theory of stakeholders’ management

According to the main view of stakeholder management

A company’s stakeholders’ value is more significant than all other factors combined. Since shareholders are the main source of funding for all businesses, their interests are regarded as being of the utmost importance. In contrast to what many people seem to believe, researchers like Friedman present a compelling case for how managers and employees should conduct their companies to maximize stakeholder satisfaction. There are a lot of theories that back up Friedman’s management of stakeholders strategy. Ethics to call is one of these ideologies. In contrast to the earlier method, the society is another group of people that stands to benefit from the management of the older approach. Some theories aim at reconciling Friedman’s approach, and they help the concept work efficiently.

Table of Contents

Introduction 4

Literature Review 4

How Society Benefits from Adopting a Broader View 6

Theories 9

Ethic of Care 9

Kant Theory 10

Egoism 10

Utilitarianism 11

Other Theories that Aim to Reconcile Stated Views 12

Virtue Ethics Theory 12

Conclusion 13

Recommendation 13

Bibliography

15

Business Stakeholder Corporate

Introduction

Ethics and morality is a vital part of the society. Morality relies on the fact that individuals should bank on the determination of right and wrong while handling stakeholders’ approaches. There have been various ways in which the concept in question has been developed over the last few years (Yahyapour, et al., 2015, p. 1300). Severally, the management has been asked to ensure it keeps the shareholders’ interests above all other interests. Any decision that does not benefit stakeholders is to be abolished and be replaced with a policy beneficial to them. The business models today are however taking a different approach, thanks to the proposed plan by Freeman (Freeman, 2004, p. 228). The method brings out the idea that all major players in the business circle are significant; thus, their interest remains paramount and must be protected by all means. It means that the decisions by the management should not affect a group negatively, instead it should be a win-win situation for stakeholders involved. Even though many people tend to interpret the stakeholders to be financiers, employees and customers are not an exception either (Holmstrom & Kaplan, 2003, p. 16). Therefore, it is essential to note that in the shareholder protection concept, the employees and customers should not be affected at all.

Literature Review

The stakeholder theory is a significant ideology that considers the running of a firm as in question. The theory explains all the values generated and all the other factors to be considered while doing business (Aguilera & Gregory, 2003, p. 502). The method is managerial and is more focused on the way managers operate the businesses than how they manage theorists. The main aim of this theory is to determine the firm’s chief purpose. It helps in the determination of the answers and allow managers to figure out whose value they stand to protect (Tony, 2012, p. 26). It is also about how their decisions will help them in the determination of what is the executives’ responsibility towards the stakeholders and to who they are answerable. It helps in the way businesses are done and how value is created in the firms’ operations (Schulze, Lubatkin, & Dino, 2003, p. 185).

The “managing for stakeholders” is a claim that emphasizes that a firm should aim to create value for all its stakeholders (Gibbs & Jonas, 2000, p. 310). The dominant model tends to specify that the decisions made for other stakeholders are to be termed as incidental and they are not favorable to all the major players in the business world. The dominant theory does not achieve its intention since the people have evolved and the business world keep on changing over time. Inability to make the set goals in the business world by the stated model relies on the fact that diversity builds the foundation for change (Boatright, 2006, p. 126). The portrayed change in the business world is vital, but it is hindered by the dominant theory since it is resistant to change. The concept does not follow the law, and this means that some of the areas supports are unethical in nature. The executive of any firm should not only ensure that stakeholders are satisfied but also have a responsibility to warrant that whatever goes on in the business is moral (Koke & Renneboog, 2005, p. 503).

The business world today is a whole new re-innovation of the 20th century model of doing business (Steurer, 2005, p. 270). During the 20th century, the shareholders were at the center of every single transaction. Decisions are based on the wishes of the shareholders and as long as they are comfortable the rest of the stakeholders do not matter (Venkataraman, 2002, p. 48). This affected the operations since the employees and customers would at times be unsatisfied with the results but had to accept them since it was the shareholder’s interest.

With the evolving business world, the ownership of the businesses and the management have come to be distinguished (Michels & Montfort, 2015, p. 175). When the above concepts become one as it used to be in the 20th century, the opinions and interests of the shareholders are what determine how the business is run. The system whereby the management learns on how to control the affairs of the company in a division manner that helps in the growth of the firm and they adopt laissez-faire capitalism (Ramakrishna, 2002, p. 133).

The dominant model is more dependent on the business ideas and is not welcoming to the ethical and moral issues surrounding the situation. The model relies more on the phrase “business ethics is an oxymoron” (Park & Seonghoon, 2008, p. 72). The integration thesis that is used in explaining that most business decisions have some ethical content in them. For us to achieve this, there is need for the re-conceptualizing the current language used in the business world (Archie B, 2014, p. 265). This will go hand in hand with the responsibility principle. It will happen because without any ethics then businesses cannot be held to be responsible in any way including morally. A new model for industry needs to be created which will help in the explaining how ethics and economics go hand in hand, and also how all the accounts and decisions made by the firm have adverse effects on all stakeholders and not just a few investors (Choi, Lee, & Park 2013, p. 456).

