Stakeholder Management

Part A Stakeholder theory

1. Explain stakeholder theory.
2. Outline two forms of stakeholder management.
3. Where does stakeholder theory go wrong?

Part B Stockholder Theory
1. Explain the stockholder model of corporate governance.
2. How and why do shareholders govern corporations?
3. Are stakeholder interests protected by the shareholder model of management? Explain and fully support your position.

ANSWER

Stakeholder Management

Part A: Stakeholder Theory
Stakeholder Theory

The stakeholder theory is a theory of business ethics and organizational management that emphasizes the interconnected relationship between suppliers, customers, investors, communities, and other essential parties within the organization (Chhillar and Lellapalli, 2015). The stakeholder theory focuses on ensuring that the firm has created value for all the stakeholders rather than just the shareholders. Ideally, the stakeholder is anyone that can be impacted or impact the daily operations of an organization. The stakeholder theory has brought about the advancement of management that links to the matters concern with values, ethics, and morals while managing stakeholders. The theory has explained values and morals in an organization. It has defined some of the ethical operations and actions that need to be considered by an organization to offer benefits to its stakeholders. Currently, many organizations have adapted to offering great value to their stakeholders as compared to the ancient time where values were only offered to the company shareholders. Therefore, the stakeholder theory is a way through which companies create value by evaluating some of the vital stakeholder related issues (Loi, 2016)

Forms of Stakeholder Management.

Stakeholder management is considered the process through which an organization maintains effective relationships with the people who have a great influence on its operations. This has been a technique that involves the engagement of stakeholders to ensure sustainable business processes. There are two categories of stakeholders within an organization; the external and internal stakeholders (Harrison, Freeman and Abreu, 2015). Therefore, this leads to the two forms of stakeholder management; internal and external stakeholder management. The external stakeholder management focuses on the management of interactions with external stakeholders such as the suppliers, customers, government, and community. On the other hand, the internal stakeholder management manages the relationships with stakeholders that control daily operations and business objectives, such as employees.

Where Stakeholder Theory Go Wrong

The stakeholder theory diverts from ensuring business success and achievement of goals and concentrates on creating value to the stakeholders. Thus, stakeholder theory focuses on balancing the stakeholders to ensure that they create value for all the parties within the organization (Harrison, Freeman and Abreu, 2015). However, the amount of interest and purpose that one group of stakeholders may have in an organization may change at a given time with regards to the specific situation as well as the overall climate of the business. Stakeholders represent a diverse and large group of people, which makes it impossible for the management of the company to please everyone simultaneously. The interest of various stakeholders cannot be balanced; thus, it’s not easy to ensure that all the stakeholder’s interests are met. There is a possibility that some stakeholders are central to others. Some stakeholders may have less influence on decision making than others. Therefore, the interests of the internal stakeholders cannot be balanced with the interests of the external stakeholders.

Part B: Stockholder Theory

Stockholder Model of Corporate Governance.

The stockholder model of corporate governance focuses on the shareholder as the only important stakeholder. The goal of the shareholder model is to meet the demands of the shareholder and maximize wealth for the owners (Chhillar & Lellapalli, 2015). The primary purpose of this model is to maximize value within the market to increase the amount of return on investments for the investors (Rönnegard and Smith, 2013). The shareholder model believes that it’s the best strategy for corporate governance since maximizing the benefits and values of the shareholder ensures the survival of the company. Therefore, organizational leaders deliberately focus on the interests of the investors and owners.

How and Why Do Shareholders Govern Corporations

The shareholders are considered as the owners of the companies. The shareholders elect the board of directors who govern and oversee the management as well as make corporate decisions on behalf of the shareholders. The shareholders also take part in the sale of company assets as well as offer restrictions to the type of business or operations to be engaged by a corporation (Rönnegard and Smith, 2013). Therefore, the shareholders are included in governing the corporations through the board of directors. The shareholders influence the operations of the organization through the board of directors. Relatively, the shareholders have the right to dissolve the board of directors and elect new members in case the performance of the corporation is not satisfying.

The shareholders govern the corporations since they are the owners of the corporation and play a significant role in operations and financing. Shareholders are concerned with the potential dividends and survival of the company. Therefore, they have to govern the operations of the company to ensure that it remains relevant and profitable. Shareholders have made financial investments, which entitles them to govern the corporation for a return on investment.

Stakeholder’s Interest

The shareholder model of management pays attention to maximizing the interests of the shareholders. The shareholder model fails to protect the interest of the stakeholders since the management focuses on short term gains for the shareholders rather than all the stakeholders (Rönnegard and Smith, 2013). This explains why companies relying on the shareholder model focus on profits and engage in unethical business practices. The business only focuses on the short term gains, thus rarely accounting for long term effects and external effects on the stakeholders. For instance, in the decision-making process for the shareholder model, corporations make choices based on the interests of shareholders instead of considering the interests of all stakeholders. When the operations of a company focus on increased returns, they primarily make choices that fail to protect social welfare. For instance, a corporation may rely on techniques that are far beyond the regulatory and legal requirements that could impact the stakeholders negatively.

References

Chhillar, P., & Lellapalli, R. V. (2015). Divergence or convergence: paradoxes in corporate governance?. Corporate Governance.

Harrison, J. S., Freeman, R. E., & Abreu, M. C. S. D. (2015). Stakeholder theory as an ethical approach to effective management: Applying the theory to multiple contexts. Revista Brasileira de gestão de negócios, 17(55), 858-869.

Loi, T. H. (2016). Stakeholder management: a case of its related capability and performance. Management decision.

Rönnegard, D., & Smith, N. C. (2013). Shareholders vs. stakeholders: How liberal and libertarian political philosophy frames the basic debate in business ethics. Business & Professional Ethics Journal, 183-220.