Stakeholder Theory

Corporations are subject to pressures from increasing numbers of constituents. Organizational theories are poorly equipped to address corporate functioning amidst a growth in globalization, technological advancement, social activism, international interest groups, heightened consumer preferences, and heightened environmental concerns, as well as shifting regulatory environments. As such, Edward Freeman popularized stakeholder theory in the mid-1980s as a practical theory to maximize corporate financial performance. Stakeholder theory states that corporations should be managed with regard to all their stakeholders, not just shareholders. Corporations often become overly focused on economic self-interest, which can become detrimental to the firm and other important constituents in society. Stakeholder theory considers a corporation’s interactions with its constituents to be an essential consideration not just for long-term organizational survival but for profit maximization ...