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Internal and external stakeholders of a company

A corporate stakeholder is a party that can affect or be affected by the actions of the business as a whole. The steakholder concept was first used in a 1963 internal memorandum at the Stanford Research institute. It defined stakeholders as "those groups without whose support the organization would cease to exist."[1] The theory was later developed and championed by R. Edward Freeman in the 1980s. Since then it has gained wide acceptance in business practice and in theorizing relating to strategic management, corporate governance, business purpose and corporate social responsibility (CSR).

The term has been broadened to include anyone who has an interest in a matter.

In reality, the term means the exact opposite: a person with no interest in a matter who acts as a neutral party, to "hold the stakes" in a bet between two other persons, or, in law, a person holding an asset claimed by two or more persons, who does not himself claim an interest in it (see interpleader). The current opposite usage reflects a misapprehension by persons who did not know the term's meaning.

Contents

Applications of the term

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Examples of a company stakeholders

Stakeholders Examples of interests
Owners private/shareholders Profit, Performance, Direction
Government Taxation, VAT, Legislation, Low unemployment
Senior Management staff Performance, Targets, Growth
Non-Managerial staff Rates of pay, Job security
Trade Unions Working conditions, Minimum wage, Legal requirements
Customers Value, Quality, Customer Care, Ethical products
Creditors Credit score, New contracts, Liquidity
Local Communities Jobs, Involvement, Environmental issues, Shares

Types of stakeholders

  • People who will be affected by an endeavor and can influence it but who are not directly involved with doing the work. In the private sector,*People who are (or might be) affected by any action taken by an organization or group. Examples are parents, children, customers, owners, employees, associates, partners, contractors, suppliers, people that are related or located near by. Any group or individual who can affect or who is affected by achievement of a group's objectives.
  • An individual or group with an interest in a group's or an organization's success in delivering intended results and in maintaining the viability of the group or the organization's product and/or service. Stakeholders influence programs, products, and services.
  • Any organization, governmental entity, or individual that has a stake in or may be impacted by a given approach to environmental regulation, pollution prevention, energy conservation, etc.
  • A participant in a community mobilization effort, representing a particular segment of society. School board members, environmental organizations, elected officials, chamber of commerce representatives, neighborhood advisory council members, and religious leaders are all examples of local stakeholders.

Market (or Primary) Stakeholders are those that engage in economic transactions with the business. (For example stockholders, customers, suppliers, creditors, and employees)

NonMarket (or Secondary) Stakeholders are those who - although they do not engage in direct economic exchange with the business - are affected by or can affect its actions. (For example the general public, communities,activist groups, business support groups, and the media)

Company stakeholder mapping

A narrow mapping of a company's stakeholders might identify the following stakeholders:

A broader mapping of a company's stakeholders may also include:

In management

In the last decades of the 20th century, the word "stakeholder" has become more commonly used to mean a person or organization that has a legitimate interest in a project or entity. In discussing the decision-making process for institutions—including large business corporations, government agencies, and non-profit organizations -- the concept has been broadened to include everyone with an interest (or "stake") in what the entity does. This includes not only its vendors, employees, and customers, but even members of a community where its offices or factory may affect the local economy or environment. In this context, "stakeholder" includes not only the directors or trustees on its governing board (who are stakeholders in the traditional sense of the word) but also all persons who "paid in" the figurative stake and the persons to whom it may be "paid out" (in the sense of a "payoff" in game theory, meaning the outcome of the transaction).

Example

  • For example, in the case of a professional landlord undertaking the refurbishment of some rented housing that is occupied while the work is being carried out, key stakeholders would be the residents, neighbors (for whom the work is a nuisance), and the tenancy management team and housing maintenance team employed by the landlord. Other stakeholders would be funders and the design and construction team.

The holders of each separate kind of interest in the entity's affairs are called a constituency, so there may be a constituency of stockholders, a constituency of adjoining property owners, a constituency of banks the entity owes money to, and so on. In that usage, "constituent" is a synonym for "stakeholder."

In corporate responsibility

In the field of corporate governance and corporate responsibility, a major debate is ongoing about whether the firm or company should be managed for stakeholders, stockholders (shareholders), or customers. Proponents in favour of stakeholders may base their arguments on the following four key assertions:

1) Value can best be created by trying to maximize joint outcomes. For example, according to this thinking, programs that satisfy both employees' needs and stockholders' wants are doubly valuable because they address two legitimate sets of stakeholders at the same time. There is even evidence that the combined effects of such a policy are not only additive but even multiplicative. For instance, by simultaneously addressing customer wishes in addition to employee and stockholder interests, both of the latter two groups also benefit from increased sales.

2) Supporters also take issue with the preeminent role given to stockholders by many business thinkers, especially in the past. The argument is that debt holders, employees, and suppliers also make contributions and take risks in creating a successful firm.

3) These normative arguments would matter little if stockholders (shareholders) had complete control in guiding the firm. However, many believe that due to certain kinds of board of directors structures, top managers like CEOs are mostly in control of the firm.

4) The greatest value of a company is its image and brand. By attempting to fulfill the needs and wants of many different people ranging from the local population and customers to their own employees and owners, companies can prevent damage to their image and brand, prevent losing large amounts of sales and disgruntled customers, and prevent costly legal expenses. While the stakeholder view has an increased cost, many firms have decided that the concept improves their image, increases sales, reduces the risks of liability for corporate negligence, and makes them less likely to be targeted by pressure groups, campaigning groups and NGOs.

Stakeholder view theory

Post, Preston, Sachs (2002), in their theory called Stakeholder view, use the following definition of the term "stakeholder": "The stakeholders in a corporation are the individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and that are therefore its potential beneficiaries and/or risk bearers." This definition differs from the older definition of the term stakeholder in Stakeholder theory (Freeman, 1984) that also includes competitors as stakeholders of a corporation. Robert Phillips provides a moral foundation for stakeholder theory in Stakeholder Theory and Organizational Ethics. There he defends a "principle of stakeholder fairness" based on the work of John Rawls, as well as a distinction between normatively and derivatively legitimate stakeholders.

As jargon in local government

The word "stakeholder" has been listed as one of the top ten classic jargon terms used by English councils, and as such alarms or confuses ordinary people and is best avoided.[2] It is recognised as jargon by the UK government, and defined as such by the Learning and Skills Council.[3] It is argued by the Plain English Campaign that words such as "stakeholder" prevent people from getting involved in local government by making it difficult to understand what is meant, and councillor Tony Greaves actively objects to the word "stakeholder" considering it to be an example of management speak adopted by the Labour Party under its New Labour guise to avoid sounding like socialists.[4]

See also

References

  1. ^ Stockholders and Stakeholders: A new perspective on Corporate Governance. By: Freeman, R. Edward; Reed, David L.. California Management Review, Spring83, Vol. 25 Issue 3, p88-106
  2. ^ "Why do councils love jargon?". BBC.co.uk. http://news.bbc.co.uk/1/hi/magazine/7234435.stm. Retrieved 2009-11-04. 
  3. ^ "Jargon buster - Stakeholder". Learning and Skills Council. http://www.lsc.gov.uk/Jargonbuster/Stakeholder.htm. Retrieved 2009-11-04. 
  4. ^ "One nation under jargon". Times Online. http://www.timesonline.co.uk/tol/news/politics/article6493420.ece. Retrieved 2009-11-04. 

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