What Is A Stakeholder?

The word “stakeholder” has become ubiquitous in the world of business. People talk about it as if it has some definite meaning, but I’ve come to the opposite conclusion.

All legitimate concepts refer to some specific entity that can be identified in reality and can be fully integrated within the context of human knowledge. To be a legitimate concept, the thing referred to must have distinguishing characteristics of similarity and difference, with the fundamental characteristic(s) identified. If this can’t be done, then the concept is not (yet) legitimate.

Let’s try to answer the question: what is a stakeholder?

To start, businesses are funded by investors, run by employees, and organized to align resources in ways that create customers and operate at a profit. They operate in a market, which includes everybody that may be affected by the company. This latter group – everybody that may be affected by the company – is what is usually referred to as "stakeholders."

The term "stakeholder" is in practice meaningless because it pertains to everybody that has an interest in any aspect of the company including owners, lenders, employees and their families and spouses, and all people and organizations whom are affected by the activity or lack thereof of the business entity or anything associated with it. It also includes all citizens of a nation because the business pays taxes which support government redistribution and social spending. Thus, for all intents and purposes, everyone is a stakeholder of everything if they are in any way affected by the existence of that entity.

If this is true, then stakeholders are just people - members of society - the market. If you want to group them by interest, then there are stakeholder groups - a group that wants higher wages, a group that wants less noise, a group that wants lower profits, a group that wants union membership, a group that wants more recycling, a group that wants subsidized education, etc., subdivided into as many groups as there are wishes - rational or irrational, prudent or imprudent. moral or immoral, legal or illegal.

Business managers must always operate within the boundaries of opinions and laws of the society to remain in business. That's what it means to be a market-focused enterprise. To proclaim oneself to be a stakeholder in a free-market means that one is free to influence the thinking, decisions, and actions of business owners and management as one sees fit. It is to behave within the confines of freedom, respect for individual rights, and human decency. But it is a concept that isn’t necessary because there is nothing distinguishing about it. What, for example, distinguishes a stakeholder from a non-stakeholder?

In an interventionist market, the claim to be a stakeholder often means the attempt to leverage a moral claim - beyond what one is entitled to in a free-market - to influence the government to coerce businesses through legislation and regulation to act in ways contrary to the interests of the market - in ways that the market would not otherwise voluntarily support. If this is what stakeholder means, then it is a distinct concept, but I don’t think this is what those who use the term consider to be the essence of the concept.

The question therefore remains as to whether the notion of "stakeholder" has any validity as a concept at all if it refers to everybody that has an interest in the outcome of a business.

It seems to me that the designation of stakeholder is often used by some groups to presume moral entitlement to influence business management because they will be affected or impacted by the decisions made by a business, when no such entitlement exists. The self-referenced designation of stakeholder is often an attempt by some to assert or imply the status of victim of an injustice, and therefore redress is required, where no such injustice has occurred. Legitimate injustices can be dealt with through established courts of law with no need for references to stakeholders.

An astute manager should be taking into consideration all external influences to his business when making resource allocation decisions in pursuit of profit, but ultimately, if one believes in the principle of property rights, the ultimate decisions and responsibilities rest with the business owners.

Copyright, 2010, Barry L. Linetsky, All Rights Reserved