In a

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and re ...

, a stakeholder is a member of "groups without whose support the organization would cease to exist", as defined in the first usage of the word in a 1963 internal memorandum at the Stanford Research Institute. The theory was later developed and championed by R. Edward Freeman in the 1980s. Since then it has gained wide acceptance in business practice and in theorizing relating to strategic management,

corporate governance Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions t ...

, business purpose and

corporate social responsibility Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethical ...

(CSR). The definition of corporate responsibilities through a classification of stakeholders to consider has been criticized as creating a false dichotomy between the "shareholder model" and the "stakeholders model" or a false analogy of the obligations towards shareholders and other interested parties.

Types

Any action taken by any organization or any group might affect those people who are linked with them in the private sector. For examples these are parents, children, customers, owners, employees, associates, partners, contractors, and suppliers, people that are related or located nearby. Broadly speaking there are three types of stakeholders: * Primary stakeholders are usually internal stakeholders, are those that engage in economic transactions with the business (for example stockholders, customers, suppliers, creditors, and employees). * Secondary stakeholders are usually external stakeholders, although they do not engage in direct economic exchange with the business – are affected by or can affect its actions (for example the general public, communities, activist groups, business support groups, and the media). * Excluded stakeholders are those such as children or the disinterested public, originally as they had no economic impact on business. Now as the concept takes an anthropocentric perspective, while some groups like the general public may be recognized as stakeholders others remain excluded. Such a perspective does not give plants, animals or even geology a voice as stakeholders, but only an

instrumental value In moral philosophy, instrumental and intrinsic value are the distinction between what is a ''means to an end'' and what is as an ''end in itself''. Things are deemed to have instrumental value if they help one achieve a particular end; intrinsic ...

in relation to human groups or individuals. A narrow mapping of a company's stakeholders might identify the following stakeholders: * Employees *

Communities A community is a social unit (a group of living things) with commonality such as place, norms, religion, values, customs, or identity. Communities may share a sense of place situated in a given geographical area (e.g. a country, village, ...

* Shareholders * Creditors *

Investors An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Typ ...

Government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government i ...

* Customers *

Owners Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different ...

Financiers An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Typ ...

* Managers A broader mapping of a company's stakeholders may also include: *

Suppliers In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activ ...

* Distributors *

Labor union A trade union (labor union in American English), often simply referred to as a union, is an organization of workers intent on "maintaining or improving the conditions of their employment", ch. I such as attaining better wages and benefits (s ...

s *Government regulatory agencies *Government legislative bodies *Government tax-collecting agencies *

Industry trade group A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association partici ...

s * Professional associations * NGOs and other

advocacy group Advocacy groups, also known as interest groups, special interest groups, lobbying groups or pressure groups use various forms of advocacy in order to influence public opinion and ultimately policy. They play an important role in the developm ...

s *Prospective employees *Prospective customers * Local communities *National communities *Public at Large (Global Community) * Competitors *

School A school is an educational institution designed to provide learning spaces and learning environments for the teaching of students under the direction of teachers. Most countries have systems of formal education, which is sometimes compulsor ...

s * Future generations *Analysts and Media *Research centers

In corporate responsibility

In the field of

and corporate responsibility, a debate is ongoing about whether the firm or company should be managed primarily for stakeholders, stockholders ( shareholders), customers, or others. Proponents in favor of stakeholders may base their arguments on the following four key assertions: # Value can best be created by trying to maximize joint outcomes. For example, according to this thinking, programs that satisfy both employees'

need A need is dissatisfaction at a point of time and in a given context. Needs are distinguished from wants. In the case of a need, a deficiency causes a clear adverse outcome: a dysfunction or death. In other words, a need is something required for a ...

s and stockholders' wants are doubly valuable because they address two legitimate sets of stakeholders at the same time. There is evidence that the combined effects of such a policy are not only additive but even multiplicative. For instance, by simultaneously addressing customer wishes in addition to employee and stockholder interests, both of the latter two groups also benefit from increased sales. # Supporters also take issue with the preeminent role given to stockholders by many business thinkers, especially in the past. The argument is that debt holders, employees, and suppliers also make contributions and thus also take risks in creating a successful firm. # These normative arguments would matter little if stockholders ( shareholders) had complete control in guiding the firm. However, many believe that due to certain kinds of

board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit orga ...

