Stakeholder theory addresses how to manage relationships with various stakeholders, including employees, customers, suppliers, communities, and governments, to optimize efficiency. It notes companies must meet expectations of all stakeholders to be sustainable. The theory originated in the 1980s and emphasizes acknowledging, monitoring, listening to, communicating with, adopting the views of, recognizing, and working with stakeholders while avoiding conflict. Benefits include increased productivity, retention, customer loyalty and investment, while drawbacks are that not all stakeholders can be equally balanced or pleased.

1. CHAPTER 2
STAKEHOLDER’S MINDSET

2. The stakeholder “theory” is based on a simple idea: successful
sustainable businesses are those that are able to continuously
meet and balance the expectations of all its key stakeholders, be it
employees, customers, regulators, shareholders or else.

3. Bucholtz and Carroll point out that the principles
highlight action words that illustrate the spirit that
should be used in engaging with stakeholders:
•acknowledge.
•monitor.
•listen.
•communicate.
•adopt.
•recognise.
•work.
•avoid.

7. STAKEHOLDER THEORY

8. What Is Stakeholder Theory?
Stakeholder theory addresses business ethics, morals and values
when managing stakeholders involved with a project or
organization. It seeks to optimize relations with stakeholders,
thereby improving efficiencies throughout the project or
organization. Stakeholder theory is used in many important fields
such as project management, corporate social responsibility,
strategic management and business ethics.
Taking your stakeholder theory into practice requires project
management software. ProjectManager is cloud-based work and
project management software that helps you manage your
stakeholder expectations and keep them updated. Our real-time
reports can be filtered to show only the data stakeholders want to
see and then easily shared as a PDF or even printed out.

9. History of Stakeholder Theory
The first person to define stakeholder theory was organizational theorist Ian Mitroff in his
book Stakeholders of the Organizational Mind, which came out in 1983.
Shortly thereafter, an article about stakeholder theory was released in 1983 in the California
Management Review by philosopher and professor of business administration R. Edward
Freeman.
Freeman doesn’t cite Mitroff as a source, rather he attributes stakeholder theory to
discussions at the Stanford Research Institute. He went on to publish his own book, Strategic
Management: A Stakeholder Approach, shortly after the article.
That’s why sometimes stakeholder theory is also referred to as Freeman’s stakeholder theory.
In Freeman’s book, he identifies and models stakeholder groups within a corporation,
describing and recommending ways to manage their interests and determine who really
counts from the perspective of the company. Increasing value for stakeholders will improve
the business in all aspects.
Freeman’s stakeholder theory is also often confused with the shareholder theory, created by
the economist Milton Friedman in the 1970s. Let’s learn about the differences between these
similar yet different theories.

10. Stakeholder Theory Example
Stakeholder theory notes that there are several
interested parties or stakeholder groups that must
be included under the umbrella of stakeholders,
such as the company’s employees, customers,
suppliers, financiers, communities, governmental
bodies, political groups, trade associations, trade
unions and even competitors, as they too can
impact the company.
The list of who the stakeholders are is not
universally agreed upon, and even the definition of

11. For our example, we’ll identify the interests and expectations of stakeholders for the
construction of a manufacturing facility.
•Employees: In this case, the employees would be all those involved in the planning
and execution of the construction project, such as the site manager and crew
members. They are responsible for the success of the project. In terms of
expectations, they need a workplace that complies with safety regulations and
proper working conditions.
•Suppliers: You’ll need several suppliers who will provide raw materials, equipment
and other resources. Building a relationship with them is important to maintain an
efficient flow of construction supplies. There are different supply relationship
management approaches to help you understand how to better negotiate with them.
•Customers: The local customers will benefit from this new facility because the new
facility will increase in product offers, which lowers prices while improving quality due
to increased competition in the market. Customers expect high-quality products that
not only solve their needs but are also safe for their health and the environment.

12. •Community: In this case, the term community refers to the people
that are indirectly impacted by the project. They will be both positively
and negatively impacted by the construction of this new
manufacturing facility. On one hand, there are economic benefits for
the community, as new employees will spend money on housing,
transportation, basic goods, etc. On the other hand, there’s a high risk
of pollution. If the facility doesn’t comply with environmental
regulations, it could damage critical natural resources for the
community, such as water sources.
•Government: The government defends the interests of the people
through laws and regulations. Any construction project must comply
with every single government regulation that exists to guarantee the
safety of its employees, the community and the environment.

13. Benefits of Using the Stakeholder Theory
Stakeholder theory posits that a company is only successful when it
delivers value to its stakeholders, and those values can come in many
forms beyond financial benefits.
Impact on Employees and Customers
One of the values produced by stakeholder theory includes greater
productivity across the organization. If employees, who are considered
stakeholders, feel as if they’re being valued, then they’re going to work
harder and be more productive.
This also means that companies will have greater retention of their
employees, but also of customers. If the productivity is up, then the
product or service delivered to the customer is improved. With that
improvement comes more customer loyalty, especially as they are one
of the many stakeholders the company is considering when making
decisions. Customers are also more likely to then refer other customers
to the company.

14. Increased Investment
All this is leading to more investment from
financiers. They too, of course, are
stakeholders. While sometimes they are thought
of as the only stakeholders or the most
important to a company as they hold their hands
on the level of capital, they’re really connected
to other stakeholders. As other stakeholders are
valued, the value of the company grows, and
investors are more likely to add money to
production to take advantage of this increased
market share.

15. Drawbacks of Stakeholder Theory
Some critics, such as political philosopher Charles Blattberg,
say stakeholder theory is problematic. They claim that the
interests of various stakeholders cannot be balanced against
each other.
This is because stakeholders represent such a large and
diverse group. You can’t please every stakeholder. One or more
stakeholders will have to take a backseat to other, more
dominant ones, which is likely to create discord. This will disrupt
the benefits associated with stakeholder theory.
Also, who will wield the most influence? Some stakeholders
might find that they’re not impacting decisions as much as
another group. The different power levels and spheres of
influence can be a problem. Even those with seemingly more