Stakeholder Management

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STAKEHOLDER MANAGEMENT 1

Table of Contents
Executive Summary ................................................................................................................... 2

Introduction ................................................................................................................................ 2

Literature Review....................................................................................................................... 2

Benefits of Stakeholder management to the Society ................................................................. 4

Theoretical perspectives............................................................................................................. 5

Utilitarian theory .................................................................................................................... 5

Theory of justice and due care ............................................................................................... 6

Kantian Perspective ................................................................................................................ 6

Sustainability Theories............................................................................................................... 6

Creating Shared Values .......................................................................................................... 6

Corporate Social Responsibility ............................................................................................. 7

Conclusion and Recommendations ............................................................................................ 7

References .................................................................................................................................. 9
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Executive Summary
Years the traditional perspective of corporate entities is evolving from the
maximization of shareholder profits to the recognition of the significance of
stakeholders interests
The shareholder theory asserts that the responsibility of the managers is to safeguard
their investments by making strategic decisions aimed maximizing returns on
investments
The concept of stakeholder management recognizes the interests of shareholders as
primary but proposes a moral outlook towards attending to the interests of other
stakeholders within considerable impartiality
understanding the nature of the firm and more specifically the performance indicators
of an organization and the management will contribute immensely to the controversy
surrounding stakeholder management

Introduction
The debate on the role of the corporate entities has elicited numerous debates central
justifying the ideal responsibility to its stakeholders. While shareholder theorists lean towards
maximizing profits, stakeholder theorists claim that the management of any organizations
should strike a balance between stakeholder interest and shareholder returns with the former a
more attractive preconception of the ideal basis of the firm. Considered a traditionalist
approach to the function of the firm, the shareholder theory lacks crucial aspects of corporate
and social responsibility to the society (Shah & Bhaskar, 2007). The void is filled by the
modern and more objective theory of stakeholder management that obliterates return on
investment to envisage corporate and social responsibility of a corporate entity to the society.

