Full Answer
What is Stakeholder theory according to Dr. Freeman?
There have been many definitions of stakeholders. R. Edward Freeman originally detailed the Stakeholder theory of organizational management and business ethics that addresses morals and values in managing an organization.
What is stakeholder management theory?
The stakeholder theory is a theory of organizational management and business ethics that accounts for multiple constituencies impacted by business entities like employees, suppliers, local communities, creditors, and others. Secondly, what is stakeholder theory in corporate governance?
What is the stakeholder theory?
Stakeholder theory has a perfect alignment with CSR philosophy to cater to multiple stakeholders. Social Contract theory and Political theory help study “mandatory” nature of CSR that is being introduced over last decade in multiple countries globally ranging from mandatory reporting to mandatory spending.
What is Shareholder theory?
What is Shareholder Theory? Shareholder theory is the view that the only duty of a corporation is to maximize the profits accruing to its shareholders. This is the traditional view of the purpose of a corporation, since many people buy shares in a company strictly in order to earn the maximum possible return on their funds.
What is the difference between profit and value in Freeman's stakeholder theory?
You'll notice right off that Freeman's Stakeholder Theory replaces the term profit with the term value. Profit is a measurement in dollars, while value might be measured in all sorts of ways. Think of the sorts of things that you value. I'm sure money is on that list, but it's not the first or the only thing on the list. Probably the top few look like this:
What is Freeman's stakeholder theory?
Freeman's Stakeholder theory allows us to give consideration to those things that are appropriate to the circumstances. In other words, it will allow us to create positive, lasting relationships with the community that we interact with.
Is it true that we value money?
It's obviously true that we value money (and therefore profit), but it certainly isn't the only thing that we value and we don't value it the most. There are other things which are more important to us. If we are to create value for the various groups that Freeman mentions, then that value may be of many different sorts.
Can a business exist in a vacuum?
A business, even a very successful one, cannot exist in a vacuum. It requires that there be investors to give them money, customers to buy their goods/services, employees to serve the customers, suppliers to sell them the goods that they will sell, and a community within which they can thrive.
Why does Freeman believe that CSR encourages innovation?
Therefore, Freeman maintains that CSR encourages innovation because it opens the door to a world of possibilities.
What is the purpose of the stakeholder theory?
Freeman's stakeholder theory was first created to put forward another vision of what a company's objective, its raison d'être, is.#N#At the time when he wrote this theory, the dominant ideology, upheld by figures like Milton Friedman, is the idea that a company's aim is to accumulate profit so it can then be redistributed amongst the shareholders.#N#EdFreeman says that this is a mistake. Profit is a consequence of the company's activity, not is primary cause. From his point of view, Friedman's idea means that companies only focus on the shareholders and not the others also impacted by the company's activity, such as the clients, the employees and the suppliers. And yet, without them, the company would go bankrupt.#N#Freeman concludes that the company's aim is to meet the needs of stakeholders, that is any person who is affected by the decisions made by the company; if this is done, profit will be made.
What is Ed Freeman's philosophy?
He believes in the ability of human beings to find an agreement to living together. Freeman is a philosopher. His work is the field of moral philosoph y and more precisely in business ethics.
What is Friedman's idea of profit?
From his point of view, Friedman's idea means that companies only focus on the shareholders and not the others also impacted by the company's activity, such as the clients, the employees and the suppliers.
Why is Freeman's vision revolutionary?
Freeman's vision is revolutionary because it gives us a completely different perception of companies. His vision includes three key points which make the whole coherent:
Who is Ed Freeman?
He is an extremely active author in research journals specialised in business and management ethics.
Is Freeman a pragmatic person?
Freeman is pragmatic. From a philosophical perspective, Freeman considers that there must be no absolute decision principles. The company must accept to challenge each of its opinions, in order to really take its stakeholders' needs into account. Of course, it is not expected to give up all its principles, but at least, it will have questionned their relevance.
What is stakeholder theory?
Stakeholder Theory is a view of capitalism that stresses the interconnected relationships between a business and its customers, suppliers, employees, investors, communities and others who have a stake in the organization. The theory argues that a firm should create value for all stakeholders, not just shareholders.
Who developed the stakeholder theory?
The theory argues that a firm should create value for all stakeholders, not just shareholders. In 1984, R. Edward Freeman originally detailed the Stakeholder Theory of organizational management and business ethics that addresses morals and values in managing an organization.
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What is the stakeholder ecosystem?
The stakeholder ecosystem, this theory says, involves anyone invested and involved in, or affected by, the company: employees, environmentalists near the company’s plants, vendors, governmental agencies, and more. Freeman’s theory suggests that a company’s real success lies in satisfying all its stakeholders, not just those who might profit ...
What does Freeman say about profits?
“If you can get all your stakeholders to swim or row in the same direction, you’ve got a company with momentum and real power,” Freeman says. “Saying that profits are the only important thing to a company is like saying, ‘ Red blood cells are life.’ You need red blood cells to have life, but you need so much more.”
Why is stakeholder theory important?
Stakeholder theory is even more important in the new global economy, Freeman notes. An organization needs to be mindful not only of those who hold stock in the company, but also of those who work in its stores, those who work and live near its factories, those who do business with it, and even of competitors, as the company may shape ...
What is the stakeholder theory of the global economy?
He speaks of a hypothetical manufacturer of a popular product, which is sold around the world, though primarily in the Americas and Europe.
What is the effective use of stakeholder theory?
The effective use of stakeholder theory also yield s good public relations. If the condo-building company builds a park for the local neighbors, and cleans up a nearby creek that’s an important watershed in the area, the entire city will have a much more favorable view of the company, paving the way for long-term future success.