How Society Benefits from Adopting a Broader View

For the society to gain from the association, both theories are quite vital. The working of the latter approach means that the organization gets to earn much more than it did in the former path (Dirk & Crane, 2005, p. 174). With the dominant theory, the society was at a loss when compared to Freeman’s approach. The nation stands to gain much more with Freeman’s approach since when decisions are made, the concepts are also being considered. The society will be part of the stakeholders’ interests (Archie, 2017, p. 45). It is the responsibility of the firm to be accountable for its activities and to ensure that there are obligated to the well-being of the society around them. The society comprises of the suppliers, customers, employees, management as well as the firm’s shareholders. The society is supposed to gain from the firm which should ensure it adheres to the legal, ethical, discretionary, and lawful manner of doing things (Chen, Cheng, & Hwang 2005, p. 175).

The firm should be profitable to the people around it, and so are the stakeholders. It should ensure that the rules and regulations set by the societal laws are adhered to, and they are followed to the letter. Philanthropy should be one of its significant views, and it should be part of the package that it offers the society (Bloom & Reenen, 2007, p. 1390). The morality of their activities should be unquestionable, and the management should ensure it does ethical and universally acceptable things (Brown, John, & Telegdy, 2015, p. 78).

The society benefits from the firm, and here the pragmatist approach is adopted since the business ensures it is characteristically moral. The products should be safe environmentally and fit for human use. The suppliers are to be treated with utmost respect. In achieving the cleanliness aspect, recycling is recommended in any firm, and the business enterprises are not an exception either (Amesh, Osuji, Nnodim, 2008, p. 227). Though several scholars view maximum profit generation as the primary aim of business, maintaining good social relationship plays an integral part as well. The stores are already in power, and the society needs to gain from the power it exercises around them.

The entire society is bound to gain from the approach since the products will come at lower prices, the costs will reduce significantly, and the suppliers will be picked from the existing society (Ruf, 2001, p. 148). This will not only help the people but also the company in gaining and retaining its customers. The labor turnover will reduce significantly, and the employees will be happy which will, in turn, attract more staff for the firm, hence help the company grow dramatically. A firm should be able to embrace corporate citizenship, which translates to adherence to the stakeholders’ value. While balancing out all its stakeholders’ needs, the business should still ensure it still keeps claim to its long-term ability (Agle, 2008, p. 185). It has been proven for the good of the firm that its ideal to have good social performance, thus enhance the organization reputation and growth of the financial institution growth base.

Despite innovation being helpful to business entities, it is also beneficial to customers because it increases the product base and options available to customers. By attaining the outlined concepts, there will be more jobs which enables the employees to grow financially (Bhaumik & Dimova, 2015, p. 38). The other people benefiting from the move are suppliers due to more than improving the company sales.

Corporate companies tend to get too much credit for a country’s fortune. It is because they have the power and rule since they are considered kings in the business world. Typically, society is profoundly influenced by power and business strength is known to sometimes affect the enterprises positively in most cases, but affect others negatively. The iron law of responsibility explains to the firms and the society how crucial it is for the people and businesses to utilize their power in a moral manner (Bourne & Walker, 2005, p. 654). Anyone not using his/her ability well is bound to lose it anyway as society dictates. Business social contracts are a way of the institutions having relationships through contractual agreements. This will also happen to the business and the culture that is in question. Change is the way company, and the society interacts brought on a difference in the growth of importance to the environment and social life of the stakeholders in the organization (Franck & Hauser, 2005, p. 35)

Theories

Different theories discuss varying scopes of ethics and how one should view them. The methods are divided into two, the consequentialist arguments and the non-consequentialist ideologies (Freeman, 2007). The non-consequentialist theory has its sub divisions, and it mostly argues that both the wrong and the right are determined mainly by the likelihood of the action from the consequences taken. These subdivisions are ethic of care theory and Kant theory.

Ethic of Care

The ideology mostly talks about the way women and men think and how differently they have perceived ethics. When it comes to men, they mainly consider justice and the state of governance, but when it comes to women, it is mostly about putting others’ needs first and feeling sharing (Tian & Twite, 2011, p. 410). It is also essential to note that according to the theory; women tend to portray the understanding concept. It is because people want to ask questions regarding the morality of whatever they do, thus end up hurting others. Ethic of care aspect tends to go against the dominant business model because it asks us to treat everyone equally, be it the highest shareholder or the local customer in the society. It argues that even customers should receive value for their money; the community should realize the company value and the shareholders as well (Stieb, 2009, p. 413). It is why the law has ensured that everyone is protected from this kind of a model.

Kant Theory

The theory mostly put into consideration the feelings of other individuals and their happiness. Kant mainly talks about the moral values, which are not dependents on the consequences and what is observable. He also argues that morals are not based on factual information, but reasoning (Steurer, 2005, p. 62). Regarding goodwill, Kant says that human beings should act from principles. He continues by illustrating that right will serves on the idea of duty. Actions are counted worthy if only we are moving from the concept of function. He further states that one should not act out of feelings but from the sense of duty. From the particular imperative point of view, it is the only reason that yields the law of morals. One should not base his or her findings on the observations he makes. So, when it comes to the dominant model of business, one is urged to ensure that when he is about to do something, third-party feelings must be considered and universal acceptability as well (Steven & Totty, 2013). Humans obligation is not to exploit others but to treat them similarly with the way they would also desire to be handled. When managerial heads do good by considering others and working towards their interest, their actions are classified as moral worth.

