What is the Stakeholder Theory
Stakeholder theory is a concept in business and management that suggests that an organization's actions should consider the interests and needs of all stakeholders, not just shareholders. Stakeholders are defined as any individual or group that has a stake or an interest in the organization and can include employees, customers, shareholders, suppliers, regulators, and the community.
According to stakeholder theory, an organization has a responsibility to consider the impact of its actions on all stakeholders and to balance their interests in a way that is fair and ethical. This can involve trade-offs and conflicts of interest and requires organizations to be transparent and accountable for their decisions and actions.
There are several key principles of stakeholder theory, including:
- Responsibility: Organizations have a responsibility to consider the impact of their actions on all stakeholders and to act in a way that is ethical and responsible.
- Sustainability: Organizations should consider the long-term impact of their actions on stakeholders and aim to create value that is sustainable and preserves resources for future generations.
- Legitimacy: Organizations should be transparent and accountable for their actions and seek to build and maintain trust with all stakeholders.
- Participation: Organizations should involve stakeholders in decision-making processes and seek to build mutual understanding and collaboration.
Stakeholder theory has implications for business strategy, governance, and management and has influenced the development of corporate social responsibility (CSR) and sustainability practices. It has also been a subject of debate and criticism, with some arguing that it is too broad and vague and can conflict with shareholder interests.
Origin and History
In 1984, R. Edward Freeman originally detailed the Stakeholder Theory of organizational management and business ethics, which addresses morals and values in managing an organization. His award-winning book 'Strategic Management: A Stakeholder Approach,' identifies and models the groups which are stakeholders of a corporation and both describes and recommends methods by which management can give due regard to the interests of those groups.
The theory has become a key consideration in the study of business ethics and has served as a platform for further study and development in the research and published work of many scholars. Since the 1980s, there has been a substantial rise in the theory’s prominence, with scholars worldwide continuing to question the sustainability of focusing on shareholders’ wealth as the most fundamental objective of the business.