structures, top managers like CEOs are mostly in control of the firm. # The greatest value of a company is its image and brand. By attempting to fulfill the needs and wants of many different people ranging from the local population and customers to their own employees and owners, companies can prevent damage to their image and brand, prevent losing large amounts of sales and disgruntled customers, and prevent costly legal expenses. While the stakeholder view has an increased cost, many firms have decided that the concept improves their image, increases sales, reduces the risks of liability for corporate negligence, and makes them less likely to be targeted by pressure groups, campaigning groups and NGOs. A corporate stakeholder can affect or be affected by the actions of a business as a whole. Whereas

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...

s are often the party with the most direct and obvious interest at stake in business decisions, they are one of various subsets of stakeholders, as

customer In sales, commerce, and economics, a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange f ...

s and employees also have stakes in the outcome. In the most developed sense of stakeholders in terms of real corporate responsibility, the bearers of

externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...

are included in stakeholdership.

In management

In the last decades of the 20th century, the word "stakeholder" became more commonly used to mean a person or organization that has a legitimate interest in a project or entity. In discussing the decision-making process for institutions—including large business

government agencies A government or state agency, sometimes an appointed commission, is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an administratio ...

, and

non-profit organization A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...

s—the concept has been broadened to include everyone with an interest (or "stake") in what the entity does. This includes not only vendors, employees, and

s, but even members of a community where its offices or factory may affect the local economy or environment. In this context, a "stakeholder" includes not only the directors or trustees on its governing board (who are stakeholders in the traditional sense of the word) but also all persons who paid into the figurative stake and the persons to whom it may be "paid out" (in the sense of a "payoff" in game theory, meaning the outcome of the transaction). Therefore, in order to effectively engage with a community of stakeholders, the organisation's management needs to be aware of the stakeholders, understand their wants and expectations, understand their attitude (supportive, neutral or opposed), and be able to prioritize the members of the overall community to focus the organisation's scarce resources on the most significant stakeholders. Stakeholder management is particularly important in crisis contexts, where stakeholder demands are typically more salient and can conflict with an organisation's predetermined plans. Example *For example, in the case of a professional landlord undertaking the refurbishment of some rented housing that is occupied while the work is being carried out, key stakeholders would be the residents, neighbors (for whom the work is a nuisance), and the tenancy-management team and housing-maintenance team employed by the landlord. Other stakeholders would be funders and the design-and-construction team. The holders of each separate kind of interest in the entity's affairs are called a ''constituency,'' so there may be a constituency of stockholders, a constituency of adjoining property owners, a constituency of

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

s the entity owes money to, and so on. In that usage, "constituent" is a synonym for "stakeholder".

Stakeholder theory

Post, Preston, Sachs (2002), use the following definition of the term "stakeholder": "A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources. Not all stakeholders are equal. A company's customers are entitled to fair trading practices but they are not entitled to the same consideration as the company's employees. The stakeholders in a corporation are the individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and that are therefore its potential beneficiaries and/or risk bearers." This definition differs from the older definition of the term stakeholder in Stakeholder theory (Freeman, 1983) that also includes competitors as stakeholders of a corporation. Robert Allen Phillips provides a moral foundation for stakeholder theory in ''Stakeholder Theory and Organizational Ethics''. There he defends a "principle of stakeholder fairness" based on the work of John Rawls, as well as a distinction between normative and derivative legitimate stakeholders. Real stakeholders, labelled stakeholders: genuine stakeholders with a legitimate stake, the loyal partners who strive for mutual benefits. Stake owners own and deserve a stake in the firm. Stakeholder reciprocity could be an innovative criterion in the corporate governance debate as to who should be accorded representation on the board. Corporate social responsibility should imply a corporate stakeholder responsibility.

Examples of a company's stakeholders

Citations

References

* *Freeman, R.E. and Reed, D.L., 1983. Stockholders and stakeholders: A new perspective on corporate governance. California management review, 25(3), pp. 88–106.
Redefining the Corporation: An International Colloquy
* * Figge, F.; Schaltegger, S.: What is Stakeholder Value? Developing a Catchphrase into a Benchmarking Tool. Lüneburg/Geneva/Paris: University of Lüneburg/Pictet/ in association with United Nations Environment Program (UNEP), 200
CSM Lüneburg
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