In this chapter we shall explore the footprint of stakeholder theory in some of the disciplines that are less frequently linked with business, but are nonetheless important to the study of organizations. The specific focus is on the use of stakeholder theory in the law, in public administration, in health care, and in environmental policy. As originally formulated, stakeholder theory is a theory about (business) organizations, so it is not surprising to see that stakeholder theory has had considerable influence on strategy, ethics, and other related disciplines. Other chapters of this book lay out in detail the considerable influence that stakeholder theory has had on research in these areas. What is more surprising, and a testament to the power and salience of stakeholder theory, is to see its influence in a range of other literatures that are partly inside and partly outside the domain of business.

Equally interesting are the ways in which stakeholder theory is interpreted and applied within these literatures. While there are some discussions of the normative dimensions of stakeholder theory, much of this literature focuses on instrumental use of the concept and specific methods for mapping out and engaging stakeholders. As was noted in Chapter 5, most of the work has involved the literatures under review here borrowing concepts from stakeholder theory rather than focusing on contributions to the core stakeholder literature, particularly as it relates to its normative dimensions.

Many of the arguments in this book will seem unusual to those scholars who are accustomed to reading the traditional management journals, such as Academy of Management Review, Academy of Management Journal, and Administrative Sciences Quarterly. Indeed, traditional philosophers who teach business ethics and read the Journal of Business Ethics and Business Ethics Quarterly may also not recognize the kind of arguments that we use here. Each of the intellectual communities of which these journals are a part has fairly well-defined ideas about the use of such terms as “theory,” “method,” “hypothesis,” “proposition,” and other philosophical concepts. While we respect, reference, and quote the bodies of literature that are contained in these and many other management and philosophy journals in the succeeding chapters, our approach is somewhat different. Consequently, we want to be as clear as possible that we are philosophical pragmatists about most issues around theory and method. In this short chapter we shall try to say what our view is about this pragmatism and why we believe that it can serve as a set of unifying ideas around a body of literature that has begun to change the underlying narrative about business.

There has been a great deal of discussion about what kind of entity “stakeholder theory” really is. Some have argued that it is not a “theory,” because theories are connected sets of testable propositions.

We live in the age of markets. While they have been around for thousands of years, we are just beginning to understand their power for organizing society and creating value. In the last two hundred years markets have unleashed a tremendous amount of innovation and progress in the West. The industrial revolution, the rise of consumerism, and the dawn of the global marketplace have each in their own way made life better for millions of people. Many of us now know comforts, skills, and technologies that our ancestors could only dream of.

Alongside these great strides forward are a set of deeply troubling issues. Capitalism, understood in the sense of “how markets work,” has also notoriously increased the divide between rich and poor, both within and across nations. We have become blind to some of the consequences of our actions that are harmful to others, such as environmental degradation, dominance of less privileged groups, and the inequitable distribution of opportunities. The seeds from these deeply troubling issues are beginning to germinate. Global warming, global financial crises, and global terrorism threaten to destabilize our world. It is more imperative than ever to study carefully and understand the power of markets and capitalism, and begin the construction of a new narrative about how capitalism can be a force for good in the world.

We begin this chapter by outlining the problems that stakeholder theory was originally conceptualized to solve and the “basic mechanics” that we believe underlie the development of the theory during the last thirty years. We turn in the next sections to the arguments of Milton Friedman, Michael Jensen, Michael Porter, and Oliver Williamson, often cited as opponents of stakeholder theory, and suggest that all are compatible with the main ideas of stakeholder theory. We highlight what we also take to be key differences between stakeholder theory and these largely economic approaches to business. We suggest that while these approaches are compatible with stakeholder theory, it makes more sense to return to the very roots of capitalism, the theory of entrepreneurship. We suggest how stakeholder theory needs to be seen as a theory about how business actually does and can work. We make an explicit tie to the theory of entrepreneurship and outline the basics of the stakeholder mindset.

Stakeholder theory: the basic mechanics

Many have argued that the business world of the twenty-first century has undergone dramatic change. The rise of globalization, the dominance of information technology, the liberalization of states, especially the demise of centralized state planning and ownership of industry, and increased societal awareness of the impact of business on communities and nations have all been suggested as reasons to revise our understanding of business.

The purpose of this chapter is to trace the development of what has come to be known as “stakeholder theory.” We intend to accomplish this in what is perhaps an unusual manner. To begin we go back to Freeman's original book and retell the story, told there, of the origins of the idea of stakeholders. We then suggest a number of additions and revisions that have been made to this history in the literature of the last twenty-five years. We move to what could be called “autobiographical” or “idiosyncratic” accounts of the development of stakeholder theory, mostly from the point of view of one of the authors, Freeman. We do this because we want to illustrate a philosophical point about the general issue of “theory development” and the importance of a role for “the author.” There are many different versions of “stakeholder theory” and we do not wish to try to synthesize all of them into something approximating “the correct version.” A viable social science has an important place for what we might call “the author.” To claim that “the author” has such a role in the development of management theory is neither to promote the self-importance of particular individuals nor to deny the role of intersubjective agreement that is so vital in science. Rather it is to claim that contextual factors and serendipity can be crucial in the process of theory development. Finally, we give an assessment of Freeman's 1984 book.

