Stakeholder Model

Managing for Stakeholders

Throughout the twentieth century, corporations have emerged as one of the most important innovations in the world. Corporations have evolved over time and now employ millions of people in our society. In Edward Freeman’s essay, Managing for Stakeholders, he argues that in today’s world, the purpose of a corporation is to manage in a way that benefits the stakeholders and not only the shareholders.

Freeman defines shareholders as the financiers of the corporation, and the stakeholders as the customers, suppliers, employees, communities, and financiers. In the shareholder model, the corporation puts the financiers at the center of the corporation and believes that the social responsibility is to ultimately create as much value for the shareholders as possible. The shareholder model is not sufficient because it is outdated. In the past, when organizations were much simpler, the shareholder model was applicable because there were very few people involved in “doing business” (p56, Freeman). With the development of new production processes, technologies, and power sources, these businesses were able to grow and affect many more people than they previously could. Companies began to raise larger amounts of capital and now had political and social power. Additionally, the ownership of the business became much more dispersed as the business capital now came from several banks and investors. As a result, the top management of these corporations now had to satisfy the owners, employees, customers, and suppliers.

Besides the fact that the shareholder model is outdated, it simply cannot be applied to in today’s society because of the complexity of the corporation. The shareholder model is resistant to change because it puts the shareholder’s interests over the interests of any other people involved in the corporation. Corporations constantly have to change business strategies in order to be successful. However, the shareholder model...