Stakeholder theory definition
/What is Stakeholder Theory?
Stakeholder theory takes a broad view of the constituencies that a corporation serves. A stakeholder is any person or entity that has a significant interest in the success or failure of a business. Stakeholders can have a significant impact on decisions regarding the operations and finances of an organization.
Stakeholder theory states that the managers of a business must take into account the needs of all stakeholders, not just shareholders. This viewpoint implies that a business must maximize the total well-being of everyone and everything impacted by it, which can be taken to mean that the corporation has an obligation to distribute its profits to any disadvantaged stakeholders.
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Examples of Stakeholders
An organization can have many stakeholders, including the following:
Creditors. This includes lenders that extended funds to the organization.
Customers. This includes both prior and current users of the organization’s products and services. They could be harmed if the business discontinues its support of these products and services.
Employees. Employees have an interest not only in continuing to be employed, but also in receiving a fair wage in a safe working environment.
Governments. This mostly includes local governments, such as the applicable city, county, and state governments in which an organization does business.
Investors. This includes anyone who has an ownership interest in the business, or those holding warrants or stock options that allow them to acquire ownership interests at some point in the future.
Local community. This includes the communities in which an organization has facilities or employs residents.
Suppliers. This includes suppliers that gain a substantial portion of their revenues from sales to the organization.
Problems with Stakeholder Theory
There are several issues with stakeholder theory, which are as follows:
Weighting of stakeholder interests. Those not agreeing with stakeholder theory point out that it can be difficult for companies to weigh the differing interests of their stakeholders. Should a business contribute more funds to the local community, or simply pay taxes to the government and then let the government figure out what to do with the funds? Or, if company operations might trigger local environmental issues, is it the duty of the business to proactively deal with the issue, or wait for the local government to impose regulations?
Shortchanging of investors. An argument put forth by investors is that they have put money at risk in the business, and so have a right to a decent return. They argue that other stakeholders have not made such an investment, and so deserve less consideration.