In this chapter we shall explore the footprint of stakeholder theory in some of the disciplines that are less frequently linked with business, but are nonetheless important to the study of organizations. The specific focus is on the use of stakeholder theory in the law, in public administration, in health care, and in environmental policy. As originally formulated, stakeholder theory is a theory about (business) organizations, so it is not surprising to see that stakeholder theory has had considerable influence on strategy, ethics, and other related disciplines. Other chapters of this book lay out in detail the considerable influence that stakeholder theory has had on research in these areas. What is more surprising, and a testament to the power and salience of stakeholder theory, is to see its influence in a range of other literatures that are partly inside and partly outside the domain of business.

Equally interesting are the ways in which stakeholder theory is interpreted and applied within these literatures. While there are some discussions of the normative dimensions of stakeholder theory, much of this literature focuses on instrumental use of the concept and specific methods for mapping out and engaging stakeholders. As was noted in Chapter 5, most of the work has involved the literatures under review here borrowing concepts from stakeholder theory rather than focusing on contributions to the core stakeholder literature, particularly as it relates to its normative dimensions.

Many of the arguments in this book will seem unusual to those scholars who are accustomed to reading the traditional management journals, such as Academy of Management Review, Academy of Management Journal, and Administrative Sciences Quarterly. Indeed, traditional philosophers who teach business ethics and read the Journal of Business Ethics and Business Ethics Quarterly may also not recognize the kind of arguments that we use here. Each of the intellectual communities of which these journals are a part has fairly well-defined ideas about the use of such terms as “theory,” “method,” “hypothesis,” “proposition,” and other philosophical concepts. While we respect, reference, and quote the bodies of literature that are contained in these and many other management and philosophy journals in the succeeding chapters, our approach is somewhat different. Consequently, we want to be as clear as possible that we are philosophical pragmatists about most issues around theory and method. In this short chapter we shall try to say what our view is about this pragmatism and why we believe that it can serve as a set of unifying ideas around a body of literature that has begun to change the underlying narrative about business.

There has been a great deal of discussion about what kind of entity “stakeholder theory” really is. Some have argued that it is not a “theory,” because theories are connected sets of testable propositions.

We live in the age of markets. While they have been around for thousands of years, we are just beginning to understand their power for organizing society and creating value. In the last two hundred years markets have unleashed a tremendous amount of innovation and progress in the West. The industrial revolution, the rise of consumerism, and the dawn of the global marketplace have each in their own way made life better for millions of people. Many of us now know comforts, skills, and technologies that our ancestors could only dream of.

Alongside these great strides forward are a set of deeply troubling issues. Capitalism, understood in the sense of “how markets work,” has also notoriously increased the divide between rich and poor, both within and across nations. We have become blind to some of the consequences of our actions that are harmful to others, such as environmental degradation, dominance of less privileged groups, and the inequitable distribution of opportunities. The seeds from these deeply troubling issues are beginning to germinate. Global warming, global financial crises, and global terrorism threaten to destabilize our world. It is more imperative than ever to study carefully and understand the power of markets and capitalism, and begin the construction of a new narrative about how capitalism can be a force for good in the world.

We begin this chapter by outlining the problems that stakeholder theory was originally conceptualized to solve and the “basic mechanics” that we believe underlie the development of the theory during the last thirty years. We turn in the next sections to the arguments of Milton Friedman, Michael Jensen, Michael Porter, and Oliver Williamson, often cited as opponents of stakeholder theory, and suggest that all are compatible with the main ideas of stakeholder theory. We highlight what we also take to be key differences between stakeholder theory and these largely economic approaches to business. We suggest that while these approaches are compatible with stakeholder theory, it makes more sense to return to the very roots of capitalism, the theory of entrepreneurship. We suggest how stakeholder theory needs to be seen as a theory about how business actually does and can work. We make an explicit tie to the theory of entrepreneurship and outline the basics of the stakeholder mindset.

Stakeholder theory: the basic mechanics

Many have argued that the business world of the twenty-first century has undergone dramatic change. The rise of globalization, the dominance of information technology, the liberalization of states, especially the demise of centralized state planning and ownership of industry, and increased societal awareness of the impact of business on communities and nations have all been suggested as reasons to revise our understanding of business.