Question

Give a brief summary of the stakeholder theory of corporate responsibility as outlined by Freeman in both his essay and the video segments we watched on this issue. Briefly, what is the legal argument and the economic argument for the stakeholder view? Who are Two of the stakeholders that Freeman notes explicitly has having rights that must be considered by corporate executives, other than stockholders? As one example, explain why Freeman thinks that one of these groups has an investment in the company that gives the executives the fiduciary duty to consider their well-being in corporate decisions.

Answer 1

Edward Freeman proposed stakeholder theory of corporate responsibility and according to this theory anyone who is affected by the company and its operation should be considered as stakeholders thus have all the rights to participate in the corporate social responsibilities. This was against the traditional beliefs that only the stockholders have the responsibility. Freeman brings few groups as part of the stakeholders’ theory such as customers, employees, suppliers, environmental groups, media, financial institutions, governmental agencies etc. Employees are the heart of any company and a company cannot run without employees. Anyone can invest any amount of money but in order for the company to produce products or offer service, it needs employees. So, they have more interest and investment in the company in terms of their labor and ideas, thus they have all the fiduciary duty to involve in the corporate social responsibilities.