Stakeholder theory suggests that a business’s purpose goes beyond generating profit for owners and investors, as it impacts the lives of various people. Anyone with a direct financial interest in a business can be considered a stakeholder, including employees, suppliers, and the community. The theory’s application varies based on the specific factors surrounding a company.
Stakeholder theory is a type of approach that deals with how stakeholders approach the reasons for the establishment and continued operation of a business. There are actually a number of different approaches to the theory, with the underlying foundation often including the debate as to whether or not a business exists for any reason other than to make money for the owners. The stakeholder theory holds that making a profit for the owners is only one of the reasons for a company’s existence, as the direct and indirect benefits associated with the operation impact the lives of various people, effectively providing them with a stake or interest. in the continuing operation of that company.
A key element in understanding stakeholder theory is having a working definition of what constitutes a stakeholder. In a sense, anyone who has a direct financial interest in a business can rightly qualify as an interested party. This means that the owners of the company, as well as any investors holding shares issued by the company, are interested parties. At the same time, the definition is often broad enough to include others who benefit from the ongoing operation, including vendors and suppliers, employees, and even the owners of other businesses who may sell goods and services to those employees. When viewed from this point of view, any community in which the business operates can be said to have at least a small stake in the business and its operation.
One basis of stakeholder theory is that the purpose for establishing and operating a business goes beyond simply generating profit for those with a financial stake in the business. The revenue generated by a business also helps support local and sometimes national economies, producing benefits that citizens earn with no direct connection to that business. For this reason, municipalities will often offer incentives to keep a business located within their city limits, or a national government may provide financial aid to corporations that provide goods and services deemed important to maintaining a stable economy.
The actual application of stakeholder theory is often determined by the specific factors surrounding a given company and how far its influence extends. Almost any type of business has some impact on people other than owners and investors. Even the loss of a local business will have some impact on the life of that community, as the closure can have a negative effect on the quality of life within the immediate area by creating more unemployment, forcing consumers to search for goods and services elsewhere need and want, and generally create an economic imbalance that must be rectified for the community to recover.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
