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Discovering management
Discovering management

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1.4.1 Who are stakeholders?

It is essential to distinguish between stakeholders and shareholders. Shareholders – owning part of a company by holding stock or shares – are certainly stakeholders in a commercial business but they are by no means the only stakeholders, as we shall discover in a moment. The aims and objectives of all the different stakeholders may well not be the same as those of the shareholders and this may result in tension or conflict, which must be managed.

A fuller discussion of the competing claims of shareholder and stakeholder theory lies beyond the scope of this short reading, but in an article for the Sloan Management Review, Smith (2003, p. 85) informs us that according to shareholder theory, a manager’s primary duty is to maximise shareholder returns, whereas stakeholder theory argues that ‘a manager’s duty is to balance the shareholders’ financial interests against the interests of other stakeholders such as employees, customers and the local community, even if it reduces shareholder returns.’

Stop and reflect

If a private sector manager’s duty is to balance shareholders’ financial interests against the interests of other stakeholders, what kind of ethical dilemmas might this give rise to? Can you think of an organisation where the financial interests of shareholders conflict with the needs or wishes of its stakeholders? How does this tension manifest itself?

Definitions of stakeholder

So who are the stakeholders? There are many different definitions of the word ‘stakeholder’–this seems to be a familiar refrain in business studies and one of the reasons why the study of management is so complex and contested. Here are some typical definitions of ‘stakeholder’ from the literature:

Any group or individual who can affect or is affected by the performance of the achievement of the organisation’s objectives.

(Source: Freeman, 1984, p. 46)

Any person group or organisation that can place a claim on the organisation’s attention, resources, or output, or is affected by that output.

(Source: Bryson, 1995, p. 27)

People or small groups with the power to respond to, negotiate with, and change the strategic future of the organisation.

(Source: Eden and Ackermann, 1998, p. 117)

Stakeholders are the individuals and groups affected by and capable of influencing the development and implementation of strategy and policy proposals.

(Source: Prime Minister’s Strategy Unit, 2004)

Those persons and organisations that have an interest in the strategy of the organisation. Stakeholders normally include shareholders, customers, staff and the local community.

(Source: Chartered Institute of Management Accountants, 2005, p. 53)

Individuals or groups who depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends.

(Source: Johnson et al., 2008, p. 132)

Those persons and groups who contribute to the wealth-creating potential of the firm and are its potential beneficiaries and/or those who voluntarily or involuntarily become exposed to risk from the activities of a firm.

What can we conclude from these definitions? In addition to being affected by an organisation’s decisions or actions, stakeholders may have an influence on what it does, the resources it may be able to call upon, and what it should achieve.

Stop and reflect

If stakeholders have an influence on what an organisation does, the resources it may be able to call upon, and what it should achieve, what issues does this pose for those who manage the organisation?

Importantly, although early definitions of the term ‘stakeholder’ lean towards the private sector, most of the above definitions are generic since they apply equally to public sector organisations as well. However, while there may be some commonality between the stakeholders of a private sector organisation and a public sector organisation, for example employees, the degree of difference in the list of both organisations’ respective stakeholders will to a great extent be determined by the purpose and mission of the organisation. Let us look briefly at two examples.