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
Examples of stakeholders are investors, creditors, employees, and even the local community. Stakeholders can comprise a substantially larger pool of entities than the more traditional group of shareholders who actually own a business.
Problems with Stakeholder Theory
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?
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.