Stakeholder Theory

Some writers have said that the overriding purpose of management is maximize stockholder wealth. R. Edward Freeman, author of a book on stakeholder management (1984), defines stakeholders as any group or individual who can affect, or is affected by, the performance of the organization. Newbould and Luffman (1979) divide the major stakeholders into four groups, arguing that their individual objectives suggest seperate criteria for assessing the viability of particular strategies.

The four groups are the shareholders who finance the business, the managers who manage it, the employees who work for it, and the economy (buyers, suppliers, and the groups represent the wider economic interests of the country). Newbould and Luffman argue that current and future strategies are affected by:

  • external pressures from the marketplace, including competitors, buyers and suppliers; shareholders; pressure groups; and government;
  • internal pressures from existing commitments, managers, employees and their trade unions;
  • the personal ethical and moral perspectives of senior managers.

Given this view, the task of management becomes on of satisfying stakeholders' wants and needs and of managing the relationships between, and often conflicting demands of, various stakeholders. It is important to establish priorities amongst the several and varied stakeholders and objectives.

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Establishing Organizational Direction: Mission And Objectives
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