Managing for Stakeholders

22 Pages Posted: 30 Jul 2008 Last revised: 5 Feb 2014

See all articles by R. Edward Freeman

R. Edward Freeman

University of Virginia - Darden School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 2007

Abstract

The purpose of this essay is to outline an emerging view of business that we shall call "managing for stakeholders." This view has emerged over the past thirty years from a group of scholars in a diverse set of disciplines, from finance to philosophy. The basic idea is that businesses, and the executives who manage them, actually do and should create value for customers, suppliers, employees, communities, and financiers (or shareholders). And, that we need to pay careful attention to how these relationships are managed and how value gets created for these stakeholders. We contrast this idea with the dominant model of business activity; namely, that businesses are to be managed solely for the benefit of shareholders. Any other benefits (or harms) that are created are incidental.

Simple ideas create complex questions, and we proceed as follows. In the next section we examine why the dominant story or model of business that is deeply embedded in our culture is no longer workable. It is resistant to change, not consistent with the law, and for the most part, simply ignores matters of ethics. Each of these flaws is fatal in business world of the 21st Century.

We then proceed to define the basic ideas of "managing for stakeholders" and why it solves some of the problems of the dominant model. In particular we pay attention to how using 'stakeholder' as a basic unit of analysis makes it more difficult to ignore matters of ethics. We argue that the primary responsibility of the executive is to create as much value for stakeholders as possible, and that no stakeholder interest is viable in isolation of the other stakeholders. We sketch three primary arguments from ethical theory for adopting "managing for stakeholders." We conclude by outlining a fourth "pragmatist argument" that suggests we see managing for stakeholders as a new narrative about business that lets us improve the way we currently create value for each other. Capitalism is on this view a system of social cooperation and collaboration, rather than primarily a system of competition.

Keywords: business ethics, ethics, stakeholder theory, stakeholder management, shareholder versus stakeholder, value creation, relationship management

JEL Classification: A10, A20, A13, M10, M14

Suggested Citation

Freeman, R. Edward, Managing for Stakeholders (January 2007). Available at SSRN: https://ssrn.com/abstract=1186402 or http://dx.doi.org/10.2139/ssrn.1186402

R. Edward Freeman (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
804-924-0935 (Phone)
804-924-6378 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/freeman.htm

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