What is stakeholder theory?

Stakeholder theory is fundamentally about recognizing the diverse groups that have a stake in the operations of a business. This approach posits that businesses have obligations not only to their shareholders but also to other stakeholders, such as employees, customers, suppliers, the local community, and society at large. By prioritizing the interests of all stakeholders, this theory advocates for a more holistic view of business responsibility and promotes sustainable practices that benefit various groups rather than focusing solely on profit maximization for shareholders.

This perspective encourages companies to consider the impact of their decisions on all stakeholders and to find ways to balance those interests, which can ultimately lead to long-term success and ethical business practices. By doing so, organizations can foster relationships and trust within the community, leading to a positive reputation and better overall performance.