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Examples of a company's internal and external stakeholders.
Protesting students invoking stakeholder theory at Shimer College in 2010
The stakeholder theory is a theory of organizational management and business ethics
that accounts for multiple constituencies impacted by business entities
like employees, suppliers, local communities, creditors, and others. 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. 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).
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. Some authors, such as Geoffroy Murat, tried to apply stakeholder's theory to irregular warfare.
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. The word "stakeholder" in its current use first appeared in an internal memorandum at the Stanford Research Institute in 1963. Subsequently, a "plethora" of stakeholder definitions and theories were developed. In 1971, Hein Kroos and Klaus Schwab published the German book Moderne Unternehmensführung im Maschinenbau (Modern Enterprise Management in Mechanical Engineering)
argueing that the management of a modern enterprise must serve not only
shareholders but all stakeholders (die Interessenten) to achieve
long-term growth and prosperity. US 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 (Miles, 2012), with hundreds of definitions existing in the academic literature (Miles, 2011).
Development
Numerous articles and books written on stakeholder theory generally credit Freeman as the "father of stakeholder theory." Freeman's Strategic Management: A Stakeholder Approach
is widely cited in the field as being the foundation of stakeholder
theory, although Freeman himself credits several bodies of literature 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, appear 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.
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).
Donaldson
and Preston argue that the theory has multiple distinct aspects that
are mutually supportive: 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."
Since the publication of this article in 1995, it has served as a
foundational reference for researchers in the field, having been cited
over 1,100 times.
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).
Implementation in other fields
Stakeholder theory succeeds in becoming famous not only in the business ethics fields. It is used as one of the frameworks in corporate social responsibility methods. For example, ISO 26000 and GRI (Global Reporting Initiative) involve stakeholder analysis.
In the field of business ethics, Weiss, J.W. (2014) illustrates
how stakeholder analysis can be complemented with issues management
approaches to examine societal, organizational, and individual dilemmas.
Several case studies are offered to illustrated uses of these methods.
Stakeholder theory has seen growing uptake in higher education in the late 20th and early 21st centuries.
One influential definition defines a stakeholder in the context of
higher education as anyone with a legitimate interest in education who
thereby acquires a right to intervene. Studies of higher education first began to recognize students as stakeholders in 1975. External stakeholders may include employers.
In Europe, the rise of stakeholder regimes has arisen from the shift of
higher education from a government-run bureaucracy to modern system in
which the government's role involves more monitoring than direct
control.
Critics
The political philosopher Charles Blattberg
has criticized stakeholder theory for assuming that the interests of
the various stakeholders can be, at best, compromised or balanced
against each other. Blattberg argues that this is a product of its
emphasis on negotiation as the chief mode of dialogue for dealing with
conflicts between stakeholder interests. He recommends conversation
instead and this leads him to defend what he calls a 'patriotic'
conception of the corporation as an alternative to that associated with
stakeholder theory.
According to Mansell (2013), by applying the political concept of
a 'social contract' to the corporation, stakeholder theory undermines
the principles on which a market economy is based.
