2. What is it?
According to Stakeholder
Theory, organizations
(firms) are behaving
ethically if they attend to
the needs of stakeholders.
3. What is a Stakeholder?
The term “stakeholder” refers to
anyone who impacts or is
impacted by the firm
(stockholders, customers,
employees, suppliers,
government, labor unions, the
community, etc.)
4. Who uses it?
Milton Friedman
Stakeholder Theory emerged in response
to Milton Friedman’s Stockholder Theory
(1970), which holds that an organization is
solely responsible to its owners
(stockholders).
R. E. Freeman
In 1984, R.E. Freeman created Stakeholder
Theory as an alternative to Friedman’s
Stockholder Theory. According to Freeman,
firms are not solely responsible to
stockholders, but instead, to stakeholders
(customers, employees, etc.).
5. So What?
Stakeholder Theory offers a
unique perspective on how
organizations should behave
towards their owners,
employees, and customers. It is
one of only a few theories
which attempt to bring socially
ethical practices into the
corporate world.
6. Criticisms
“Stakeholder Theory infringes
upon the property rights of
stockholders because it advises
firms to distribute value among
all stakeholders, regardless of
their financial
risks/contributions.”
“Firms cannot operate at optimum efficiency if they must
constantly forego their own needs in order to meet the
demands of stakeholders.”
7. What Else?
Although many support
Stakeholder Theory, virtually no
one agrees on the basic
parameters of the theory. For
example, many Stakeholder
Theorists disagree over who
should and should not be
considered stakeholders.
Additionally, many disagree over
which stakeholders (if any) the
firm is most responsible to.
