In the field of construction project management, we have often used the term (Stakeholders), according to the definition of the Professional Project Management Institute (PMI), stakeholders are all individuals and organizations who are active in the project and whose interests may be affected positively or negatively by it (Smith, 2000). In EdwarFreeman's stakeholder theory, this concept is more comprehensive and broad than just the stakeholders of a project.
In this discussion, I will discuss EdwarFreeman's stakeholder theory, its pros and cons, and its relevance to the construction project management field involved in research.
Stakeholder Theory:
(Edward Freeman) suggests that the purpose of business is to create as much value as possible for stakeholders; executives must maintain stakeholder interests on an ongoing and balanced basis for the company to continue to operate and prosper; in his theory, he argued, institutions that would manage healthy relationships with stakeholders would survive longer than those that did not (Amis, Barney, Mahoney & Wang, 2020).
Principles of Stakeholder Theory
According to (Freeman, 2010), the principles of this theory depend on sustainability and achieving benefits for all parties, not just the interests of shareholders; the principles of this theory are as follows:
The principle of entry and exit: There are specific and stated rules in organizations for who will stay in and who should leave, and it is a degree of transparency that protects the employees and those in charge of the organization as a whole.
The principle of governance: There are also specific rules for regulating the relationship between stakeholders and the company and the role of each individual in them.
The principle of externalities: Some rules answer the question of the company's external stakeholders and how to deal with them.
The principle of contract costs: They are the rules that govern the ratios of profit and loss (material and moral), which will be distributed to stakeholders according to the progress of the company's business.
The principle of agency: They are the rules that regulate the responsibilities of the company's senior management, especially the CEOs and their duties.
The principle of limited immortality: They are the rules that guarantee the company's long-term continuity and the future plans that guarantee its success in the market.
Pros and cons of the theory:
First: the pros: In explaining the positive aspects of this theory, according to (Edward Freeman), the theory will positively affect the company's employees and managers, who will work diligently to raise the company and the quality of its products and services, accordingly, it increases customer loyalty to the company, and thus the value of the company increases, the number of investors in it increases, and the company attracts the most skilled and creative individuals, finally, the community will benefit from the company that maintains its interests as an integral part of thcompany's's stakeholders by activating the principles of sustainability (Freeman, Harrison, Wicks, Parmar & De Colle, 2010).
Second: the cons: It is difficult or even impossible for any company to balance all its stakeholders, that is no matter how skilled this company is and concerning the principles of theory, this is; the stakeholders are divided, and the directions of their satisfaction may differ and their interests contradict each other, that serves thcompany's's employees does not serve its shareholders or even negatively affects members of the community outside it (Hill, 2017).
The appropriate governance theory:
The stakeholder theory is very suitable for construction companies, as the field of construction project management puts all its attention on the stakeholders, between government permits to preserve the rights of the community surrounding the project and between stakeholders inside and outside the project; here lies the importance of stakeholder analysis, which refers to the set of tools necessary to identify and understand the needs and expectations of interests (Smith, 2000), this analysis begins with identifying the stakeholders of the projects, determining the interests of stakeholders, their level of influence on projects, and the relative priority of each of them, and assessing the risks of inability to achieve their needs and finally the extent of benefiting from their participation in the projects.
Conclusion
Edward Freeman suggests that organizations should develop specific methods for managing stakeholder interests; this includes the obligation to monitor their interests and to develop effective strategies for dealing with their business, in addition to dividing and classifying these interests into segments to facilitate their management, ensuring that organizational functions meet the needs of stakeholders (Freeman & Reed, 1983), Despite the difficulty of achieving this theory on the ground, I think that this proposition is very logical, as the maintenance of business continuity and growth comes from the sustainability of its resources from the shareholders at the top of the pyramid to the employees.
References
Amis, J., Barney, J., Mahoney, J. T., & Wang, H. (2020). Why we need a theory of stakeholder governance—And why this is a complex problem. Academy of Management Review, 45(3), 499–503. Retrieved from EBSCO multi-search database in the TUW Library.
Freeman, R. E., & Reed, D. L. (1983). Stockholders and stakeholders: A new perspective on corporate governance. California Management Review, 25(3), 88-106.
Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge University Press.
Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: The state of the art.
Smith, L. W. (2000). Stakeholder analysis: a pivotal practice of successful projects. Paper presented at Project Management Institute Annual Seminars & Symposium, Houston, TX. Newtown Square, PA: Project Management Institute.
Hill, R. P. (2017). Failure of Ethical Leadership: Implications for Stakeholder Theory and" “Antiandtakeholde."” Businss and Society Review, 122(2), 165-190.