Business succeeds when it cares about community
“The primary objective of a firm is to maximise its profit and its primary accountability is towards its shareholders/owners”
Although I can see how in most instances the main objective of a firm is to maximise it’s profit, I do not believe that it necessarily follows that the primary accountability is to the shareholders and owners. I would like to present the following argument that suggests real success can be achieved by working with and caring for communities and stakeholders.
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Hence, by managing for stakeholders, executives will also create as much value as possible for shareholders and other financiers.’ Caring for the stakeholders is an important thing for a firm as they need to satisfy there needs. They are obligated to satisfy the stakeholders more than there competitors are, if not satisfied then the firm will lose them and this will also lose there capital.
The idea of an alignment of interests can provide some difficulties for any organisation in attempting to form agreements. The nature of this alignment normally necessitates wider discussion rather than immediate managerial control in order to produce any forward thinking strategy. Working with wide ranging stakeholders does provide a more caring approach and arguably provides an ‘ethos‘ for the organisation and potentially a moral approach to business but it will not be without its difficulties in ensuring all the stakeholders views are considered and where possible met. Despite these difficulties I would suggest that this is a process that is well worth the effort if it satisfies the intentions of its stakeholders (community).
An relatively recent example of stakeholder theory in action was seen in Memphis.
(Financial Times Lexicon, 2011), ‘An example of how executives create value for stakeholders is the IBM’s Smarter Planet campaign. As part of the campaign, the company helped the Memphis Police Department reduce crime by 27 per cent from 2006 to 2010 by developing a computer system that unifies and analyses a huge amount of crime data. This benefits not only their customer, i.e., the police department, but also the entire Memphis community’.
If a firm does not satisfy its stakeholders, then the stakeholders have the power to hold a sanction. This is why satisfying stakeholders becomes important as it will avoid sanctioning, because of the powers stakeholders have, firms have an obligation to give the stakeholders information on the firms trading and there profits. However only shareholders within the market domain have the power of sanctioning. Stakeholders outside the market domain do not have as much power as stakeholders within the market, but they can get involved when the firm is doing something that doesn’t make them happy by getting the markets to dismiss the firms.
This approach provides a strong community awareness and a direct effect on an organisation’s decision making process.
“The principle of stakeholder recourse. Stakeholders may bring an action against the directors for failure to perform the required duty of care” (Freeman 2004).
Another key theory that can be seen to support the aims of stakeholder theory and provide a set of value systems for an organisation is called legitimacy theory.
Legitimacy theory is a type of stakeholder...