Stakeholder Theory

Historical Background

The term stakeholder is not a new one. It dates back at least as far as the early 18th century, where it sometimes appeared in British legal cases to describe a party holding a stake in a financial transaction. In the narrowest sense, a stakeholder was a neutral party to a transaction or wager who held the money in trust—literally holding the stakes. However, by the early 19th century—as detailed in the Oxford English Dictionary—the term had acquired a more expansive definition in two ways. First, its meaning expanded to include all parties to a financial interest, and second, it broadened to describe those parties holding an interest in the broader political system or commonwealth. In some sense, this more expansive use of the term would set the stage for its emergence as a term in the study of business and society.

While the term did not appear explicitly in writing about management for much of the 20th century, the notion that executives must pay attention to the demands of an organization's multiple constituencies has a long history in the early-20th-century precursors to the modern field of organization theory. Mary Parker Follett, an early American management thinker, portrayed the organization as nested in an environment of other actors, each mutually influencing and defining each other. To Follett, the manager's job was to integrate the conflicting interests held by these constituencies, and the success of the company depended, in no small part, on managers recognizing the need to (a) manage all relationships with as much attention as they traditionally paid to personal matters and (b) achieve some degree of creativity in how they dealt with conflicting demands.

...