Freeman Stakeholder Theory Summary

Introduction

In his work on the stakeholder theory of the modern corporation, R. Edward Freeman argues that the theory of shareholder value maximization has become inherently irrelevant, given the legal advancements in the contemporary economy. He proposes an alternative view of the modern corporation by extending the range of groups having a moral claim on the organization (Freeman, 2001). The following sections discuss the particulars of the stakeholder theory.

1. Issue Under Discussion

The major issue put forth by Freedman argues that at whose expense and in whose interest a corporation should be managed. Freedman tries to explain the peripheral nature of pursuing the sole goal of profit maximization. He asserts that legal and economic restraints, which deter managerial discretion in pursuing shareholders’ interests at all costs, are already in place (Freeman, 2001).

2. Article Summary

According to the stakeholder theory, customers, shareholders, suppliers, employees, general community and the government possess a right to demand particular actions from the management because they have hold certain stakes in the organization. Consequently, organizations must maintain a sense of balance among the

It ensures that management takes into account the interest and welfare of the greatest number of people, rather than focusing only on shareholders. Similarly, Kantian ethics deem the stakeholder theory to lead to moral decisions. It requires the management to consider all stakeholders as an end in themselves, rather than as a means to achieve profit maximization for the shareholders. Thus, all stakeholders hold a right to be respected and treated as an end on their own. This further justifies the stakeholder theory on the normative grounds of rights theory, as it empowers the management to uphold the moral rights of all individuals, having a stake in the