Whenever one talks about business ethics both CSR and stakeholder theory come as two major
concepts. We see stakeholder theory and CSR as distinct concepts with some overlap. The main
similarity between the two concepts is that both stakeholder theory and CSR stress the importance of
incorporating societal interests into business operations. Businesses are embedded in society always. At
the same time, the two concepts differ in that stakeholder theory posits the key responsibilities of the
business overall, where responsibility to the society is a very important but only one part among other
corporate responsibilities. CSR prioritizes one aspect of business – its orientation toward the society at
large, over the other business responsibilities. Stakeholder theory posits that the essence of business
primarily lies in building relationships and creating value for all its stakeholders. Though the composition
of stakeholders may differ depending on company’s industry and business model, the main stakeholders
typically include employees, customers, communities, suppliers, and financiers (owners, investors). All
these stakeholders are equally important for the company and any trade-off among the stakeholders
should be avoided. Rather executives need to find ways that these interests can be guided into the same
direction.
It is important to understand the symbiotic relationship a firm has with its shareholders. The firm cannot
act alone. It is not a sentient actor but is a bundle of contracts (formal and informal) that reflect the
aggregated interests of all its stakeholders. If we agree that employees are stakeholders, as well as
executives, directors, shareholders, consumers, the government, suppliers, distributors, and so on, then
we understand that the firm does not exist independently of these groups. If you take away all the firms’
stakeholders (the executives, directors, and employees, in particular), there is nobody left to act—the
firm’s substance is derived from those who constitute it. This substance comes from the actions initiated
by stakeholders pursuing their specific interests that intersect in the firm’s day-to-day operations. This is
why stakeholder theory is central to any CSR perspective.
A stakeholder is today widely understood to be a group or individual with a self-defined interest in the
activities of the firm. In line with this, a core component of the intellectual argument driving strategic
CSR is that it is in a firm’s best interests to meet the needs and expectations of as broad an array of its
stakeholders as possible. While identifying stakeholders is easy, prioritizing among stakeholder interests
is extremely difficult, and stakeholder theory has been largely silent on this essential issue. For managers
to make these determinations, it is essential for firms to define their environments in terms of issues
that evolve and stakeholders that compete. A firm’s stakeholders can be divided into three categories:
organizational stakeholders (internal to the firm) and economic and societal stakeholders (external to
the firm). First, stakeholders exist within the organization such groups include employees, managers,
and directors. Taken together, these internal stakeholders constitute the organization as a whole—they
are most directly involved in producing the products and services the firm offers and, therefore, should
be its primary concern. Second are economic stakeholders, which include consumers, shareholders, and
competitors. The interactions that these stakeholders have with the firm are driven primarily by
economic concerns. Third are those stakeholders that constitute the broader business and social
environment in which the firm operates include the media, government agencies and regulators, and
local communities. These societal stakeholders are essential for the organization in terms of providing
the legitimacy necessary for it to survive over the medium to long term.
