §2.3). On a nexus view there is no strict difference
between internal and external resource suppliers.
The stakeholder view
What happens to competitive advantage when you stop treating the firm as one rational actor
and start seeing it as a coalition of people who create value together but fight over who gets it.
Stakeholder view.pptx Bargaining view.pptx Coff (1999) Stoelhorst (2023)
Lecture 6.ppt Notes on lectures – Lecture 6 Reading guide · Study guide
Case meeting 3.2 (sums)
Colour key: ■ shareholder / agency view · ■ stakeholder / team production view · ■ Coff's bargaining view · ■ Stoelhorst's
stakeholder RBT
Why this meeting matters Reading guide
Every positional theory so far (Porter, the High Church RBV, Brandenburger & Stuart) quietly assumed the firm is a unitary
agent: one actor that "earns" profit. The stakeholder view drops that assumption, which the reading guide calls arguably the most
problematic one in the model of perfect competition.
CORE TENSION
Employees, managers and investors play a win-win game when they create value together, and a zero-sum game when
they divide it. Higher wages mean lower profits for shareholders, and the other way round.
Once you see this, "the purpose of the firm is to maximise profit" is no longer neutral. It puts one stakeholder group,
shareholders, above the others. Strategy scholars are now making a "stakeholder turn": they ask how all stakeholders
(customers, managers, employees, investors, suppliers, governments, communities) cooperate to create value and compete to
appropriate it.
The lecture places this in the list of neoclassical limitations the course works through:
Limitation of the neoclassical / positional view Response in the course
Firm treated as a black box Knowledge and capabilities views (Low Church, meetings 5.1–5.2)
Static equilibrium logic Dynamic views: Schumpeter, Austrians, dynamic capabilities (block
3)
Firm treated as a unitary agent: value appropriation inside the firm is Bargaining / stakeholder view (Coff 1999; Stoelhorst 2023) – this
ignored meeting
Sources: Reading guide – Meeting 3.2; Notes on lectures – Lecture 6
,Descriptive vs normative theory Lecture 6
The lecture opens with two different questions. Keep them apart in essays: much confusion in this debate comes from mixing
them.
Descriptive theory Normative theory
What is a firm? How do firms actually work, who What should the purpose of the firm be? Statements
actually appropriates value? with should / ought.
Example: Coff explicitly analyses rent Example: Jensen says managers should
appropriation "in a descriptive (rather maximise shareholder value; Freeman says
than a normative) sense". they should balance stakeholder interests.
The lecturer also notes that the positional theories in the course (Porter, RBV, CGT) work as normative theories in the sense that
they tell firms what to do to be profitable at a moment in time, and they carry a hidden normative assumption: that profit for
shareholders is the goal.
The debate: shareholder vs stakeholder view
Stakeholder view.pptx
The slides start with two propositions most people accept without thinking: "Shareholders are the owners of the firm" and "The
job of the manager is to maximize shareholder value". The rest of the meeting takes both apart.
SHAREHOLDER VIEW STAKEHOLDER VIEW
Agency theory · Michael Jensen Stakeholder theory · Ed Freeman
Normative claim: the firm should maximise Normative claim: the firm should balance all
shareholder value. stakeholder interests.
Jensen calls this the "Hippocratic oath" of Stakeholders: customers, employees, suppliers,
management: it is the morally right thing to do. communities, shareholders (and governments).
Rests on Adam Smith's invisible hand: maximising Value creation is joint, so no single group should
profit is supposed to maximise the total pie and so automatically come first.
social welfare. Barney (2018) argues the RBV itself should take a
The firm is a nexus of contracts; shareholders are the stakeholder view to be consistent.
principals, managers their agents. Business Roundtable (2019): US CEOs committed to
Shareholders are the residual claimants. lead "for the benefit of all stakeholders".
Government handles market power and externalities Lecture caveat: many firms adopted the language as a
(taxes, regulation, antitrust). signal, while behaviour changed little.
Debate label: shareholder primacy – the public Debate label: team production theory / stakeholder
corporation as a vehicle for advancing shareholder theory – the public corporation as a vehicle for joint
interests. value creation.
, CRITIQUE OF THE SHAREHOLDER VIEW (LECTURE)
The "profit = welfare" link only holds in a world close to perfect competition. In reality firms have market power and
create externalities (pollution) that prices do not include. Relying on government to fix this assumes one well-informed,
fully rational government. So economic profit does not automatically lead to societal welfare.
Political economics: the battle between capital and labour
The slides frame the debate as an old one. Adam Smith, David Ricardo and Karl Marx all argued about how the pie is split
between capital (shareholders) and labour (employees). The stakeholder debate is the modern version of that same question.
The traditional Dutch outlook
An ING CEO in the mid-1990s said every stakeholder group complaining was a sign the bank had done well: it meant no
single group had been favoured over the others.
This is the "Rhineland" stakeholder model in practice: shareholders wanted more dividend, employees higher wages, creditors
lower interest, savers more interest. Balance was the goal. Compare the German co-determination system Coff mentions, where
employees sit on the board and wages are relatively high.
Sources: Stakeholder view.pptx slides 3–14; Notes on lectures – Lecture 6 (Business Roundtable
case)
Unitary agent vs nexus of contracts Jensen & Meckling 1976
Coff 1999
This is the conceptual pivot of the whole meeting. Agency theory (Jensen & Meckling, 1976) defines the firm as a "nexus for a
set of contracting relationships among individuals". The firm is a legal fiction, and it makes little sense to separate what is
"inside" the firm from what is "outside".
Unitary agent view Nexus of contracts view
Porter, High Church RBV, most CGT work Coff 1999, Stoelhorst 2023
Buyers Buyers Managers
"THE FIRM" Firm
= shareholders · earns the profit
Employees Shareholders
legal fiction
Suppliers (external)
Suppliers Community
Employees and managers hidden inside the box
Every line is a contract; shareholders are one node among many
Based on Bargaining view.pptx slide 4, Coff (1999, §1) and Stoelhorst (2023, §2.3). On a nexus view there is no strict difference
between internal and external resource suppliers.
