Pros And Cons Of The Enlightened Stakeholder Debate

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.

Shareholder value revolution is a notion described in the book “Liquidated: An Ethnography of Wall Street” by Karen Ho. Shareholder value revolution is a shift of focus of corporations’ managers away from serving the interests of all the constituents of the corporation towards serving the interests solely of a shareholder class. As it was described by Karen Ho, shareholder value revolution came about as a result of the inefficiencies created by the conglomerate wave in the 1960s. These inefficiencies caused the takeover movement in the 1980s that in turn reinforced the interests of shareholders. According to Ho (2009), “In this worldview, corporation exist for the sole benefit of shareholders, and any attempt to separate shareholder interests from those of the corporation was selfish and nonsensical.” (p.

The article is written to help readers gain a solid understanding the roles of corporate governance, both inside and outside the company. Its goal is simply to impart information, not make claims or arguments on its own. I will be judging it mainly on the sources gathered, numerous examples and explanations given and the overall effectiveness it possesses in effectively communicating its ideas.

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

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,

Stakeholders are defined as any party who has an interest in the business i.e. customers, suppliers, employees etc. (Watson & Head, 2013). With increasing global attention towards good corporate governance practices, there has been action through international codes of best practice to ensure that accountability and integrity in governance is directed towards this larger group (Chau, 2011); which is of great importance as many companies today value building robust, long term relationships with their stakeholders and often consider them as partners. Therefore it is imperative that stakeholders be treated fairly or with generosity, and to ensure that they are aware of this; whereby managers should direct their attention to the true equity preferences and exchange orientations of their stakeholders rather than assuming stakeholder homogeneity (Hayibor, 2015). However it has also been noted in research that while all of these stakeholders to an extent have an interest in the financial decisions of the company, this may create a conflict of interest for the management as each of these parties may have different objectives that they will inevitably be forced to choose between; whereby being accountable to multiple parties could create a tension among management in their decision making with regard to acting as an agent of the owners as opposed to looking out for the interests

Corporate Governance is essentially concerned with ways in which all parties interested in the prosperity of the firm (the stakeholders) attempt to guarantee that managers and the internal factors are continually taking proper measures or receive instruments that safeguard the interests of the stakeholder. Such measures are required because of the separation of corporations. A typical firm is characterised by various proprietors having no administration role, and with managers with no equity interest

Within a company, a stakeholder is a person who has a specific interest in a project or ventures that exist within. Typically, the primary stakeholder of a major corporation is the employers, customers, suppliers, and even investors (2012 Report on Sustainable and Responsible Investing Trends in the United States, 2012). However, with a more modern and contemporary premise the more conservative idea to embrace other stakeholders to include people from the community, representatives of the government, as well as representatives from trade associations. The basic premise of a stakeholder from a corporation is to further enhance the value of the shareholder and to ultimately maximize its profits.

Academics and industry experts have been debating over the absolute objective of organizations for decades. Economists argue that the pure aim of any organization should be to maximize shareholders value (Jensen, 2002). The conclusion that derive from such statement are quite straightforward. Nevertheless, the academic discussion that rise from such evidence is more complex. Shareholder value is a concept that could be easily stretched to include a wider focus group. Logically speaking, companies’ performance are affected by the business environment in which they operate. Therefore, shareholder value is indirectly influenced by the entire group of

INTRODUCTIONThe introduction of the concept of stakeholder theory can be traced back in the 1960s (Stoney and Winstanley, 2001),however the concept gained grounds with the publication of Freeman’s (1984) book, Strategic Management: A Stakeholder Approach. Till now most writers with stakeholders as a central theme have shown numerous theoretical and empirical studies about this concept (Donaldson and Preston, 1995). The concept about stakeholders in an organisation is very paramount, however, far too less work have been shown to consolidate and implement the study, that can help the realistic use of stakeholder management in our contemporary firms (Donaldson and Preston, 1995). This essay strive to critically evaluate how stakeholder management can have impact on business and management practices and decision making. In answering this question, this paper will attempt to air the view of other relevant articles or authors to solidify, yet a demonstrative approach to successfully manage stakeholder relations. HOW TO IDENTIFY A STAKEHOLDER AND IT’S IMPORTANCEThe first issue under stakeholder management is to identify your stakeholders, in short, who are the relevant stakeholders in an organisation?…..ref.. (Mitchell et al., 1997) in their previous work has identified stakeholders in different and various ways, nevertheless, Freeman (1984, p. 46): has given a well noticed definition for as “A stakeholder in an organisation is (by definition) any group or individual who can

There are numerous ways in which stakeholders can be defined, and it comes down a project team’s definition of stakeholder that has a large bearing on who will be identified as a stakeholder. Nutt and Beckoff (1992: 439) define stakeholders as ‘All parties who will be affected by or will affect the organization’s strategy’, while Eden and Ackermann (1998:117) define stakeholders as ‘People or small groups with the power to respond to, negotiate with, and change the strategic future of the organization’. Nutt and Beckoff’s definition is very broad while Eden and Ackermann’s definition is more specific; as to be a stakeholder the party must have the power to

Efficiency is not really critical because the firm’s financial goals are not exclusively shareholder-oriented since they are constrained by the other stakeholders. In any case, stakeholder capitalism assumes that long-term “loyal” shareholders—typically, controlling shareholders—rather than the transient portfolio investor should influence corporate strategy. Although both philosophies have their strengths and weaknesses, two trends in recent years have led to an increasing focus on shareholder wealth. First, as more of the non-Anglo-American markets have increasingly privatized their industries, the shareholder wealth focus is seemingly needed to attract international capital from outside investors, many of whom are from other countries. Second, and still quite controversial, many analysts believe that shareholder-based multinationals are increasingly dominating their global industry segments.

As Waldkirch (2008) stated the political problem which underlies the discussion of the principles for managing corporations has existed for only about 150 years. Chandler (1977) emphasised that during this period of time, society has witnessed the appearance and the spreading of organisations. In traditional view, the shareholders were the main stakeholders in the company. This traditional view has started to be challenged in the late 20th century. Freeman (2010) stated that ‘the business world of 21st century has undergone dramatic change’.

The importance of Corporate Governance has been strongly highlighted by many organizations and foreign nations. According to Zulkafli (2004), Corporate Governance is the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, whilst taking account the interests of other stakeholders . This, in simpler terms meaning managing the company’s money in such a way, where they face less risk and maximize the utilization of the resources. Due to this reason, corporate governance is becoming a must in many nations and their economic policy. However, over the years, many such corporate governance failures have been a root cause in the company’s demise. The top level managements’ misleading actions have been detrimental to their organization. International scandals such as Enron, Worldcomm, and Tyco International, have created a stir in the economy and harmed their company. Many top level staffs were fired, accused and even tried in court, with a majority of them facing prison sentences even till now.

“Corporate finance theory, teaching and the typically recommended practice at least in the US are all built on the premise that the primary goal of a corporation should be the maximization of shareholder value.”