Managing for Stakeholders

Abstract

Managing for Stakeholders is used in the Darden School's first-year required "Business Ethics" course. This note explains managing for stakeholders, an emerging view that, basically, businesses and the executives who manage them actually do and should create value for customers, suppliers, employees, communities, and financiers (or shareholders)--which contrasts with the dominant idea that businesses are to be managed solely for the benefit of shareholders. The note examines why the dominant model is no longer viable in today's business world, then goes on to define the basic ideas of managing for stakeholders (and why it solves some of the problems of the dominant model) and to sketch three primary arguments from ethical theory for adopting managing for stakeholders.

Excerpt

UVA-E-0383

Rev. Jan. 11, 2019

Managing for Stakeholders

Introduction

The purpose of this note is to outline an emerging view of business that we shall call “managing for stakeholders.” This view has emerged over the past 30 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 the business world of the 21st century.

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Keywords: business ethics, stakeholder management, ethical theory, management