Stakeholder Theory Essay

Stakeholder Theory Essay

Name: McGrath, D.

Stakeholder theory is an ethical approach to corporate social responsibility (CSR) that advocates the belief that businesses must take into account the needs of all of its stakeholders in order to be truly successful (Freeman, 1984) and whether or not managers should be concerned with stakeholders has been the subject of much debate in the business community. Indeed the very idea of corporations having social responsibilities has generated polarized views with the key positions being either the “hands off” Milton Friedman (1970) approach where he maintained businesses should only be concerned with making profits or the “hands on” approach of Freeman (1984) who was the key proponent of corporate social responsibility through strategic stakeholder management.

The traditional shareholder-centric model (as espoused by Adam Smith) held that the pursuit of profit for the benefit of shareholders by any means necessary was justified, as long as they were not illegal (Clarkson, 1995). However most of our laws are reactive in that they try to redress an inequality or problem that has occurred and this poses problems for two reasons. Firstly, at the pace at which today’s business environment and technology are changing it would be almost impossible for legislation to stay abreast of it and therefore would always be in catch-up mode. Secondly, we have a moral imperative to consider the impact on the environment of our activities. Many companies have taken the Friedman view at a catastrophic cost to the natural world e.g. the oil leaks in the Nigerian delta region where oil companies have acted with such impunity and reckless disregard for the impacts on the local communities that much of the region has been devastated (Vidal, 2010).

Freeman’s (1984) landmark work defined stakeholders as any parties who have the potential to affect or be affected by the activities of an organization and his views wielded significant...