Stakeholder: any group or individual who can affect, or is affected by, the achievement of a company’s purpose (R. Edward Freeman, Strategic Management, Boston: Pitman. 1984: p. vi). Examples might be a company’s employees, shareholders, customers, suppliers, communities in which it operates, governments with jurisdiction over it, competitors, among others.
We contrast stakeholders with the narrower legal definition of the duties of managers to their owners (my other note). The narrow definition is that the manager has a duty of loyalty and prudence (business judgment rule) to serve the owners (shareholders) of the firm because they have entrusted to the manager their equity capital. The legal definition gives a clear duty: work on behalf of the shareholder. Of course, what is less clear is to identify precisely the actions that are merited to achieve that outcome (some of those actions may be directed towards other stakeholders).
With a wider set of actors, the question becomes, what do we do? For a large
enterprise, one can imagine that this list of stakeholders is quite large,
diverse, with many making divergent demands. For each stakeholder, the manager
should assess the claim (what do they want?, or alternatively, how have we
affected them through our activities), their source of power, their level of
power, and whether or not the level is changing. The analogy in Rachels is the
search for facts – just what is going on with these stakeholders?
Freeman says the touchstone to making such a decision about stakeholders is through the company’s enterprise strategy. Enterprise strategy encompasses what a company should do—it answers the question, what do we stand for? That is, what is the set of values that this organization seeks, retains, and acts upon. Enterprise strategy does not prescribe (in a normative sense) the set of values: it just focuses management on defining, articulating (such as through a mission statement), and implementing (through company policies) them throughout the firm. Note that this is a normative choice: some companies may chose to maximize returns for their shareholders (some sort of “expanded egoism”) while others may try to produce adequate financial returns while working to improve the local community (some sort of social justice). Freeman advocates that each of these firms act consistently according to their enterprise strategy across issues as they arise. Thus, over time, there will be some decision-making consistency as firms face choices.
Copyright 2002, Doug Schuler
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