Freeman's Stakeholder Theory: A Business Model for Long-Term Success

Freeman's (1984) 'Stakeholder Theory of the Modern Corporation' proposes that businesses should prioritize the interests of all stakeholders, including customers, employees, suppliers, and the community, rather than solely focusing on maximizing shareholder profits. He argues that this approach fosters long-term success and sustainability for the corporation.

Freeman utilizes the example of Greenman v. Yuba in his article to illustrate this viewpoint. In this case, a man sustained injuries while using a lawnmower manufactured by Yuba. He subsequently sued the company for failing to provide adequate safety guards. The court ruled in favor of the plaintiff, declaring that Yuba had a responsibility to prioritize the safety of its customers as a stakeholder.

Freeman asserts that if Yuba had adopted a stakeholder-centric approach, they would have prioritized customer safety and incorporated proper safety guards on their lawnmowers. This proactive measure would have prevented the injury and subsequent lawsuit, ultimately leading to better outcomes for both Yuba and its stakeholders.