Stakeholder theory grew in recognition after it became apparent thatapart from stockholders, there was another group of people that wasaffected by a business, or affected the trade in a way. In essence,there had to be a distinction between stockholders and stakeholdersfor companies to consider how their decisions affected the communityaround them. Stakeholder theory requires business organizations toensure their plans do not only include profits but other good thingsfor the public. Companies have been faced with legal suits in caseswhere they have neglected other benefits to stakeholders whilemaximizing on profits (Dwyer, 2008). Some of the things that managersought to consider include better working conditions for employees andsafety measures among others. Failure to observe such needs isconsidered irresponsible acts of management and it might lead todiverse effects.
Theorists hold that stakeholders can be divided into two groups basedon their effect on the company for instance, internal to thebusiness include employees, customers, suppliers, stockholders, andthe local community. On the other hand, external to the businessinclude those that affect or are affected by the business regardlessof their value to its existence. This distinction spells the rise ofcorporate social responsibility of corporations, as they seek toestablish policies that affect stakeholders positively. Linked toCorporate Social responsibility is the need for transparency bydecision makers, which will evoke cooperation from stakeholdergroups. For the public to understand and believe that a company issocially responsible there has been a need for accountability thathas driven firms to disclose their decisions about their procedures.Collectively, these moves ensure that business organizations aremolded around qualities that benefit both stockholders andstakeholders.
Dwyer, S. L.(2008). Thinking ethically in business.Humanities-Ebooks.