Stakeholder Theory: The Balancing Act
The Stakeholder Theory of Corporate Social Responsibility is now in the forefront of practiced theories in business. In my opinion, the Stakeholder Theory has a long and complicated definition, but can be streamlined to be a principle stressing what and who really counts. It is a theory of management that uses morals and values with the realization that all decisions affect many groups and individuals. This theory does not give any groups including stockholders preferential treatment over others. Many times one group may receive a benefit while another sees an expense. The true job of this theory is to balance the relationships of all the stakeholders.
There are many problems that result in pursuing the Stakeholder Theory. Much difficulty can arise from trying to identify stakeholders and their interests. Also, the balancing of the relationships in view of determining actions can cause much deliberation. Another problem revolves around the times when one group benefits at the expense of others. This problem can cause hard feelings between groups. Lastly, the theory does not give clear cut guidance to help managers determine decisions.
I believe there are two main benefits of stakeholder corporate social responsibility projects. First, I believe the Stakeholder Theory can help generate trust between consumers and providers if the consideration of consumers as stakeholders is apparent. Secondly, stockholders do not have the only claim upon managers and thus, their attention is not devoted to making money for them. Their attention can be diverted to providing for the community in the way of jobs and products while helping the community through projects such as land-fill cleanup or alternate energy initiatives. While the opposition by classical corporate social responsibility people is strong, I believe these benefits are colossal.
The opposition to the Stakeholder Theory do have a strong argument. Classical corporate social responsibility people want stockholders to have a privileged position which managers attend to first. They believe maximizing profits should be the first goal of managers instead of losing some profits to ensure other stakeholders are provided equal benefits. Another viewpoint is that it is preferable to find cheaper ways to produce goods even if that means the production of those goods be moved from one community to another. The market determines this and we should get out of the way. Finally, they believe the Stakeholder Theory is more expensive reducing profits which results in unethical treatment of the stockholder.
I believe both present good points, but I think the Stakeholder Theory ultimately wins. The stakeholder theory’s use of consideration of all involved parties builds a more symbiotic relationship. Employees, consumers and the community can better trust the corporation to provide jobs and products while the corporation can expect hard work from its employees and the purchase of its good by the community. This benefit is at the cost of the stockholder who receives less profit, but may receive more political and social influence in the community. I believe that this symbiotic relationship tips the scale to the side of the Stakeholder Theory. I think building a two way street between the corporation and stakeholders leads to a long relationship that helps the community and the stockholders in the long run.
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Works Cited
Desjardins, Joseph. An Introduction to Business Ethics. 3rd ed. New York: McGraw-Hill, 2009.
Luke Hamblyn
January 18, 2012 at 10:29 pm
The above blog, “Stakeholder Theory: The Balancing Act”, attempts to convince its readers that the stakeholder theory is superior to the stockholder theory when concerned with the social responsibilities of businesses. I will endeavour to show why the stockholder theory is superior to the stakeholder theory by critically analysing the arguments, and then putting forward fresh arguments that show the stockholder theory is superior.
The first argument put forward is that the stakeholder theory is what will help generate trust between the business and the concerned stakeholders. Whilst it is true that trust must exist between the stakeholders and the business operators, it is simply farcical to imply that if the stockholder theory is adhered to that there will be no trust between the stakeholders and the business operators. Contracts between stakeholders and business operators are entered into everyday. If the dealings between the two parties were based on a premise of non-trust, these contracts would very rarely come to fruition. Without an initial feeling of trust between the two entities, and the belief that both parties will be benefiting in some way, business as a whole may struggle to exist. It is obvious that management must continue to deal with stakeholders in a fashion that induces trust. Managers realise that in order for a business to function effectively, there must exist trust between the business and the stakeholders for the business and the contracts to operate effectively, thus ultimately returning profits for the business, flowing onto the stockholders.
The second argument states that stockholders are not the only stakeholders that have claims upon the managers of the business, meaning that their attention should not be devoted only to making the stockholders money. It is correct that many stakeholders should have attention paid to by them by management, they should be dealt with and cared for in a way that encourages these stakeholders to continue to deal with the business, as this is obviously beneficial for the business. However, it is true to state that while all the stakeholders should have management time and attention devoted to them, the stockholders are the only entity that have entrusted their own personal funds within the business for the specific means of making a profit. Other stakeholders have alternative investments in the business to obtain their goals through their dealing with the business, such as employees investing their time in their jobs to earn personal wealth, or suppliers whom supply necessary materials for the business to operate in return for their own businesses profits. Stockholders are the only entities that have an investment that requires the long term profit of the business. Whilst the other stakeholders receive their benefits relatively early through their investments, stockholders take larger risks through their investment in the company to hopefully see some return in the distant future.
Without this capital investment from stockholders, it would be extremely difficult for the business to operate, thus specific and extra attention must be paid to the goal of maximising profit. There needs to be an incentive for stockholders to invest in business, and that incentive is to have a financial gain. If that incentive did not exist, there would be widespread shortage of capital investment, and many businesses would simply fail. If these businesses didnt exist, there would be detrimental effects on many of the would be stakeholders in the company. For other businesses, stakeholders, and individuals to reap the benefits of business, there needs to be the potential for the investors in the business to succeed in an economic sense, or else capital investment would not take place in the initial instance, which would adversely affect society as a whole.
If there existed a widespread public perception that stakeholder theory was given preference to the stockholder theory, this again would stem the flow of capital investment. It would scare off many potential investors, as the risk of other stakeholders needs being at the top of the list as opposed to their own would imply that there would not be optimum economic returns through their investment, so their funds would go elsewhere. This is extremely dangerous for business, as for business itself to exist, there needs to be that initial capital investment. Stockholders would not trust their personal wealth in a company where the does not exist a fiduciary care placed upon the management of the business with the investors funds. The inappropriate application of these funds may amount to being considered an unsolicited tax, in which governments are entrusted to impose on society.
Whilst I believe stockholder theory should be adhered to, stakeholder theory in the empirical theory of management sense, where the interests of all stakeholders are to be balanced to ensure the financial success of the business, should be applied as a tool by managers of a business to achieve the ultimate goal of the stockholder theory, which is to maximise profits.
mleal
January 19, 2012 at 10:08 am
Thank you for your opinion!