Literature Review
In recent years the traditional perspective of corporate entities is evolving from the
maximization of shareholder profits to the recognition of the significance of stakeholders
interests in an entitys going concern perspective (Freeman, et al., 2007). Although the
stakeholder and shareholder theories are normative ingredients to the overall responsibility of
the firm, theoretical debates on corporate governance demand an objective yet exploratory
analysis to understand existing debates. The literature review will integrate the existing
debates and give an objective synthesis on the importance of firms adopting a broader
corporate responsibility of protecting shareholder interests and the social responsibility of the
strategic management of stakeholders.
Research on the subject reveals the polarity between stakeholder and shareholder
theory owing to the contrasting ideology concerning the main purpose of an organization
(Friedman, 2007). With both theorists maintaining the superiority of their arguments; viewing
the contrasting perspectives from the locus of the legal, ethical, social,., and..
paradigms is pivotal to presenting a well hypothesized argument. Consequently, no theory is
superior to the other but both provide credible analysis on the future direction of corporate
entities aiming at retaining profitability, relevance, and efficiency as a going concern.
The shareholder theory asserts that the responsibility of the managers is to safeguard
their investments by making strategic decisions aimed maximizing returns on investments
(Smith, 2003). Whereas Friedman (2007) concurs with this premise, he asserts that the profit
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maximizations should be realized within ethical considerations of free and fair industry
competition. On the contrary, the stakeholder perspective envisages the managers role as
conclusive to any party interested in the business and undertakings of the organization within
the framework of decision making. The stakeholders of an organization include customers,
suppliers, employees, shareholders, and the community. As the entrusted party of an entity,
managers should protect only the legitimate interests of the above-mentioned stakeholders
and most importantly ensure the non-existence of infringement of rights. Notwithstanding,
attaining the perfect balance between generating profit and ensuring that the interests of each
stakeholder are met is perhaps the most challenging aspect of an organization (Jensen, 2002).
Understanding stakeholder management is crucial to understanding the role of
suppliers, customers, employees, shareholders, and managers create value in the business
environment (Freeman, et al., 2007). Identifying, analyzing, and assessing stakeholders is the
beginning of an integrative business process framework that encapsulates engagement
techniques, communication strategies, and continuous assessment of the duties and
responsibilities of the major stakeholders. In the same breadth, effective stakeholder
management demands the objective analysis of assessing the competing demands of different
stakeholders to ensure consistency with the organizations strategic goals and objectives. The
concept of corporate governance elucidates the role of stakeholders as that of inculcating
their personal interests as well as those of the local community where they operate to promote
the holistic advancement of the society.
The stakeholder and shareholder narratives share the view that fairness, transparency,
responsibility, and accountability are indispensable attributes of corporate governance
(Turnbull, 1997). In effect, these attributes confirm the effectiveness of an entity in
accomplishing the traditionalistic shareholder theory focus on profit and the dynamic
stakeholder notion of inclusivity in the theoretical aspect of an organization. Succinctly, the
perceived conflict between stakeholders and shareholders is limited to the principles of
corporate governance as both parties agree on the relevance of fairness, accountability,
transparency, and responsibility for prosperity and liquidity of the organization (Shah &
Bhaskar, 2007).
The concept of stakeholder management recognizes the interests of shareholders as
primary but proposes a moral outlook towards attending to the interests of other stakeholders
within considerable impartiality. Moreover, the stakeholder theory maintains that strategic
management and objectivity is pivotal to benefitting the concerns of all the stakeholders. In
effect, efficient stakeholder management ascribes to the creation of corporate wealth within
ethical guidelines of decision making and maintaining good relations between all the
stakeholders in the firm. The traditional shareholder model is poised on economic perspective
and the specific assets they contribute to the organization (Boatright, 2006). In this light, the
employees are to skills, shareholders are to investment, suppliers are to services and raw
materials; hence, harnessing and combination of these assets is crucial to generating viable
economic gains and growth for the organization.
At this juncture of the report, understanding the nature of the firm and more
specifically the performance indicators of an organization and the management will
contribute immensely to the controversy surrounding stakeholder management. According to
Weinstein (2013); Jensen (2002) agree that value maximization is the only viable
performance indicator of a corporate entity. The traditional shareholder perspective of return
on investment alienates the need for the inclusive modernistic approach of serving the
interests of stakeholder theory. The need for identifying a performance measure of an entity
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is cognizant to strategic objectives and increasing value of the stock in the long run. It then
follows that the controversy existing among stakeholders is determined by the organizational,
corporate, and social responsibilities. The basis of stakeholder theory is founded on
sociology, politics, organizational and behavioral psychology and thus an inconclusive
indicator of the objective function of profit maximization in the firm. The premise raises
more queries whether corporates should have a single objective or multiple objectives
centered around creating value or otherwise. The dilemma unearths the perspectives of
corporate social responsibility (CSR) and its relevance to stakeholder management.
The theory of Corporate Social Responsibility (CSR) integrates environmental and
social concerns in the business operations by contributing to sustainable development of the
local community. CSR is an integral component of stakeholder management theory as
theorized in the report and is seen as a measure of consolidating the interests of external
stakeholders with non-financial interests in the organization (Sharplin, 2003). In relation to
stakeholder management, the stakeholder theory interprets CSR as the measure of political,
integrative, economic, and ethical duties owed by the organization. The growth of corporate
and social responsibility is partly due to the recognition of the significance of the role of
stakeholders in the going concern element of an organization and the perceived benefits to the
overall value of the entity.
The importance of corporate social responsibility has evolved from a linear concept to
provide strategic solutions towards the conflict existing between the shareholders corporate
objective of profit maximization and the social stakeholder approach of value addition to the
society. Although corporate and social responsibility may take various forms depending on
what the management deems best for the organization, the benefits accruing from CSR
include increased customer retention, a superior corporate image, and an improvement in the
sales output. Therefore, the connection between stakeholder management and corporate
social responsibility is central to the developing theme of strategic management as the long-
term solution to the underlined shareholder and stakeholder management controversy.

