Our claim for the stakeholder paradigm

The economic paradigm in an endless series of constraints

According to traditional economic and strategy theories, the firm is mostly seen as a purely economic institution and its actors as driven by self-interest, with society a constraining factor as we discussed in Chapter 2. A firm’s total economic value creation, by combining and allocating factors of production in the competitive environment, is oriented to a utility function that focuses on one objective, namely value maximization for the owner of capital (e.g. shareholder value).

If all human beings are modeled as self-interested actors and efficient market functioning fails to occur, there must be additional control mechanisms over a firm’s value creation, which is normally in the form of state laws and regulations or in some cases by voluntary self-regulation (e.g. Global Compact). This continuous need for control is even more important as some of the actors are not interested in efficient market functioning.