The stakeholder theory is a theory of organizational management and business ethics. One common version of stakeholder theory seeks to define the specific stakeholders of a company (the normative theory of stakeholder identification) and then examine the conditions under which managers treat these parties as stakeholders (the descriptive theory of stakeholder salience).
It accounts for multiple constituencies impacted by business entities like employees, suppliers, local communities, creditors, and others. Lin, Tom C. W., Incorporating Social Activism (December 1, 2018). 98 Boston University Law Review 1535 (2018) It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and social contract theory.
The stakeholder view of strategy integrates a resource-based view and a market-based view, and adds a socio-political level.
In fields such as law, management, and human resources, stakeholder theory succeeded in challenging the usual analysis frameworks, by suggesting that stakeholders' needs should be put at the beginning of any action.Harrison, Wicks, Parmar and De Colle, Stakeholder Theory, State of the Art, Cambridge University Press, 2010
History Concepts similar to modern stakeholder theory can be traced back to longstanding philosophical views about the nature of civil society itself and the relations between individuals. In Miles v Sydney Meat-Preserving Co Ltd (1912), which saw the rejection of a shareholder's legal right to a dividend, Australian chief justice Samuel Griffith observed that:
The law does not require the members of a company to divest themselves, in its management, of all altruistic motives, or to maintain the character of the company as a soulless and bowelless thing, or to exact the last farthing in its commercial dealings, or forbid them to carry on its operations in a way which they think conducive to the best interests of the community as a whole.
The term "stakeholder" in its current use first appeared in an internal memorandumR. F. Stewart, J. K. Allen, J. M. Cavender: The Strategic Plan, LRPS report no. 168. Long Range Planning Service, Menlo Park: Stanford Research Institute. at the Stanford Research Institute in 1963.R. W. Puyt, F. B. Lie, F. J. Graaf: Contagious ideas and cognitive artefacts: the SWOT Analysis evolution in business. BAM2017 Conference Proceedings, 2017. Subsequently, a "plethora" of stakeholder definitions and theories were developed.Bidhan L. Parmar, R. Edward Freeman, Jeffrey S. Harrison, Andrew C. Wicks, Simone de Colle, Lauren Purnell: Stakeholder theory: the state of the Art. The Academy of Management Annals, June 2010, doi:10.1080/19416520.2010.495581.Alex Murdock: Stakeholders. In: Helmut K. Anheier, Stefan Toepler (eds.): International Encyclopedia of Civil Society. doi:10.1007/978-0-387-93996-4_154. In 1971, Hein Kroos and Klaus Schwab published a German booklet Moderne Unternehmensführung im Maschinenbau (Modern Enterprise Management in Mechanical Engineering) arguing that the management of a modern enterprise must serve not only shareholders but all stakeholders (die Interessenten) to achieve long-term growth and prosperity. This claim is disputed. U.S. authors followed; for example, in 1983, Ian Mitroff published "Stakeholders of the Organizational Mind" in San Francisco. R. Edward Freeman had an article on Stakeholder theory in the California Management Review in early 1983, but makes no reference to Mitroff's work, attributing the development of the concept to internal discussion in the Stanford Research Institute. He followed this article with a book Strategic Management: A Stakeholder Approach. This book 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. In short, it attempts to address the "principle of who or what really counts".
In the traditional view of a company, the shareholder view, only the owners or shareholders of the company are important, and the company has a binding fiduciary duty to put their needs first, to increase value for them. Stakeholder theory instead argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted as stakeholders – their status being derived from their capacity to affect the firm and its stakeholders. The nature of what constitutes a stakeholder is highly contested, with hundreds of definitions existing in the academic literature.
Development Numerous articles and books written on stakeholder theory generally identify Freeman as the "father of stakeholder theory". Freeman's Strategic Management: A Stakeholder Approach (1984) is widely cited in the field as being the foundation of stakeholder theory, although Freeman himself refers to several bodies of literature used in the development of his approach, including strategic management, corporate planning, systems theory, organization theory, and corporate social responsibility. A related field of research examines the concept of stakeholders and stakeholder salience, or the importance of various stakeholder groups to a specific firm.
