Stakeholder Theory recognizes the existence of all groups and individuals who benefit from or are harmed by corporate actions. These stakeholders are actors who have an interest in the operations of a company because they are affected by it.
A primary goal of most firms is to maximize the wealth of their shareholders but shareholders are not the only stakeholders in companies. Suppliers, employees and consumers are also important stakeholders that need to be taken into account during the process of decision making.
Stakeholder theory suggests that it is necessary to take the wilder interests of all stakeholders into account. Stakeholder theory explains who are stakeholders and the link between stakeholders and firm goals.
Stakeholder theory has descriptive, normative and instrumental applications. The descriptive level mainly describes the behaviors of firms, which is to enhance financial and social performance.
Normative approach examines the function of corporations and talks about moral and philosophical principles for operation and management of firms. Firms should care about shareholders but should also care about other stakeholders such as customers, employees and suppliers. The instrumental implications suggest that conventional profitability goals of enterprises can be achieved if firms adhere to stakeholder principles.
Related: Check out more business ethics and Responsibility Theories
BATheories.com is managed by a group of educators from Mumbai. We also manage the website StudyMumbai.com. Our panel includes experienced professionals and lecturers with a background in management. BATheories is where we talk about the various business theories and models for BA (Business Administration) students.