The argument in the preceding chapters is that the body of work that we have called stakeholder theory can be seen as articulating a different and morally rich way of thinking about the disciplines of business. We have suggested in Chapter 9 that it offers no less than a thoroughgoing revision of our understanding of business and capitalism. Whether or not stakeholder theory fulfills these promises will be determined more by the work of the next thirty years than by the work that has already been done. Therefore we want to set out briefly a set of research questions and themes that point stakeholder theory and the researchers who work in this area towards what we see as some fruitful areas of inquiry. We do this in the pragmatic spirit of experimentalism. We should explore many more areas than the ones suggested here, keep what works, and discard the projects that lead to dead ends.

In Chapter 1 we argued that the language of stakeholders has been developed to address three important and interrelated questions about business: how value is created, the nature of the relationship between ethics and capitalism, and how managers can best think about their day-to-day practices.

The pursuit of these questions raises many more. We believe that the vocabulary of stakeholders is not only good for addressing these three purposes, but for creating new opportunities for practical and theoretical development as well. Stakeholder language opens more intellectual design space.

Stakeholder theory is beginning to have a greater reach in the academic literature on business. The purpose of this chapter is to examine how it has been applied in the four major business disciplines – finance, accounting, management, and marketing (economics was addressed earlier, in Chapter 1, and strategic management in Chapter 4). This chapter suggests that researchers have selected those portions of the theory that are most applicable to the questions they are trying to answer. Integration of stakeholder concepts with the theories of their own discipline has occurred; however, this integration has not, unfortunately, contributed much to the core stakeholder literature. In other words, stakeholder theory has informed the business disciplines, but the disciplines have done little to inform stakeholder theory. Perhaps another way to say this is that stakeholder theorists have not paid adequate attention to the disciplines. We offer the ideas in this chapter as a beginning to bridging this disciplinary gap. There are opportunities for scholars in all the business disciplines to advance both stakeholder theory and practice.

In the next section we shall briefly discuss the emergence of the primary business disciplines. We shall also explain how we have defined the content of each discipline for the purposes of this analysis. Each of the four disciplines has a subsequent section devoted to it.

Stakeholder theory has much to say about strategic management. The stakeholder perspective offers an alternative that can enhance the economic perspectives of modern strategic management. We have already argued in Chapter 1 that the idea of stakeholder theory is consistent with strategy theories such as Michael Porter's industrial economics and Oliver Williamson's transactions cost theory. The body of work that we have called “stakeholder theory” was developed during approximately the same time frame as the economic approaches that are more mainstream today.

Although the stakeholder approach to strategic management has influenced thinking in the field, there are numerous interpretations of it, the results of which are that it sometimes still struggles for acceptance among mainstream strategic management scholars. For example, Michael Hitt (2005), a widely acknowledged expert in the field, reviewed the development of the strategic management discipline and highlighted important areas for future research and discussion. His review suggested that the most important theoretical perspectives include industrial organization economics, corporate strategy and diversification, transaction cost economics, evolutionary economics, resource dependence, and the behavioral theory of the firm. Within these perspectives, he mentioned dozens of individual topics such as agency theory, corporate governance, mergers and acquisitions, international strategy, and the resource-based view. Not once did he mention the stakeholder perspective, although he did refer to the closely related concept of network strategies (Dyer and Singh 1998; Gulati and Singh 1998; Ireland, Hitt, and Vaidyanath 2002).

For the past thirty years a group of scholars has developed the idea that a business has stakeholders – that is, there are groups and individuals who have a stake in the success or failure of a business. There are many different ways of understanding this concept and there is a burgeoning area of academic research in both business and applied ethics on so-called “stakeholder theory.” The purpose of this book is to examine critically this body of research and assess its relevance for our understanding of business in the twenty-first century. In this volume we attempt to explain and assess stakeholder theory so that any scholar or doctoral student or interested reader can find their own way through this literature by reading this book.

The stakeholder theory literature seems to represent an abrupt departure from the usual understanding of business as a vehicle to maximize returns to the owners of capital. This more mainstream view – call it “shareholder capitalism,” or “the standard account” – has recently come under much criticism, and the “stakeholder view” is often put forward as an alternative. Our assessment of this debate is that, despite a great deal of theorizing, there is little direct conflict between the shareholder view and the stakeholder view. In fact, we argue that the stakeholder view is a more useful way of understanding modern capitalism.