Stakeholder theory

Stakeholder theory states that organizations are collections of several different parties, each with its own goals and objectives. While the goals of some parties may be in competition with the others, each party has an interest in the organization succeeding. The key to the organization’s success depends on bringing these disparate objectives and parties together to create the maximum benefit for all involved. Stakeholder theory, when introduced in the 1980s, represented a major shift in thinking about how relationships within a business might coexist and benefit one another. Furthermore, it prescribed an environment that shifted away from one that heavily favored some parties (such as shareholders/stockholders) to the possible detriment of others (such as workers, the government, or even customers).

Overview

Business literature is full of attempts to explain how organizations operate. Such was the case in 1984 when business theorist R. Edward Freeman published Strategic Management: A Stakeholder Approach, in which he defined a stakeholder as a group or individual “who can affect or is affected by” the organization’s success. Prior to this, most businesses thought solely in terms of satisfying the needs of stockholders or a company’s private owners. Freeman’s theory highlighted the fact that the parties affected by the organization were more numerous than just the stockholders. Freeman named these parties "stakeholders," and he described them as people who want the organization to succeed, even though each may want success for different reasons. Freeman and his colleagues argued that stakeholder theory can be used to radically redefine approaches to capitalism by having businesses focus on their stakeholders as their most important asset.

In this view, stakeholders still include an organization’s managers and its stockholders. From a perspective of “who benefits or who is affected by the organization?” stakeholders also include suppliers who benefit from their sales to the organization, workers who value their jobs, and customers who buy whatever services or product the organization delivers. Other stakeholders include the government at all levels that receive taxes and civic organizations that benefit from the presence and the success of the organization in the community.

The stakeholder theory extends to those who impact the organization’s efforts. These stakeholders once again include government and local communities and civic organizations that can officially regulate or informally place restrictions on how the organization operates. Labor, whether organized or not, has concerns regarding safety and fair pay. Suppliers want to be paid and to be given realistic delivery schedules so they can succeed. Customers want the goods and services to be of high quality at a reasonable price. The role of management in this environment is to align the potentially competing goals of all stakeholders in order to make the organization successful.

The notion of stakeholders, their importance, and the dynamics of their interactions is still considered a viable idea in the twenty-first century. While Freeman’s original ideas have been critiqued and further developed over time, many books and journal articles still discuss the identification and nature of stakeholders, whether in broad terms or in specific contexts. Indeed, stakeholder analysis has become an important task within many organizations.

One notable newer concept is that managers must now consider and satisfy the needs of the general public. This idea is known as corporate social responsibility, and it includes the public as a stakeholder even though it may have no regulatory authority and is not a direct part of the organization’s processes. Researchers investigating corporate social responsibility as it pertains to stakeholder theory explore the extent to which business models, which can be viewed as sometimes hostile to human needs, can be reconciled with the needs of the community.

Stakeholder theory has also been appropriated by fields outside the business realm, notably the education field. Educators and administrators seek to determine who constitute stakeholders in an individual's or a community's education. Policy and curriculum may be shaped around who the stakeholders are determined to be. Other scholars have examined the application of stakeholder theory in fields such as politics and military leadership.

Bibliography

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"Stakeholder Theory." Darden School of Business, University of Virginia, www.darden.virginia.edu/stakeholder-theory. Accessed 30 July 2024.