Freeman's Stakeholder Theory: A Corporate Responsibility to All

Freeman's (1984) Stakeholder Theory of the Modern Corporation proposes that corporations should consider the interests of all stakeholders, not just shareholders, when making decisions. Stakeholders encompass employees, customers, suppliers, communities, and the environment. Freeman argues that by embracing a broader view of stakeholders, corporations can cultivate long-term value for all parties involved.

Freeman utilizes the Greenman v. Yuba Power case to exemplify his viewpoint. In this case, an individual sustained injuries while using a power tool produced by Yuba Power. The injured party sued Yuba Power, asserting that they had a duty to ensure the safety of their products for consumers. The court ultimately ruled in favor of the injured individual, establishing the principle of product liability.

Freeman contends that this case underscores the significance of considering stakeholders beyond just shareholders. Yuba Power had a responsibility to guarantee the safety of their products for consumers, a stakeholder interest. By failing to fulfill this responsibility, they faced legal repercussions and reputational damage. Had Yuba Power prioritized the interests of all stakeholders, they might have made different decisions that could have prevented the injury and subsequent lawsuit.