Final answer:
A stakeholder is not just someone geographically close to a firm or who has a financial claim on the firm's cash flows; they can include anyone affected by the firm's operations, such as employees, customers, communities, and government agencies.
Step-by-step explanation:
A stakeholder is broadly defined as any individual or organization that has a stake in the success and operations of a business. This includes a wide array of entities such as employees, customers, shareholders, communities, and even government agencies whose interests may be affected by the company's activities. The claim of a stakeholder is not limited to financial investment like that of shareholders, but it can also arise from indirect effects the business has on the stakeholder's environment, health, well-being, or economic state.
Key Concepts and Summary
In the context of raising financial capital, shareholders are individuals who have invested capital into a firm, thus owning a portion of it and having a claim on its cash flows and potentially its profits in the form of dividends. This investment is often facilitated through the purchase of shares, which represent a portion of ownership in a firm. Other avenues for a business to raise capital include venture capital, personal savings, loans, and bonds like the Treasury bond issued by the U.S. government.
Milton Friedman's view emphasizes that the primary obligation of business executives is to the shareholders, focusing on maximizing their return on investment. In contrast, stakeholder theory posits that businesses should take into account the interests of all stakeholders, balancing them in a way that does not solely prioritize shareholders.
In terms of safety and liability, government agencies such as the Occupational Safety and Health Administration (OSHA) serve as stakeholders by establishing and enforcing standards that businesses must follow, thereby influencing corporate practices and protecting the interests of workers and the public.