What is Stakeholder Theory?

In the landbook book, Strategic Management: A Stakeholder Approach, published in 1984 and reprinted in 2010, R. Edward Freeman set the agenda for what is now known as stakeholder theory. In this video R. Edward Freeman explains Stakeholder Theory.

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Stakeholder Theory - video transcript

"Stakeholder Theory is an idea about how business really works. It says that for any business to be successful it has to create value for customers, suppliers, employees, communities and financiers, shareholders, banks and others people with the money. It says that you can't look at any one of their stakes or stakeholders if you like, in isolation. Their interest has to go together, and the job of a manager or entrepreneur is to work out how the interest of customers, suppliers, communities, employees and financiers go in the same direction.

Now, think about how important each of these groups is for business to be successful, think about a business that's lost its edge with its customers that has products and services that its customers don't want as much or that they don't want at all that's a business in decline.

Think about a business who manages suppliers in a way that the suppliers don't make them better. The suppliers just take orders and sell stuff, but the suppliers aren't trying to make a business more innovative, more creative that's a business that's in a holding pattern and probably in decline.

Think about a business whose employees don't want to be there every day who aren't using a hundred percent of their efforts and they're energy and their creativity to make the business better that's a business in decline.

Think about a business that's not a good citizen in the community that routinely ignores or violates local custom in law. That doesn't pay attention to the quality of life in the community, doesn't pay attention to issues of corporate responsibility of sustainability, of its effects uncivil society that's a business that soon to be regulated into decline.

Think about a business that doesn't create value doesn't create profits for its financiers, its shareholders, banks and others, that's a business in decline

So stakeholder theory is the idea that each one of these groups is important to the success of a business, and figuring out where their interests go in the same direction is what the managerial task and the entrepreneurial task is all about.

Stakeholder theory says if you're just focused on financiers you miss what makes capitalism tick. What makes capitalism tick is that shareholders and financiers, customers, suppliers, employees, communities can together create something that no one of them can create alone." Professor Edward Freeman

Who is Professor Edward Freeman?

Edward Freeman is a renowned American philosopher and professor, best known for his work on stakeholder theory in business ethics. He is Elis and Signe Olsson Professor of Business Administration at the University of Virginia's Darden School of Business, a position that underscores his significant contribution to the field.

Professor Freeman's educational background is extensive and diverse. He earned a Ph.D. in philosophy from Washington University and a B.A. in mathematics and philosophy from Duke University. His academic journey reflects a deep commitment to understanding and bridging the worlds of ethical theory and business practice.

Freeman is most celebrated for his seminal work on stakeholder theory, first introduced in his landmark book "Strategic Management: A Stakeholder Approach" in 1984. This theory revolutionized how businesses view their responsibilities, arguing that companies should pay attention not only to shareholders but also to all stakeholders, including employees, customers, suppliers, communities, and the environment. This approach has had a profound impact on modern business practices and corporate social responsibility.

Beyond his academic work, Freeman is a prolific writer and speaker. He has authored or edited numerous books and articles on topics ranging from business ethics and environmental sustainability to stakeholder management and corporate strategy. His work is characterized by an interdisciplinary approach, combining insights from philosophy, ethics, management, and economics.

Freeman is also known for his engaging teaching style and his commitment to mentoring the next generation of business leaders and scholars. His influence extends beyond the classroom through advisory roles, speaking engagements, and participation in various academic and professional organizations.

As an influential thinker in the field of business ethics and corporate responsibility, Edward Freeman continues to shape the way businesses and academics think about the role of corporations in society. His work encourages a more ethical, sustainable, and socially responsible approach to business.

Stakeholder Theory references

R. Edward Freeman, Stakeholder Management [online] Available at: https://redwardfreeman.com/stakeholder-management/ [Accessed 24 July 2013]

Further reading

The Blackwell Handbook of Strategic Management (Blackwell Handbooks in Management) by R. Edward Freeman (Author), Jeffrey S. Harrison (Author), Hitt (Author). 3 Oct 2001.

Stakeholder Theory resources

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