Benefits of Stakeholder management to the Society

The impending shift from the focus on shareholders value maximization to increased
customer satisfaction levels presents the new dawn of capitalism. The focus on consumer
satisfaction eventually improves the shareholder value by improving customer loyalty and
promoting brand identity (Martin, 2010). The optimization theory posits that it is impossible
to maximize two objectives having different analogies. Consequently, it is impossible to
maximizing the shareholder value and increasing customer satisfaction simultaneously
without devaluing the other. In effect, the Martin (2010) posits that more returns will be
generated if the holistic concentration of the management is directed towards improving
customer satisfaction levels rather than leaning towards the traditionalistic view of
maximizing the value of the shareholders.
Understanding the stakeholder theory emphasizes on the position of stakeholders
whereby in the instance that an organization is insolvent stockholders are paid net of all
payments to creditors. Then is it not plausible for the management to concentrate on
increasing shareholder value and compromise on the customer satisfaction levels.
Organizations adopting this model succeed economically and socially; in the short-term and
long run. Leaning more to customer satisfaction is coherent to the establishing a concise
corporate governance, a unique organizational culture, better relationships with external
stakeholders, and the creation of a superior brand that augers well with the local community.
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The society benefits unequivocally from viewing the firm in the broader perspective
of consumer satisfaction rather than stockholder value (Weinstein, 2013). In fact, the more
holistic approach of stakeholder management envisages the welfares of both primary and
secondary stakeholders by attaining consumer satisfaction which in turn generates value to
the shareholder. The stakeholder management aspect of the firm creates relationships among
the stakeholders characterized by cooperation and mutual understanding of the shared
objectives of the organization. The relationships empower each stakeholder to envisage
enriched outcomes for the entire society.
Stakeholder management perspectives improve the public image of an organization by
the various commitments to the society, the employees, creditors, and suppliers. By
recognizing the impending needs of the society, the organization targets potential areas of
improving the livelihoods of the local community and as a result benefit from customer
loyalty and promotion. Employees, as part of the society, benefit from the corporate and
social responsibility of the organization through an inclusive work environment that values
opinions and encourages autonomy. The practice encourages enhanced productivity, ethical
behavior, creativity, and professional growth in the long run.
The suppliers accrue benefits from forging positive and cooperative partnerships with
the organization. The corporate partnerships arise from the mutual understanding and
appreciation of shared interests between the suppliers and the entity that is based on
transparency, accountability, integrity, and fairness. Moreover, the four themes generate
confidence with the suppliers and are often a means of deferred income whereby the
organization may acquire raw materials on credit terms from the supplier. The holistic
approach towards the firm via the collaborate engagement with stakeholders and corporate
social responsibility improves the corporate value of the organization by retaining present
shareholding and attracting new investors to the organization. Every person wants to be
associated with an organization that values the preferences of customers, acknowledges their
social and environmental responsibility to the community, values the worth of the employees
and creates value for their stockholders.

Theoretical perspectives

Utilitarian theory
The utilitarian theory is based on normative ethics that places emphasis on right and
wrong with the consequences of either action having a direct influence on the other. in
management; utilitarianism aims at maximizing utility. The concept of utilitarianism is
guided by three principles that denote the basics of normative ethical considerations in
management. First, is the premise that happiness is the only construct with an intrinsic value
which in this case represents the satisfaction of the stakeholders of an organization (Banerjee,
2005). Second is the proposition that the decisions and actions of the managers are always
right and aim they aim at promoting the happiness of stakeholders. Consequently, the
contentment of all shareholders should be the main function of corporate organizations.
The concept of utilitarianism in stakeholder management foresees a situation whereby
the management of corporate organizations should focus on striving for the happiness of their
stakeholders (Harrison & Wicks, 2013). Traditional views on the firm encapsulate an
optimum situation as maximizing the returns of shareholders investment. However, this
approach is redundant owing to the holistic approach conceptualized that conforms to
stakeholder management. Ideally, the realization of customer satisfaction is deemed to be the
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better alternative that justifies the long-term return on shareholder investment. Therefore the
optimal solution based on utilitarianism would comprise the realization of various
stakeholder interests to define the intrinsic value of moral ethics.

Theory of justice and due care

The renowned works of distributive justice attempt to enumerate the optimal situation
whereby the distribution of resources, services, and goods would solve the problem m of
inequality in the society. The theory proposes a more structured society whereby the
economies of scale, equal distribution of resources, and political assets would improve the
status of the economy (Gilbert, 2012). In effect, the moral theory of justice envisages
compliance in the stakeholder value chain to promote the wellbeing of primary and secondary
stakeholders in the society.
Businesses have an innate obligation to consumers owing to their knowledge of the
demographics of consumer satisfaction levels. The special obligations require that corporates
exercise due care to ensure that their stakeholders derive maximum benefits from their
products and services regardless of the economic, social, and political environment. In the
broader aspects of the firm, due care is extended to the local community through corporate
and social responsibility. Moreover, due care goes beyond the natural responsibility of the
manager in making strategic decisions to the fiduciary care of protecting the assets and
interests of all the stakeholders.

Kantian Perspective
The Kantianism perspective envisages the rules of respect and universality as the
moral obligations of managers in the decision-making process of an organization (Gilbert,
2012). The theory, conceptualized by Kant, proclaims that moral character is the foundation
of principles but not the consequences occurring as a result of the character. In effect, ethical
onuses are considered higher truths that impact the performance of an entity. The Kantianism
theory ascribes moral ethics as unconditional in the management of stakeholders and hence
criticizes any defiance arising from managerial decision making. Although Kants theory is
simplistic in theory, the model of stakeholder management requires strategic predictions of
moral foundations in making decisions,
Consequently, strategic management in stakeholder theory demands considerable
assessment of the wellbeing of stakeholders while safeguarding the interests of the
shareholders. Moreover, the Kantianism theory underlines expectations of a corporate entity
that comprise of benevolent actions to all shareholders regardless of their interests in the
organization. The rigidity of Kants theory results in a conundrum of evaluating the morality
of stakeholders having negative intentions to the organization. Besides, Kant provides no
rationale of distinguishing what conforms to ethical values and what is considered unethical
in business practice. The ambiguity of the Kantianism perspective allows for conflict of
interest in strategic decision making.

