Stakeholder Theory: Impacts and Importance

This assignment delves into Freeman's definition of stakeholders as any group or individual affected by an organization's objectives. It explores the importance of implementing stakeholder theory for ethical management, outlining the benefits of balancing stakeholder interests and the potential risks of disregarding their concerns. The document also highlights the role of reputation and trust in successful business operations.

Stakeholder as Defined by Freeman
Stakeholders, as defined by Dr Freeman, are any group or individual who can get affected by
affecting the achievement of objectives of an organization. The theory is concerned with managing
business organizations ethically. This theory was initiated by Dr Freeman in his book Strategic
Management which stated methods by which management can give importance to this group. The
companies have a binding fiduciary duty to put their needs first and take efforts to increase value for
them. This is known as the traditional view of stakeholders. This group includes suppliers, government,
creditors, society and also the employees, managers and owners. This also includes trade associations and
unions. With the given definition, sometimes the stakeholders can also be counted as stakeholders in a
way that they have the capacity to affect the objectives of the organization.
Figure 1: Stakeholder Group as defined by Dr Freeman
Reasons for which the companies must implement stakeholder theory and the risks if they don’t
In order to think through novel business functions, processes and structure it is very important for
businesses to implement the stakeholder theory. In the design of any organization, unit of analysis is
based on the relationship with the stakeholders. Thus, it is necessary to create a balance of stakeholder’s
interest over time. Balance does not mean trading off interests of one group with another, but it means

bringing harmony among all. At some point or the other, every business executive is concerned about
their reputation. Thus, if they do not follow the stakeholder theory there will not be able to gain the trust
of various groups which may be utmost importance.

References
Video link
http://www.youtube.com/watch?v=Ih5IBe1cnQw