An anticipation of such concepts, as part of Corporate Social Responsibility, appears in a publication that appeared in 1968 by the Italian economist Giancarlo Pallavicini, creator of "the decomposition method of the parameters" to calculate the results are not directly economic activity of enterprise, regarding ethical issues, moral, social, cultural and environmental."Integrated structures in the Italian distribution system", Giuffre Editore, Milan, 1968, pp. VIII / 351 ^ "Universal Biographical Encyclopedia" Treccani, 2007 Edition, Vol. 14, p. 617; "Treccani - Portal", Social Sciences / economists / Biographies; Annual Meeting Bancoper, Bologna, 15.11.2008, Prefect Angelo Tranfaglia, "Profit and social responsibility", p. 12; "Finanza e Mercati", February 3, 2009, p. 11, Mara Consoli, "When ethics become a bargain"; New Chronicles, CNEL, Rome, 12.01.2009, Adelaide Mochi, "Socialis Prize and corporate social responsibility"
More recent scholarly works on the topic of stakeholder theory that exemplify research and theorizing in this area include Donaldson and Preston (1995), Mitchell, Agle, and Wood (1997), Friedman and Miles (2002), and Phillips (2003).
Thomas Donaldson and Lee E. Preston argue that the theory has three distinct but mutually supportive aspects, descriptive, instrumental, and normative: The descriptive approach is used in research to describe and explain the characteristics and behaviors of firms, including how companies are managed, how the board of directors considers corporate constituencies, the way that managers think about managing, and the nature of the firm itself. The instrumental approach uses empirical data to identify the connections that exist between the management of stakeholder groups and the achievement of corporate goals (most commonly profitability and efficiency goals). The normative approach, identified as the core of the theory by Donaldson and Preston, examines the function of the corporation and identifies the "moral or philosophical guidelines for the operation and management of the corporation".
Mitchell, et al. derive a typology of stakeholders based on the attributes of power (the extent a party has means to impose its will in a relationship), legitimacy (socially accepted and expected structures or behaviors), and urgency (time sensitivity or criticality of the stakeholder's claims). By examining the combination of these attributes in a binary manner, 8 types of stakeholders are derived along with their implications for the organization. Friedman and Miles explore the implications of contentious relationships between stakeholders and organizations by introducing compatible/incompatible interests and necessary/contingent connections as additional attributes with which to examine the configuration of these relationships. Robert Allen Phillips distinguishes between normatively legitimate stakeholders (those to whom an organization holds a moral obligation) and derivatively legitimate stakeholders (those whose stakeholder status is derived from their ability to affect the organization or its normatively legitimate stakeholders). Kenneth Goodpaster distinguished stakeholder analysis, which identifies parties affected by managerial decisions, from stakeholder synthesis, which incorporates stakeholder considerations into decision-making; he argued that strategic stakeholder synthesis risks treating stakeholders merely as instruments, while multi-fiduciary stakeholder synthesis risks making managers accountable to an indeterminate set of fiduciary obligations.Goodpaster, K. E. (1991). Business ethics and stakeholder analysis. Business Ethics Quarterly, 1(1), 53–73. https://doi.org/10.2307/3857592
Non-human nature and underrepresented stakeholders A persistent line of development concerns whether stakeholders must be human actors.Starik, M. (1995). Should trees have managerial standing? Toward stakeholder status for non-human nature. Journal of Business Ethics, 14(3), 207–217. https://doi.org/10.1007/BF00881435 Mark Starik argued that the non-human natural environment can be integrated into stakeholder management because organizations are embedded in natural environments, because the stakeholder concept need not be restricted to a human political-economic category, and because other stakeholder groups do not adequately represent nature's interests. This position broadened the scope of stakeholder identification from conventional social groups to entities such as ecosystems, species, and the biophysical conditions on which organizations depend.
Other theorists rejected this move within stakeholder theory while still treating environmental obligations as ethically important.Phillips, R. A., & Reichart, J. (2000). The environment as a stakeholder? A fairness-based approach. Journal of Business Ethics, 23(2), 185–197. https://doi.org/10.1023/A:1006041929249 Phillips and Reichart argued that a fairness-based account of stakeholder theory cannot assign stakeholder status to the non-human environment because stakeholder obligations arise among persons or groups that voluntarily accept benefits in a cooperative scheme, but they maintained that environmental concerns can enter stakeholder reasoning through legitimate human stakeholders and through non-stakeholder ethical duties. Eric Orts and Alan Strudler similarly argued that stakeholder theory is useful as a heuristic for broadening managerial attention beyond shareholders, but that it cannot by itself supply the ethical principles needed for issues such as legal compliance or the valuation of the natural environment.Orts, E. W., & Strudler, A. (2002). The ethical and environmental limits of stakeholder theory. Business Ethics Quarterly, 12(2), 215–233. https://doi.org/10.2307/3857811