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Stakeholder

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A stakeholder was originally a person who holds money or other property while its owner is being determined. The situation often arises when two persons bet on the outcome of a future event and have a third person act as the stakeholder, holding the money (or "stake[s]") they have both wagered (or "staked") until the event occurs. Courts sometimes act as stakeholders, holding property while litigation between the possible owners resolves the issue of which one is entitled to the property, and trustees often act as stakeholders, holding property until beneficiaries come of age, for example. An "escrow agent" is one kind of trustee who is a stakeholder, usually in a situation where part of the purchase price of property is being held until some condition is satisfied. It is a very old concept in the law.

In the last decades of the 20th century, the word "stakeholder" has evolved to mean a person or organisation that has a legitimate interest in a project or entity. In discussing the decision-making process for institutions -- including large business corporations, government agencies and non-profit organizations -- the concept has been broadened to include everyone with an interest (or "stake") in what the entity does. That includes not only its vendors, employees, and customers, but even members of a community where its offices or factory may affect the local economy or environment. In that context, "stakeholder" includes not only the directors or trustees on its governing board (who are stakeholders in the traditional sense of the word) but also all persons who "paid in" the figurative stake and the persons to whom it may be "paid out" (in the sense of a "payoff" in game theory, meaning the outcome of the transaction).

For example in a project of - say - a professional landlord undertaking the refurbishment of some rented housing that is occupied while the works are being carried out, key stakeholders would be the residents, neighbours (building works creates a nuisance for them), the tenancy management team and housing maintenance team within the landlord. Other stakeholders would be funders and the design and constructing team.

The holders of each separate kind of interest in the entity's affairs are called a "constituency," so there may be a constituency of stockholders, a constituency of adjoining property owners, a constituency of banks the entity owes money to, and so on. In that usage, "constituent" is a synonym for "stakeholder."

In the field of corporate governance and corporate responsibility a major debate is ongoing about whether the firm should be managed for stakeholders, stockholders or customers. Those who support the stakeholder view usually base their arguments on three key assertions.

1) Value can best be created by trying to maximize joint outcomes. For example, according to this thinking, programs that satisfy both employees' needs and stockholders' wants are doubly valuable because they address two legitimate sets of stakeholders at the same time.

2) They also take issue with the preeminent role given to stockholders by many business thinkers. The argument is that debt holders, employees, and suppliers also make contributions and take risks in creating a successful firm.

3) These normative arguments would matter little if stockholders had complete control in guiding the firm. However, many believe that due to certain kinds of board of directors structures, top managers like CEOs are mostly in control of the firm.

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