Definition of stakeholder theory
Stakeholder theory suggests that the purpose of a business is to create as much value as possible for stakeholders. In order to succeed and be sustainable over time, executives must keep the interests of customers, suppliers, employees, communities and shareholders aligned and going in the same direction.
Innovation to keep these interests aligned is more important than the easy strategy of trading off the interests of stakeholders against each other. Hence, by managing for stakeholders, executives will also create as much value as possible for shareholders and other financiers.
An example of how executives create value for stakeholders is the IBM’s Smarter Planet campaign. As part of the campaign, the company helped the Memphis Police Department reduce crime by 27 per cent from 2006 to 2010 by developing a computer system that unifies and analyses a huge amount of crime data. This benefits not only their customer, i.e., the police department, but also the entire Memphis community.