Measuring the business case: linking stakeholder and shareholder value

Introduction
There remain conflicting views about the purpose of the firmand therefore the ways in which its
success should be measured. The traditional neo-classical economic view suggests that the
objective of the firm is to maximize shareholder value and that this should be its objective
function (Jensen, 2001). An opposing view, which was advanced at the EABIS colloquium in
Milan, is that we need to rethink the purpose of the firm as being a social institution that needs
to create value for stakeholders. In this paper, we argue that this is a false dichotomy. The firm
needs to create and sustain value, both for its shareholders and for society more widely if it is
to continue to thrive. If a firm cannot raise capital and cannot provide adequate returns on that
capital then money will go elsewhere (absent a complete change in the economic system
which seems most unlikely) therefore, there needs to be attention to those returns. Equally, if a
firm does not pay attention and satisfy its multiple stakeholders, whether those be the
dominant ones in the short-term of customers and employees or, in the longer run, wider
society as evidenced by global communities and governments, it will cease to be legitimate.
However, the problem remains for managers in firms as to how to ‘‘make the business case for
corporate responsibility’’, i.e. how to ensure that the firm pays wider attention to the needs of
multiple stakeholders whilst at the same time delivering shareholder value.