Sustainability Theories

Creating Shared Values

Shared value is strategy utilized by corporate entities to generate plausible decisions
and opportunities in the context of social problems. It is imperative to note the concept of
creating shared value does not in any way signify the social responsibility or corporate
sustainability, but an initiative of solving potential problems experienced by consumers by
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maximizing the value and minimizing costs (Marrewijk, 2003). Today, numerous corporate
organizations rely on business models that augment social structures to increase their
competitive advantages. Creating shared values occurs by maximizing the stakeholder
engagements existing in the entity by improving the value chain and improving the skill set in
the organization.
In recent times businesses have endured significant criticism owing to the dwindling
economic, social, and environmental settings owing to the concentration of value rather than
engaging in corporate social responsibility. In effect, the constricted approach to business
renders an entity redundant due to increased customer dissatisfaction, mistrust of suppliers,
and the depletion of natural resources to produce raw materials for the production process.
Similarly, the overall objective of the firm is deemed to fail as the gap between the society
and business increases. However, the solution posed by creating a framework of shared
values presents an opportunity for the firm to liberate itself from the trend.
Ideally, the firm could adopt the shared value concept through preconception of
products and markets to bridge the gap between customer dissatisfaction and addressing the
direct needs of the consumers. Another alternative would be to redefine the value chain
process to increase production output by alternating best practices that in the view of the
optimum utilization of resources, business process re-engineering and creating lasting
partnerships with all the stakeholders of the firm. Moreover, enabling cluster development at
the local level provides an enabling environment for improving supplier liaison and
community engagement to boost productivity and foster innovativeness among the
employees.

Corporate Social Responsibility

Corporate social responsibility theories inspire an in-depth understanding towards the
basis of a mutual relationship between the society and business. Corporate social
responsibility encompasses instrumental, political, ethical, and integrative models that
provide an analysis of the modern business environment. The ethical model underlines the
ethical underpinnings and fiduciary duties of an entity to its stakeholders. Ethical practices
are based on principles that adjudge the responsibility of the organization in good standing to
the local society. Ethical concerns aim at inspiring sustainable development and the social
well-being of its stakeholders. The integrative aspect of CSR underlines the significance of
the society to the business while emphasizing the relevance of communication in meeting the
social demands prescribed by the society (Ackermann & Eden, 2011).
In addition, integration envisages the responsibility of the business regardless of
political and social issues. Instrumental theory within the scope of CSR encompasses wealth
creation as a factor of social engagement and political influences within the industry of
operations (Branco & Rodrigues, 2007). Notwithstanding, the need for corporate citizenship
occurs within the framework of the social construct theory that considers the evolution of the
business environment to a globally operating function that integrates a milieu of functions to
the stakeholders of the business entity. Overall, corporate social responsibility is viewed as
the consequence of relationships between the society and the business as a whole.

Conclusion and Recommendations

The main difference between shareholder and stakeholder perspectives of the firm is
the unequivocal consideration of the concerns of all stakeholders associated to the
organization. Stakeholders encompass suppliers, employees, local community, customers and
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creditors of a corporate entity. Although the stakeholder model indirectly points towards the
satisfaction of shareholder interest, the theory justifies foregoing profitability considering it
an end to the means of business sustainability.
Managers are endowed with the responsibility of making strategic decisions that
prioritize the interests of all the stakeholders regardless of their interests in the organization.
The stakeholder theory envisions a simplistic model towards customer satisfaction focusing
on the long-term economic returns on shareholder investments. The model shares closely
with corporate social responsibility whereby the focus on accountability is directed towards
the local community, suppliers, and consumers.
Stakeholder management calls for good corporate governance to alleviate the polarity
created by shareholder theory. The stakeholder paradigm justifies the conceptual theory of
the firm that centers the loci of corporate governance on the contentment of external
stakeholders as opposed to generating return on investment. Corporate governance is directly
attributable to agency theory whereby the management performances are based on the greater
good of the stakeholder engagement.
The absolute indicator of effective stakeholder management is bound on ethical and
fiduciary concerns of managerial decision making. The existence of ethics and moral values
in stakeholder management supersedes the actuality of profitability for the shareholders of the
organization. Stakeholder management and moral authority provide assurance for the greater
good and collaborative existence of the society.
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