STAKEHOLDER THEORY

- JEFFREY A. MILES

Presentation by:
Muhammad Khurram
 STAKEHOLDERS
DEFINITION:

Stakeholders are individuals or groups who can affect, or are

affected by, the actions and results of an organization
(Freeman,1984).

.
Main ideas in stakeholder theory

 Organizations should also focus on their social performance.

 The needs of all stakeholders in the organization should also be

understood and met.

 Involving stakeholders in corporate decisions is considered an

ethical requirement and a strategic resource.
Sirgy (2002) developed a list of three categories of
stakeholders:

 Internal:
Include employees, executive staff, firm departments, and the
board of directors.

 External:
Include shareholders, suppliers, creditors, the local community
and the environment.

 Distal:
Include rival firms, consumer and advocacy groups, government
agencies, voters and labor unions.
A central idea of stakeholder theory

 Some corporate decision-making power and benefits should

be taken away from the shareholders and given to the
stakeholders (Stieb, 2008).
Stakeholder theory can be categorized from three
points of view:

 Descriptive perspective:
This involves balancing the needs of organizations with the needs
of stakeholders.

 Instrumental perspective:
Firms that consider their stakeholders’ interests will be more
successful than those that do not.

 Normative perspective:
stakeholders are individuals or groups who have legitimate
interests in substantive aspects of the firm
Stakeholder integration
Research also has focused on aspects of stakeholder
integration:
 Such as knowledge of stakeholders and their demands

 Interaction among stakeholders and the firm

 Making decisions that account for stakeholders’ demands

 Uncovering salient stakeholders and prioritizing their

demands
Criticism of the Theory
 It has not been operationalized in such a way that it allows
scientific inspection (Key, 1999).

 Shortcoming of the theory is the problem of identifying

stakeholders (Freeman, 2004).

 Managers may be unable to attend to all stakeholder needs

Clifton and Amran (2011)

 Critics of the theory have condemned the notion that corporate

profits must be sacrificed in order to meet various stakeholder
needs.
 Suggestions for Further Research

 when firms sacrifice too much financially for the sake of

stakeholder interests.

 How stakeholders assess value created for them by

organizations.

 How stakeholder interests are subordinated to the firm’s

interests.

 Conflicts and similarities between stakeholder and shareholder

interests.
Implications of the Theory for Managers
 Organizations should strive to meet the needs of both
shareholders and stakeholders

 Identifying the most important and relevant stakeholders

 Establish a relationship and dialogue with the relevant

stakeholders

 Decide how much power and authority you want to give to

your stakeholders
Conclusion

Thus, stakeholder theory gives an insight towards the

understanding of the organization's stakeholders and their
rights, especially for the organizational managers. Furthermore,
theory contains the balance between economics and ethics
issues and produces several advantages.
THANK YOU!!