Stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. It was originally detailed by R. Edward Freeman in the book Strategic Management: A Stakeholder Approach, and 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 the firm, the shareholder view, the shareholders or stockholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them. Stakeholder theory 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 is a stakeholder is highly contested (Miles, 2012), with hundreds of definitions existing in the academic literature (Miles, 2011).
The stakeholder view of strategy integrates both a resource-based view and a market-based view, and adding a socio-political level. This view of the firm is used to define the specific stakeholders of a corporation (the normative theory (Donaldson) of stakeholder identification) as well as examine the conditions under which these parties should be treated as stakeholders (the descriptive theory of stakeholder salience).
Numerous articles and books written on stakeholder theory generally credit R. Edward 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.
More recent scholarly works on the topic of stakeholder theory that exemplify research and theorizing in this area include Donaldson and Preston (1995) and Mitchell, Agle, and Wood (1997), Friedman and Miles (2002) and Phillips (2003).
Thomas Donaldson (ethicist) 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).
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. Stakeholder theory is defined by Rossouw et al. in Ethics for Accountants and Auditors and by Mintz et al. in Ethical Obligations and Decision Making in Accounting.
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.
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 or GRI (Global Reporting Initiative) use similar methods.
In fields such as law, management, human resource, stakeholder theory succeeded in challenging the usual analysis frameworks, by suggesting to put stakeholders' needs at the beginning of any action. Some authors, such as Geoffroy Murat, tried to apply stakeholder's theory to irregular warfare.
- Stakeholder (corporate)
- Stakeholder analysis
- Stakeholder (law)
- Stakeholder management
- Agency cost
- Principal–agent problem
- Specific citations
- Freeman, R. Edward (1984). Strategic Management: A stakeholder approach. Boston: Pitman. ISBN 0-273-01913-9.
- Miles, Samantha (2012). "Stakeholders: essentially contested or just confused?". Journal of Business Ethics 108 (3): 285–298.
- Miles, Samantha (2011). "Stakeholder Definitions: Profusion and Confusion". EIASM 1st interdisciplinary conference on stakeholder, resources and value creation, IESE Business School, University of Navarra, Barcelona.
- Laplume, André; Karan Sonpar, Reginald Litz (Dec 2008). "Stakeholder Theory: Reviewing a Theory That Moves Us". Journal of Management 34 (6): 1152–1189.
- Donaldson, Thomas; Preston, Lee E. (1995). "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications". Academy of Management Review 20 (1): 65–91.
- Mitchell, Ron; Agle, BR; Wood, DJ (1997). "Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts". Academy of Management Review 22 (4): 853–886.
- Friedman, Andrew L.; Samantha Miles. Stakeholders: Theory and Practice. Oxford University Press. ISBN 978-0199269860.
- Phillips, Robert (2003). Stakeholder Theory and Organizational Ethics. Berrett-Koehler Publishers. ISBN 1-57675-268-2.
- Donaldson, Thomas; Preston, Lee E. (1995). "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications". Academy of Management Review (Academy of Management) 20 (1): 70–71. doi:10.2307/258887. JSTOR 258887.
- Donaldson, Thomas; Preston, Lee E. (1995). "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications". Academy of Management Review (Academy of Management) 20 (1): 70. doi:10.2307/258887. JSTOR 258887.
- Donaldson, Thomas; Preston, Lee E. (1995). "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications". Academy of Management Review (Academy of Management) 20 (1): 71. doi:10.2307/258887. JSTOR 258887.
- Mitchell, R. K.; Agle, B. R.; Wood, D. J. (1997). "Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts". Academy of Management Review (Academy of Management) 22 (4): 853–886. doi:10.2307/259247. JSTOR 259247.
- Friedman, Andrew L.; Miles, Samantha (2002). "Developing Stakeholder Theory". Journal of Management Studies 39 (1): 1–21. doi:10.1111/1467-6486.00280.
- Blattberg, Charles (2004). "Welfare: Towards the Patriotic Corporation". From Pluralist to Patriotic Politics: Putting Practice First. New York: Oxford University Press. pp. 172–184. ISBN 0-19-829688-6.
- Mansell, S. (2013) Capitalism, Corporations and the Social Contract: A Critique of Stakeholder Theory. Cambridge: Cambridge University Press.
- Harrison, Wicks, Parmar and De Colle, Stakeholder Theory, State of the Art, Cambridge University Press, 2010
- Connelley and Tripodi, Aspects of leadership, Ethics, law and Spirituality, Marines Corps University Press, 2012, pp. 39-59
- General references
- R. Edward Freeman, Alexander Moutchnik (2013): Stakeholder management and CSR: questions and answers. In: UmweltWirtschaftsForum, Springer Verlag, Bd. 21, Nr. 1. http://link.springer.com/article/10.1007/s00550-013-0266-3
- Hemmati, Minu; et al. (2002). Multistakeholder Processes for Governance and Sustainability: Beyond Deadlock and Conflict. London: Earthscan. ISBN 1-85383-869-1.
- Kelly, Marjorie (2001). The Divine Right of Capital: Dethroning the Corporate Aristocracy. San Francisco: Berrett-Koehler. ISBN 1-57675-125-2.
- PDF (900 KiB) - Discussion on the role of stakeholders in project management
- Redefining the Corporation from the Clarkson Centre for Business Ethics and Board Effectiveness
- "Redefining the Corporation: Stakeholder Management and Organizational Wealth" by Post, Preston, and Sachs, Stanford University Press, 2002
- Multistakeholder Processes for Governance and Sustainability - Stakeholder Forum, Earthscan 2002
- Politics at stake: a critical note on stakeholder analysis (July 2008) from Abahlali baseMjondolo