Why Resource-based Theory’s Model of Profit Appropriation Must Incorporate a Stakeholder Perspective
Some argue that since shareholders are the only stakeholder who have a claim on a firm’s profits, managers should focus only on maximizing shareholder wealth. Not only will this satisfy shareholders, it will also satisfy a firm’s other stakeholders, since—in principle—these other stakeholders get paid before shareholders. This article shows that this logic is deeply flawed. In particular, it shows that if the only stakeholder who has a claim on a firm’s economic profits is shareholders, then—in most competitive settings—a firm will not be able to attract the kinds of resources it needs to generate these profits. To attract the kinds of resources that can generate profits, managers must recognize that stakeholders, besides shareholders, have claims on the profits that their resources help generate. This, in turn, suggests that managers seeking to generate economic profits must adopt a stakeholder perspective in how they manage their firm. This article explores the managerial implications of this conclusion.
