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Stake Holders Theory

The document discusses stakeholder theory, which states that a business's purpose is to create value for stakeholders beyond just shareholders. This includes groups both inside and outside the company that are necessary for long-term success. Stakeholder theory was coined by Edward Freeman and involves six principles of connection between stakeholders and corporations. The document then categorizes organizational, economic, and societal stakeholders and discusses how stakeholder theory relates to corporate governance and considerations of all stakeholder interests.

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ANZEL JUSTIN DE LEON
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167 views2 pages

Stake Holders Theory

The document discusses stakeholder theory, which states that a business's purpose is to create value for stakeholders beyond just shareholders. This includes groups both inside and outside the company that are necessary for long-term success. Stakeholder theory was coined by Edward Freeman and involves six principles of connection between stakeholders and corporations. The document then categorizes organizational, economic, and societal stakeholders and discusses how stakeholder theory relates to corporate governance and considerations of all stakeholder interests.

Uploaded by

ANZEL JUSTIN DE LEON
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Stake holders theory

Stakeholder theory states that the purpose of a business is to create value for wider group

stakeholders other than just shareholders. This theory considers the corporate environment as a

network of interconnected groups, all of which are required to be pleased to sustain the healthy

and success of the company in the long-term.

The stakeholder theory was coined originally by Edward Freeman as he recognized such

as an important element of Corporate Social Responsibility (CSR).

According to Freeman there are six principles that must direct the connection between

the stakeholders and the corporation, which are

1. The principle of entry and exit

2. The principle of governance

3. The principle of externalities

4. The principle of contract costs

5. Agency principle

6. The principle of limited immortality

Organizational Stakeholders.

Organizational stakeholders are those people that are present inside the company. They

have a direct interest on how the company is doing. These stakeholders usually make certain that

the company is robust and healthy to seek advantages and benefits from it.

Economic Stakeholders

In this group, the customers in addition to bankers, creditors and suppliers are the most

important stakeholders. These people function as the essential boundary between the company

and the bigger societal environment. Customers are regarded as very important because without

their loyal customers a company may not even exist.


Societal Stakeholders

These stakeholders regulate the business setting under which the companies function.

Government agencies, regulators communities and the environment itself are the major players

here. Obviously, a company is required to follow the laws and to respect certain issues the

society is involved. A company will not go wrong in its business dealings when it has a good

relationship with these stakeholders.

Stakeholder Theory in Corporate Governance

The stakeholder theory in corporate governance centers on the effects of corporate activities on all
recognizable stakeholders of the company. This theory suggests that corporate officers and directors
must consider the interests of every stakeholder in its governance practice.

It is highly essential that a company must communicate its corporate governance to make sure that
there is a strong relationship between the community and the investor. It is the board of directors who
could either be appointed but mostly are elected that makes important decisions.

Video

1. Rights and equitable treatment of shareholders-Shareholders have certain rights which a


company must respect
2. Interests of other stakeholders
3. Role and responsibilities of the board
4. Integrity and ethical behavior
5. Disclosure and transparency

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