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The Stakeholder View

To develop this theory, the organization has to be viewed as a stakeholder organization. Stakeholder theory is most closely associated with R. Edward Freeman, Olsson Professor of Applied Ethics at the University of Virginia's Darden School. The theory holds that managers ought to serve the interests of all those who have a "stake" in (that is, affect or are affected by) the firm.
Stakeholders include shareholders, employees, suppliers, customers, and the communities in which the firm operates - a collection that Freeman terms the "big five". The very purpose of the firm, according to this view, is to serve and coordinate the interests of its various stakeholders. It is the moral obligation of the firm's managers to strike an appropriate balance among the big five interests in directing the activities of the firm.

Why Stakeholder View is Important?

According to corporate law, a company's financiers are its owners, and employees are treated as property and recorded as costs. But whereas that might have been true in the early days of industry, it does not reflect today's reality. Now a company's assets are increasingly found in the employees, who contribute their time and talents rather than in the stockholders, who temporarily contribute their money. The language and measures of business must be reversed. In a knowledge economy, a good business is a community with a purpose, not a piece of property.

Similarly, there is an increasing shift from viewing suppliers as impediments to growth and a cost to looking at them for innovation and as partners in development of new processes and products.

It is essential that all these stakeholders be managed optimally. Hence, we see organizations investing in human capital developments, supplier management, customer relationships and lobbying with the governments. If this is linked to the theory that all this is done so that the sustainable profits to the shareholders are ensured, we can claim to have a course of action for organizations.

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* Contributed by: -
Saurabh Goswami & Malini Pande,
II Year Students,
IIM Kozhikode.