In his seminal 1984 book, “Strategic Management: A Stakeholder Approach,” University of Virginia professor R. Edward Freeman identified a company’s stakeholders as all the groups and individuals who have a stake in the success or failure of the business – meaning employees, customers, suppliers and affected communities, as well as shareholders.
In contrast to the traditional business-management focus on maximizing shareholder returns, Freeman argued, a business’ long-term performance depends on maximizing value for all its stakeholders, finding “win-win” ways to align their interests whenever possible and striving not to mistreat any important constituency.
That idea led to the creation of the field of stakeholder theory, complete with a biennial conference devoted to it, hosted at rotating institutions.
The latest conference took place this weekend at U.Va.’s Darden School of Business.
“Darden’s longstanding leadership in business ethics made it a natural choice to host the fourth Stakeholder Conference,” said Andrew C. Wicks, Ruffin Professor and director of the Olsson Center for Applied Ethics at Darden. “It is important to hold a gathering of thought leaders to move the theory forward at this critical time in the global economy when many questions are being raised about the role of business and stakeholders.”
While stakeholder theory has been embraced most by the business ethics field, it has come to influence thinking in fields ranging from finance, accounting and marketing to health care, education, public administration, environmental policy and law, said conference participant Robert Phillips, a 1997 Darden Ph.D. graduate who is now an Olsson Center Fellow and associate professor of management at the University of Richmond.
This year’s conference included academics from a range of disciplines, including law, economics, marketing, organizational behavior and organizational theory, and from several countries, including Germany, Switzerland and the United Kingdom, Wicks said.
The evidence of stakeholder theory’s impact continues to grow, Phillips said. Just as the very term “stakeholder” has become common parlance, the language of stakeholders now appears far more prominently in businesses’ mission statements, annual reports and press releases than it did two decades ago, Phillips said. The language used by business leaders both reflects and influences their thinking and decision-making.
In part because of Freeman’s work, companies now realize that engaging with all stakeholders is crucial to long-term sustainability in the marketplace, Wicks said.
Conference presenters gave several examples of how a focus on short-term results (often in the form of stock prices) may end up harming a company in the long run.
Conference speaker Lynn Stout, a law professor at Cornell University, made that point in her new book, “The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public.” When managers focus myopically on short-term earnings, she said, they end up shortchanging investment and innovation, and ultimately harm employees, customers and communities.
Thanks in part to new approaches from different disciplines that are further developing or bolstering stakeholder theory, stakeholder theory is changing how academia and society think about business, said Freeman, a University Professor, Elis and Signe Olsson Professor of Business Administration, and academic director of the Business Roundtable Institute for Corporate Ethics.