This looks like an interesting perversion of a theory of business ethics. I've been teaching a philosophy of business class this summer, and the "stakeholder" idea comes from some business ethicists who are opposing the idea that a business' s moral obligation is to make as much profit for stockholders as it can by legal means. The "stakeholder" theorists (R. Edward Freeman appears to have started it) argue that business should be run for the benefit of all stakeholders, rather than just stockholders. Stakeholders being anyone who's affected by business: Management, workers, stockholders, suppliers, customers, community. This is meant to end rapacious profit-seeking activity.
As a theory of capitalism this is at least somewhat unsatisfactory, because the company engages in some zero-sum transactions with suppliers and customers: Raising the price takes money out of the customer's hands and into the companies (other way round with suppliers). So you can't simultaneously manage a company for the benefit of the suppliers and stockholders, or company and stockholders.
Now Ken Lay's hand-picked FERC appointees, who I doubt are big fans of stakeholder theory as applied to private companies, are using the doctrine to make sure that California can't run its power grid to the benefit of its population. They actually propose to remove the government--obviously a stakeholder, as a representative of the community--from any role in managing the board. Instead the board is to be picked (indirectly) by--the suppliers and end-line customers (consumer groups). Precisely the people who are engaged in zero-sum transactions.
Anyway, the whole rationale for stakeholder theory is to restrain rapacious profit-seeking. Which shouldn't apply to a government-supported ISO.
I don't think anyone is pretending for a moment that Bush's FERC really cares about stakeholder theory--he's just trying to screw Gray Davis and reward his buddies in the energy biz. But it's interesting to see how a bleeding-heart liberal theory gets coopted.

"Stakeholder theory" was always a liberal end run around true structural change in corporate structure. Where socialists and capitalists agree is that the owners of industry should control its operation-- that's a basic democratic idea that avoids the elitist muddle of stakeholder theory. Where they disagree is on who should own the operation-- socialists want ownership shifted to some combination of workers, government or community shareholders.

Germany has the most developed system resembling stakeholder theory using two different boards of directors, one where workers control half the board slots and another, supposedly subordinate, that is controlled by pure capitalist shareholders and runs things day-to-day. Without question the system restrains labor-capital conflict but has never had quite the effect eithers its proponents or opponents wanted or feared.

One of the weirdnesses of the class I was teaching was that many of the top business ethics stories just couldn't be discussed. Enron's balance sheet manipulation, Adelphia's founders looting the company--these just don't raise philosophical questions, because it's so obvious that they're wrong and why. Yet actually dealing with business means dealing with this plain wrong behavior at least as much as figuring out what's right or wrong.

Stakeholder theory is an example of this, seems like. Freeman thinks it's morally right to treat all stakeholders equally. Even if true, that doesn't take away the incentive for corps and management to behave differently.

Which I guess is the problem. You take these privately owned corporations and say, "Gosh, they should act for the benefit of society." But the only way to get that to happen is to make it, either by socialism or by regulating the hell out of them. I don't think I see this as elitist vs. democratic as unrealistic vs. realistic.

How does Germany's system wind up restraining labor-capital conflict? When I hear that phrase I think of company unions--does the German model actually work to labor's benefit some of the time? (And does the local community ever get a seat on the board?)

I don't know what treating stakeholders "equally" even means. And who is doing the "treating"? The issue is one of power and ownership-- if workers have the power to control CEOs, they can keep them from misbehaving and screwing workers.

One problem with shareholder theories of corporate responsibility is that shareholders are notably negligent in monitoring companies they own. Even institutional shareholders -- CALPERS occasionally aside -- have been rather laissez-faire in their oversight. One solution is to take actual shareholder ownership seriously on the pension end and take control of the pension funds away from the management who are supposed to be monitored by those funds. If the workers in the pension fund could elect the board controllin those funds (as they do in the minority of pensions directly controlled by unions), that would create a worker-investor combo that would actually have an interest in serious corporate monitoring.

In many ways, that is what happens in Germany, where workers pensions are somewhat tied to the health of the firm, so from both a day-to-day employment and longterm pension interest, they carefully monitor those firms. German unions are definitately not company unions-- they are quite willing to strike but usually don't have to because of their strength.

For an even stronger version, see Sweden with 95% unionization rates and large-scale negotiations between industry associations and unions with the government as mediators. This is classice "stakeholder" negotiations, but one based not on moral exhortation but on the power each group exercises.