July 14, 2014
Stakeholders are a powerful force in business from both an economic and societal point of view. “Stakeholder theory is a theory of organizational management and ethics.” (Phillips, 2003) Stakeholders are the individuals, groups, and organizations who can affect the firm’s vision and mission, are affected by the strategic outcomes achieved, and have enforceable claims on the firm’s performance.” (Hitt, Page 19) “Stakeholders can include employees, customers, owners/investor groups, suppliers, unions, professional /industry associations, government, community neighbors, NGOs, educational institutions, neighbors, the media and so on.” (Fowler, ...view middle of the document...
It is with active engagement with valued stake holders that can help an organization to remain current and responsive to essential needs.” (Fowler, 2014) Stakeholder theory is undermined in two directions: distortions and friendly misinterpretations. In the distortions, “stakeholder theory is an excuse for managerial opportunism” (Jensen 2000; Marcoux 2000; Sternberg 2000), which is not because the corporation is not coextensive with the shareholders. It is an entity unto itself. Wealth maximization imperative is frequently motivated by agency problems, decision making, control and risk. The concern is that without ethics, managers would enrich themselves at the expense of the organization. Another misunderstanding is
that the stakeholder theory is primarily concerned with distribution of financial outputs. Although finances is the base of the relationship, it’s not the primary. Stakeholder theory is concerned with who has input in decision-making as well as with who benefits from the outcomes of those decisions. “Focus on distribution and a de-emphasizing of procedures is not the only manner in which focus on distribution of outputs is a limitation on stakeholder theory-material outputs are not the sole subject of distribution. Information is another vital good that is distributed among stakeholders by the organization.” (Phillips, 2003). Also it is commonly asserted that stakeholders must be treated equally irrespective of the fact that some have more contribution than that of others. Therefore, it’s very difficult to please everyone, Organizations must attempt to distribute the benefits of their business as equitably as possible among stakeholders, but keeping in mind their respective contribution. “There are a few friendly misinterpretations about stakeholder’s theory, that it requires changes to current law. Stakeholder’s theory is socialism and refers to the entire economy and thus is a comprehensive moral doctrine and only applies to corporations.” (Phillips, 2003) These statements are misinterpretations and do not fall under Stakeholder’s theory thus are NOT Stakeholder’s theory. There are two components of Stakeholder theory: Stakeholder Analysis and Stakeholder Management. Stakeholder Analysis is the identification, categorization and prioritization of a firm’s strategic and operational purpose. Stakeholder Management is the fair treatment of all stakeholders (Fassin, Page 83)
Stakeholders are individuals and groups who can affect, and who are affected by the strategic outcomes of a firm and who have an enforceable claim on the firm’s performance.(Hitt, Page 21) Individuals or groups who can affect the achievement of a firms or who are affected by the achievement of an organization’s objective. (DeWitt, Page 617)
Some pressure groups, some confrontational activist groups, while having no organizationally outlined links, define and claim new stakes: They obtain to possess a voice within the corporation’s decision making and to...