The other theories are considered as consequentialist arguments because they rely on results to determine the moral rightness of an action. In case of positive action results, the originator is deemed to be morally upright, but if negative consequences come forth, then the originator is immoral (Russo & Perrini, 2010, p. 215). Egoism and utilitarianism are the most important theories of consequentialist ideology.

Egoism

Egoism supports the guiding principle of an individual is their self-interest. It means that whatever action an individual take should only be to the benefit of oneself and no other parties. Egoism theory entirely supports the dominant model, which just acts in the best interest of the shareholders and not other persons (Jensen, 2002, p. 242). There are two types of egoism namely; impersonal and personal. Personal egoism advice that anyone should do what yields them the best in the long run and not be bothered by what others should do, while the impersonal one advocates that one should follow the interest that benefits them most. One thing about this theory is that it does not restrict anyone, but it just implies that no one has to consider the feelings of others (Richardson, 2009, p. 683). Any business that puts the interest of the financers first should keep doing so without worrying about the importance of the others.

Utilitarianism

Utilitarianism claims that one should always ensure they balance the good over sorry for anyone who might be affected by the actions. An action will be termed either good or bad by the kind of results generated. Some of the philosophers argue that when an act does the greater good than wrong, it is morally right (Steurer, 2006, p. 64). Utilitarianism says that anything is useful only when it is yielding pleasure to others and we should not consider just the happiness aspect, but the maximum satisfaction that it generates. The theory differs with the model of business being examined because it wants to do the greater good to financers and not the society, customers, and others. The explanation is that when the managers do well to the shareholders, the more abundant numbers will be affected negatively, and that is morally wrong, but when the society and customers are satisfied by the actions, it is considered morally right (Freeman, et al., 2004, p. 358).

Other Theories that Aim to Reconcile Stated Views

Virtue Ethics Theory

It is not based on the likelihood of action results or the duties that bring about an action but relies on the belief that the most significant issue in social relationships and ethics do not entirely lean on effects, but in the quality. It urges people not to base their results on the actions they take, but by the virtues and the vices of the person (Peng & Jiang, 2010, p. 263). When someone considers attributes, it means that he/she will act for the greater good of other people than self-interest. Not everyone is born virtuous; it is more of learning to develop it within themselves. It requires someone to improve the understanding concept, which permits them to adopt the morals without consideration of duties and rules (Parmer, 2010, p. 430). Fisher and Lovell agree that virtues are the personal qualities that lead to an individual doing good to others, which results in pleasure and happiness. Righteousness stands in between the vice of excess and that of deficiency. All this depends on the mindset of an individual.

Issa, a philosopher, says that if every individual keeps up with the ethical mindset, their decision-making process will be influenced by the environment they work in and the organizations’ sustainability as well (Min & Smyth, 2014, p. 373). It advices that people should interpret morals and ethics based on their spirit and virtues and not from actions as many tend to think. It also urges individuals to consider every time that they step into other areas of work; they are to believe ethics and ethical mindset since it helps in carrying out their responsibilities.

In relations to Freeman and Friedman approaches, individuals realize that decision to use one’s virtues or the goodness in people in any business results to stakeholder and shareholder benefit. A good example is where shareholders want to ensure current maximum returns in comparison to the previous year so that they come up with a strategy that helps boost the business and realize maximum profit increase instead (Milton, 2007). It means the shareholders have to come up with a decision that does not only benefit them but also make the customers happy. The reason is to attain maximum purchase from the clients. It implies having a promotion or offers where customers will have to buy maximally and get a gift reward. The reason will, in turn, be of help to the organization since customers will buy in bulk and their sales will increase (Mike & Konings , 2007, p. 1620). At the end of it all, the returns of the shareholders are maximized, and customers go home fully satisfied and happy.

Conclusion

From the above discussion, one realizes that different philosophers have different views on the models of businesses. Friedman says that shareholders interest come first while Freeman argues that every stakeholder in an organization should be considered. According to the world of business, one sees that most companies follow the dominant model. The best thing about this is as much as the dominant model used by the government that ensures it has enacted laws aiming at protecting the society, customers, suppliers, and employees. As far as people would want to care about the welfare of other people, it becomes hard not to care about your long-term interest. The theory mostly emphasizes on the consequences of the actions that one undertakes and the act of duties. They also urge us not to conclude results based on the feelings that one has but by every step that they take.

Recommendation

Looking at the theories, each one of them aims at satisfying the interest of one party and not the other. When one considers the virtue ethics theory where he has to base results on the virtues of an individual, then one does good and ends up benefiting massively. I recommend that organization take into consideration and uphold this theory since no one will be oppressed and everyone will be satisfied by whatever decision on the horizon. When the shareholders want the best for themselves, they ensure the stakeholders (customers, suppliers, community, and employees) interests are put into consideration.

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