STAKEHOLDER ANALYSIS
UNIVERSITY
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, 2014) Managing for stakeholders involves attention to more than simply maximizing shareholders. It is not an excuse for managerial opportunism. Stakeholder Theory does not require changes to current laws; it is not a theory of socialism; it is not a comprehensive moral doctrine; and it is not applicable only to corporations. (Phillips, Page 484)
An organization in return have a dependency relationship with its stakeholders. The more critical and valued a stakeholder’s participation, the greater a firm’s dependency becomes. They continue to support an organization when the firm’s meets or exceeds their expectations. Both, the organization and the stakeholders have responsibilities towards each other in their own interest. “It is important to gain feedback from a variety of stake holders. This helps in order to better understand the key issues that affect the people and places that an organization touches through everyday business practices. Additionally, it is important to strive to provide two-way communication mechanisms through which an organization can share information and updates with employees, customers, suppliers, neighbors, non-profit partners and other relevant groups while also receiving important comments and recommendations. 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 participate within the public speaking. These teams are referred to as “stake seekers” instead of stakeholders. There are various constituents and embody people who aren't directly engaged within the organization’s economic activities however are ready to exert influence or are affected by the organization are termed as “stake watchers”. For instance, unions guarding the stakes of employees and workers; shopper associations consumer the stake of consumers; capitalist associations protecting shareholders; and activists and NGOs looking at out for the stake of the community and the atmosphere. “Stake keepers” is a term covering the freelance monitors and regulators who haven't any stake within the firm but who impose external control, verification and rules on the firm. Stakeholders who through their actions willfully hurt the firm are labelled “stake impostors”. (Fassin, 2012 Page 84). It is worth analyzing stakeholder behavior and actions, and the ethical part within the relationship between stakeholders and the firm. The ethics of most direct or primary stakeholders are determined through their written agreement. This includes rights and obligations for every party, for the length of the contract. However, on the far side a legal contract, all partnerships conjointly involve ethical responsibilities like the duty to treat partners with respect and decency, as well as the right for correct information and the duty to not harm. A growing stakeholder literature conjointly refers to the inherent reciprocity in ethical responsibilities between corporations and stakeholders. Ethical responsibilities include loyalty, the firm and constant support or commitment to an individual or organization. Workers are expected to be loyal to the corporation and the other way around. Customers and suppliers have obligations and rights laid out in their contracts. Real shareholders with a long perspective logically support the event of the corporate. Nevertheless general principles applicable to all or any stakeholders, every individual stakeholder possesses an individual written agreement relationship. Collaboration is for the future, albeit temporary. It lasts for the length of the contract with associate degree worker, for a precise amount with a client, or till the shares are sold-out for the shareowner. Even the foremost loyal worker will attempt to amendment job. Reciprocity of loyalty cannot be obligatory for a full lifespan. Workers will leave an organization as a result of they have a replacement challenge, while not meriting to be defendant of any infidelity. Customers will amendment provider, as a result of their desires have modified. Shareholders will attempt to sell the corporate, or their shares in it, as a result of they need different personal demands on their finances. Such personal individual actions don't represent disloyal behavior. It is very difficult for an organization to be truly socially responsible. “It is clear that business organization must be profitable to survive.”(DeWit, Page 603) Most managers accept that both economic profitability and social responsibility are valuable goals to pursue. Yet this is contradictory. If managers strive towards profit maximization, shareholders might be enamored and thus bring the managers into conflict with the optimization of benefits for other stakeholders. The traditional idea is that, society morally sanctions corporations, such that corporations must then operate within the rules and ethical practices of that society. To be an attractive investment, a company must earn a higher return on the shareholders’ equity than could be realized if the money were deposited in the bank. Companies who are particular profitable in the past, and cannot authoritatively project an attractive level of profitability in the future. “Profitability is not only a result, but also a source, of competitive power. Profitability provides a company with the financial leeway to improve its competitive position and pursue its ambitions.” (DeWit, Page 604) “There is a definite demand for social responsibility because companies are more than just “economic machines” regulated by legal contracts. They are also a network of people, working together towards a common goal. And as members of a social group, people within a company need to develop a sense of ‘community’.” (DeWit, Page 604) The idea of stakeholders, or stakeholder management, or a stakeholder approach to strategic management, suggests that managers should formulate and implement processes that satisfy all and solely those groups who have a stake in the business. The central task during this method is to manage and integrate the relationships and interests of shareholders, employees, customers, suppliers, communities and alternative teams during an approach that ensures the long success of the firm. A stakeholder approach emphasizes active management of the business atmosphere, relationships and also the promotion of shared interests. Strategic designing focuses on attempting to predict the future environment then independently developing plans for the firm to take advantage of its position. In distinction, strategic management actively plots a brand new direction for the firm and considers however the firm will have an effect on the setting furthermore as however the setting might affect the firm. There is no intervention in a complex system like todays such as a human society can have only one effect. Whenever there is an attempt to bring change in a complex system, the system reacts in a variety of ways. Companies should pursue strategies that ensure economic profitability and that they have certain social responsibilities that must be fulfilled. Profit is necessary to fund social responsibility and to survive the business. These are both intended and unintended consequences. The impact of an unintended consequences directly correlates to the size of the problem, but as a learning organization, its operations encourage the lesson learned aimed at improving the ability to undertake the feedback and use it in a constructive way towards the goal and vision of the company’s strategic management process. “In relation to the Stakeholder Theory, Strategy generates cash and the theory decides who, how and when cash are distributed to real stakeholders.” (DeWitt and Meyer, Page 597)
References:
Miles, S. (2012). Stakeholder: Essentially contested or just confused. Journal of Business Ethics, July 2012, 108, (3), pages 285-298.
Fassin, Y., (2012), Stakeholder management, reciprocity and stakeholder responsibility. Journal of Business Ethics, August 2012, 109, (1), pages 83-96.
Phillips, R., Freeman, R.E., and Wicks, A.C (2003), What stakeholder Theory is not. Business Ethics Quarterly, October 2003, 13 (4), pages 479-502.
Fowler, C. (2014). Strategic Relationships. Smart Business Cleveland, 20.