An unnamed researcher introduced the word stakeholder in a single internal memorandum at the Stanford Research Institute on the 1st of March 1963. This document described any group without whose support the organization would cease to exist.
R. Edward Freeman published his seminal work Stockholders and Stakeholders: A New Perspective on Corporate Governance in 1983. Freeman was a management professor at the University of Virginia who transformed the dormant concept from the 1963 memo into a global movement during the 1980s.
The modern understanding of stakeholders divides business influence into primary stakeholders, secondary stakeholders, and excluded stakeholders. Primary stakeholders include stockholders, customers, suppliers, creditors, and employees who engage in direct economic transactions, while secondary stakeholders comprise the general public, communities, activist groups, and the media.
Critics argue that framing the shareholder model and stakeholder model as opposing forces creates an artificial choice that ignores the reality of modern business. They suggest that obligations owed to shareholders are not mutually exclusive from those owed to other interested parties but are rather deeply intertwined.
Top managers like CEOs hold most of the control in the practical reality of corporate governance due to specific board of directors structures. This concentration of power often allows them to effectively bypass the interests of other stakeholders despite the promise of stakeholder theory.
Managing stakeholder relationships improves a company's image, increases sales, and reduces the risks of liability for corporate negligence. By fulfilling the needs and wants of many different people, companies prevent damage to their reputation and avoid costly legal expenses.