Measuring the business case: linking stakeholder and shareholder value Lance Moir, Mike Kennerley and David Ferguson Abstract Purpose – The purpose of this article is to provide a detailed review of how to design and test a framework for assessing the impact of corporate responsibility on firm value. Design/methodology/approach – Building on an earlier conceptual framework, this paper describes the testing of the framework on three cases within EDF over a period of some six months. The results of the workshops on the cases are then taken to show how to build on the earlier conceptual framework. Findings – Much of the difficulty of trading off corporate responsibility with financial performance is due to a lack of detailed understanding of how corporate responsibility issues can affect drivers of value. The framework was validated but to be effective it requires detailed understanding of both corporate responsibility and financial management. Research limitations/implications – The cases were undertaken within one company and so the results need to be tested in other contexts. Equally the model is too complex at this stage to be rolled out across the group. Practical implications – Nevertheless the framework is designed to be used in business and indeed EDF have taken the results into their processes. Originality/value – The paper sets out a detailed approach to linking corporate responsibility and business value in a practical way. The issue now is for businesses to find ways to apply the framework. Keywords Stakeholder analysis, Shareholder value analysis, Corporate social responsibility Paper type Research paper Introduction There remain conflicting views about the purpose of the firm and 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. In this paper we report the first results of an action research-based attempt to consider precisely how a firm might undertake in a practical manner an approach to satisfying all PAGE 388 j CORPORATE GOVERNANCE j VOL. 7 NO. 4 2007, pp. 388-400, Q Emerald Group Publishing Limited, ISSN 1472-0701 DOI 10.1108/14720700710820470 Lance Moir, Mike Kennerley and David Ferguson are based at the Cranfield School of Management, Cranfield, UK.