When did Edward Freeman publish his stakeholder theory?
When Edward Freeman first published his book about stakeholder theory in 1984, it raised awareness of the relationships and the ripple-effect of a company and its many stakeholders.
What is the Friedman theory?
Also called the “Friedman doctrine,” shareholder theory, outlined in Friedman’s book “ Capitalism and Freedom ,” states that a company has no real “social responsibility” to the public, since its only concern is to increase profits for the shareholders. The shareholders, in turn, would privately shoulder any social responsibility.
Why are shareholders important?
As much as stakeholders propel business growth, shareholders provide much-needed control, governance, and finances for business organizations. Investor communication expenses are also facilitated by shareholders. Even at a time when a business organization is declining in performance, the management can only peg its hope on the shareholders (Wall & Greiling, 2011). Hence, we may conclude that businesses can run (though dismally) in the absence of stakeholders but can completely stagnate when shareholders withdraw their services.
What are some examples of social responsibility?
A good example is corporate social responsibility. It is prudent for businesses to adhere to communal laws and regulations and equally ensure sustainability in the course of operations. Freeman (2009) strongly believes that businesses that do not consider the community as a vital stakeholder are bound to fail. In fact, the author notes that businesses should be ‘good citizens’ towards the communities they serve.
What is the actual working nature of a business?
According to Freeman (2009), the actual or practical working nature of businesses can be best explained by stakeholder theory. Individuals and groups such as banks, shareholders, financiers, communities, employees, suppliers, and customers should receive value for their money in order to guarantee the success of any type of business.
Why is it important for employers to be stakeholders?
Employers, as stakeholders, are also instrumental in the growth of a business organization (Freeman, 2009). They should utilize their best skills and efforts to deliver value at their respective workplaces. Commitment and dedication are the key features of successful employees. Freeman feels that employees can input their creativity and energy in making sure that businesses do not decline or shrink in performance.
Who wrote the stakeholder theory essay?
This essay on “Stakeholder Theory:” by Edward Freeman was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly .
Is it permissible to view stakeholder theory?
The stakeholder theory also states that it is not permissible to view the stakes of the aforementioned individuals and institutions in isolation. In other words, their interests should be considered together. In addition, moving the interests of financiers, employees, communities, suppliers, and customers along the same path is the main duty of entrepreneurs or managers.
How does stakeholder theory help organizations?
Applying the stakeholder theory can benefit organizations in an operational, ethical, and practical sense. Here are some ways that companies can benefit. 1. Clarifying ethical quandaries. Stakeholder theory is a practical model that can guide your business’s organization and operational processes.
Why is stakeholder theory important?
As the modern business world continues to evolve toward more ethical business practices that look beyond the needs of the “1%, ” the stakeholder theory can serve as an excellent guide for greater inclusivity. By recognizing the importance of stakeholders through their organizational structures and operational processes, companies can foster positive relationships with the stakeholders they rely on—and enjoy greater long-term success.
What happens when a company alienates a key stakeholder group?
If a company alienates a key stakeholder group by ignoring their interests, they may face hurdles to business operations. For example, ignoring the needs of workers can result in decreased morale, while providing bad customer service can diminish consumer loyalty. Prioritizing stakeholder interests supports sustainability and growth. Growth could also entail connecting with new stakeholders—for example, hiring independent professionals to support digital transformation.
What is a stakeholder in the organization?
According to stakeholder theory expert Thomas Donaldson, a stakeholder is “an individual or organization likely affected by the performance of an organization.”. Here’s a list of common stakeholders and a brief description of how the stakeholder theory might conceptualize success in the form of stakeholder benefit: ...
How to use stakeholder analysis?
The first step in adopting the stakeholder theory is listing all company stakeholders. You can then match this list against a list of business objectives (short- and long-term goals) and activities (projects, key performance indicators, etc.). A stakeholder analysis aims to determine which stakeholders benefit from which business successes. You can then identify gaps—which stakeholders are failing to benefit?—and determine how to close those gaps.
What is Upwork platform?
Upwork provides a far-reaching platform where you can hire the right freelance experts to join your company’s ecosystem. You can also find experts on the platform to help in your mission to implement the stakeholder theory in your organization. Whatever you need, Upwork has you covered.
What is a stakeholder in business?
A stakeholder is any individual, entity, or group impacted by a company’s operations. This could include workers, suppliers, customers, and more. The stakeholder theory argues that a company wouldn’t exist without stakeholders, presenting the corporate world as an ecosystem of interconnected groups. In this ecosystem, businesses should consider all ...
Origins of CSR
Freeman's Perspective
- Freeman is a philosopher. His work is the field of moral philosophy and more precisely in business ethics. He became known in 1984 with his founding book which really generalised the word stakeholder. At that time, he is professor and researcher at Wharton Business School. Now, he teaches at Darden Business School in Virginia.
The Specifics of The Stakeholder Theory
- Freeman's stakeholder theory was first created to put forward another vision of what a company's objective, itsraison d'être, is. At the time when he wrote this theory, the dominant ideology, upheld by figures like Milton Friedman, is the idea that a company's aim is to accumulate profit so it can then be redistributed amongst the shareholders. EdF...
His Life After He Wrote His Theory
- Ed Freeman is unusual in the sense that he has answered most of the criticisms of his stakeholder theory. He is an extremely active author in research journals specialised in business and management ethics. In 2010, he also wrote a book with his colleagues from the Darden Business School which summarised his work - Stakeholder Theory, "State of the art", published b…
Posterity
- The stakeholder theory is now widely circulated and is included in ISO 26000, the international standards providing guidelines for corporate social responsibility.