Stakeholder Theory
A governance framework holding that companies owe obligations to employees, customers, and communities, not just shareholders.
What is Stakeholder Theory?
Stakeholder theory is a management and governance framework that holds companies have obligations to a broad set of constituencies — including employees, customers, suppliers, communities, and the environment — not only to shareholders. The theory was formalized by R. Edward Freeman in his 1984 book "Strategic Management: A Stakeholder Approach." It stands in contrast to the shareholder primacy doctrine popularized by Milton Friedman in 1970, which holds that management's sole obligation is to maximize returns to shareholders. The Business Roundtable's 2019 Statement on the Purpose of a Corporation, signed by 181 CEOs of major US companies, represented a significant public endorsement of stakeholder-oriented thinking.
Example
Unilever's Sustainable Living Plan, launched in 2010, exemplified a stakeholder-theory approach: committing to improve the health of more than 1 billion people, halve its environmental footprint, and enhance livelihoods in its supply chain — all while growing profitability. CEO Paul Polman argued the approach created durable long-term value by strengthening relationships with all stakeholders.
Source: Business Roundtable — Statement on the Purpose of a Corporation