3.7.2 Board composition according to the stakeholder theory

The difference between the stakeholder theory and the other four theories is that there is not one single constituent whose interests need to be served in a stakeholder theory framework. The agency theory, TCE theory, stewardship theory and resource dependence theory have the shareholder in mind when they philosophise about the optimal board composition. In the stakeholder theory this varies within the different interpretations of the theory. The strategic stakeholder synthesis for example has the interests of the shareholder in mind when the company’s shareholder management is determined. In this respect, stakeholder management is executed in an instrumental way by assessing the positive and negative consequences of certain actions for stakeholders. Since the board has to decide which positive and negative consequences are acceptable to the constituents involved when maximising shareholder value, the agency theory and stewardship theory become involved. According to the agency theory the shareholders’ interests are best protected when the board is comprised of independent directors, while the stewardship theory advocates a board which is predominantly composed of dependent directors. For details of the composition of the board advised in an agency theory and a stewardship theory framework, reference is made to subsections 3.3.2 and 3.5.2 respectively.

In contrast to the strategic stakeholder synthesis, the multi-fiduciary stakeholder interpretation and the new stakeholder synthesis consider the interests of all stakeholders in their decision-making process. The interests of all the stakeholders involved must be weighed carefully in this situation in order not to give preference to one stakeholder over another stakeholder. Jensen has already remarked that it is impossible to weigh the interests of all stakeholders fairly (2002: 237-238). The decision to increase shareholder wealth by closing a plant and laying off workers is impossible to make when the board has to serve the interests of both shareholders and employees. Board composition views based on the agency theory, stewardship theory or resource dependence theory all have the interest of the shareholder or the company in mind. These theories are therefore not useful in a multi-fiduciary stakeholder interpretation and the new stakeholder synthesis framework. A framework is needed that protects the interests of all stakeholders. Freeman and Evan argue that the TCE theory has introduced a composition of the board that safeguards the interests of all stakeholders (1990: 337-338). Therefore, with regard to the board composition according to the stakeholder theory, reference is made here to subsection 3.4.2, which describes board composition in a TCE theory framework.