Maximizing the Corporate Objective with the Stakeholder Theory

The stakeholder theory made popular by Ed Freeman (1984) does seem to represent a major advance over the classical view (Freeman, 1984). It might seem inappropriate to refer to the stakeholder position as neoclassical. Bowie (1991: 56-66) has defined stakeholders as a group whose existence was necessary for the survival of the firm--stockholders, employees, customers, suppliers, the local community, and managers themselves.

Stakeholders are individuals or groups that partake, or assert, possession, privileges, or benefits in a, organization and its accomplishments, previously currently, and in the upcoming (Barrett, 2001). These requested privileges or benefits are the result of communications with, or activities reserved by the organization, and they must be lawful or ethical, separate or combined Stakeholders with comparable benefits, entitlements, or privileges can be categorized as fitting into the similar collection: personnel, investors, and clients (Barrett, 2001). The better the impact these groups have on client’s lives and the extra community assets with which they are assigned, and it becomes vital that they are responsible (Barrett, 2001).

A strong believer in his reconceptualized Stakeholder Theory of the Modern Corporation, R. Edward Freeman believes the key to success in business is

Define value creation and the components that can be used to determine value creation per unit. How is value creation related to competitive advantage?

A company creates value for its customers and attempts to differentiate its offerings from its competitors in the market. The performance goals/metrics are set by leadership which is concurrent with its business strategy.

Maximization of profit or integration of stakeholders? Those myths have been conflicting for a while. In their book “Conscious Capitalism”, without contrasting that the conscious businesses need to deliver strong financial results over the long term, Mackey and Sisodia strive to explain that creating value for all stakeholders is intrinsic to the success for conscious businesses. They develop a different narrative than the one that sees business through the lens of profit maximization (Mackey and Sisodia 20). They give an impressing example of Bill Gates who did start its business with the goal of transforming the people’s lives instead of becoming the richest man in the world. They add that taking profit maximization as the sole purpose of business has done

Thus, holding people accountable to the strategy is essential to optimizing profitability and maximizing the valuation or bankability of any company.

In general ,the stakeholder approach may be more conducive to balancing a wide variety of corporate interests and thereby discouraging impropriety.Executives and boards should take the perceptions of both shareholders and stakeholders into account when formulating strategy and enunciate their stance in all organizational communications. Only within that kind of clearly delineated context, can managers be expected to make appropriate decisions. Indeed, some of the most successful businesses are those which have embraced stakeholder values for example Bodyshop. However, we see that generally, shareholder value

To produce a set of recommendations in a written document about how McDonalds PLC, can reduce its carbon footprint through the management of key stakeholder relationships.

Nowadays, we are facing a major experiment in privatization. For example, private companies have entered the business of managing public schools, or religious schools. Also, they even run in prison industry. Among them is Private Prison Corporation of America, which is growing fast in prison industry in the United States. Especially, immigration detention business has brought up massive profit for Private Prison of America. Therefore, corporation is planning to join other private prison corporations by making campaign donation and retaining lobbyist to draft and seek the passage of two laws about anti-illegal immigrant and the Intensive Probation Act that will increase opportunities to do

Common goals and potential synergy between an organisation and a stakeholder is identified by understanding the needs and interests of an organisation and the stakeholder and establishing goals that can be long or short term that will be able to meet the needs and expectations of the stakeholders. You can establish these goals by communicating and negotiating with the stakeholders. By communicating you will also be able to understand what the capabilities of the stakeholder are with resources and finances.

This paper will have a detailed discussion on the shareholder theory of Milton Friedman and the stakeholder theory of Edward Freeman. Friedman argued that “neo-classical economic theory suggests that the purpose of the organisations is to make profits in their accountability to themselves and their shareholders and that only by doing so can business contribute to wealth for itself and society at large”. On the other hand, the theory of stakeholder suggests that the managers of an organisation do not only have the duty towards the firm’s shareholders; rather towards the individuals and constituencies who contribute to the company’s wealth, capacity and activities. These individuals or constituencies can be the shareholders, employees,

The hallmark of value-based management is to choose strategies that add and maximize value for shareholders.

Freeman is of the view that stockholders are the most important stakeholders and are essential to the profitability and sustainability of the organization. Thus, in order to maximize profits, then the best interests of all stakeholders ought to be recognized. According to Freeman’s stakeholder theory, managers have an ethical duty to manage the organization for all stakeholders. Their ethical duties are governed by the principle of corporate rights, in which the organization has an obligation not to violate the rights of others; and the principle of corporate effect, which outlines that the organization is responsible for the effects of its actions on

A stake holder, in general is defined as an individual or organization likely affected by the performance of an organization. In “The stakeholder theory of the corporation: Concepts, evidence, and implications” by Thomas Donaldson , he quotes Stanford research institution and calls stake holders “those groups without whose support the organization would cease to exist.”