STAKEHOLDERS

The role of stakeholder is a very old concept in the law. A stakeholder was originally a person who holds money or other property while its owner is being determined. The situation often arises when two persons bet on the outcome of a future event and have a third, disinterested, neutral person act as the stakeholder, holding the money (or "stake[s]") they have both wagered (or "staked") until the event occurs. Courts sometimes act as stakeholders, holding property while litigation between the possible owners resolves the issue of which one is entitled to the property, and trustees often act as stakeholders, holding property until beneficiaries come of age, for example. An "escrow agent" is one kind of trustee who is a stakeholder, usually in a situation where part of the purchase price of property is being held until some condition is satisfied. In legal documents, the escrow agent is often referred to as a "mere stakeholder."

More recently, there is a broader - and in some senses, opposite - meaning of the term, which includes:

• People who will be affected by an endeavor and can influence it but who are not directly involved with doing the work. In the private sector, examples include Managers who are affected by a project; Process Owners, People who work with the process under study, Internal departments that support the process, customers, suppliers, and financial department.

• People who are (or might be) affected by any action taken by an organization or group. Examples are: parents, children, customers, owners, employees, associates, partners, contrators, suppliers, related people or located near by. Any group or individual who can affect or who is affected by achievement of a group's objectives.

• An individual or group with an interest in the success of a group or an organization in delivering intended results and maintaining the viability of the group or organization's product and/or service. Stakeholders influence programs, products, and services.

• Any organization, governmental entity, or individual that has a stake in or may be impacted by a given approach to environmental regulation, pollution prevention, energy conservation, etc.

• A participant in a community mobilization effort, representing a particular segment of society. School board members, environmental organizations, elected officials, chamber of commerce representatives, neighborhood advisory council members and religious leaders are all examples of local stakeholders.

Stakeholders, in these senses, are more coherently described as "interest groups."

Stakeholder view

Post, Preston, Sachs (2002), in their theory called Stakeholder view, use the following definition of the term "stakeholder": "The stakeholders in a corporation are the individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and that are therefore its potential beneficiaries and/or risk bearers."

This definition differs from the older definition of the term stakeholder in Stakeholder theory (Freeman, 1984) that also includes competitors as stakeholders of a corporation.

Common usage

In the last decades of the 20th century, the word "stakeholder" has evolved to mean a person or organization that has a legitimate interest in a project or entity. In discussing the decision-making process for institutions -- including large business corporations, government agencies and non-profit organizations -- the concept has been broadened to include everyone with an interest (or "stake") in what the entity does. That includes not only its vendors, employees, and customers, but even members of a community where its offices or factory may affect the local economy or environment. In that context, "stakeholder" includes not only the directors or trustees on its governing board (who are stakeholders in the traditional sense of the word) but also all persons who "paid in" the figurative stake and the persons to whom it may be "paid out" (in the sense of a "payoff" in game theory, meaning the outcome of the transaction).

Example

• For example in a project of - say - a professional landlord undertaking the refurbishment of some rented housing that is occupied while the works are being carried out, key stakeholders would be the residents, neighbours (building works creates a nuisance for them), the tenancy management team and housing maintenance team within the landlord. Other stakeholders would be funders and the design and constructing team.

The holders of each separate kind of interest in the entity's affairs are called a constituency, so there may be a constituency of stockholders, a constituency of adjoining property owners, a constituency of banks the entity owes money to, and so on. In that usage, "constituent" is a synonym for "stakeholder."

In the field of corporate governance and corporate responsibility a major debate is ongoing about whether the firm should be managed for stakeholders, stockholders or customers. Those who support the stakeholder view usually base their arguments on three key assertions.

1) Value can best be created by trying to maximize joint outcomes. For example, according to this thinking, programs that satisfy both employees' needs and stockholders' wants are doubly valuable because they address two legitimate sets of stakeholders at the same time.

2) They also take issue with the preeminent role given to stockholders by many business thinkers. The argument is that debt holders, employees, and suppliers also make contributions and take risks in creating a successful firm.

3) These normative arguments would matter little if stockholders had complete control in guiding the firm. However, many believe that due to certain kinds of board of directors structures, top managers like CEOs are mostly in control of the firm.

Examples of common stakeholders

See also

• Stakeholder analysis
• Stakeholder pension scheme - a type of pension introduced by the UK Labour government in 2001.
• Stockholder

External links