StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

The Stakeholder Theory - Essay Example

Cite this document
Summary
This essay "The Stakeholder Theory" focuses on the Stakeholder Theory when organizations work to satisfy and inform their stakeholders with relevant information tailored to their specific interests. It is defined as any group or individual who can affect the achievement of objectives…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.8% of users find it useful
The Stakeholder Theory
Read Text Preview

Extract of sample "The Stakeholder Theory"

STAKEHOLDER Emerged during the last two decades, the Stakeholder Theory (Freeman, 1984) referred to when organisations work to satisfy and inform their stakeholders with relevant information tailored to their specific interest. A stakeholder has been defined by Freeman (1984: 46) as “any group or individual who can effect, or is affected by, the achievement of an organisation’s objectives.” Clarkson (1995 :5) defined stakeholders more specifically as those that “bear some form of risk as a result of having invested some form of capital, human or financial, something of value, in a firm.” Moreover, Mitchell et al (1997: 858) lists twenty-five other publications with various definitions of stakeholders. Without a clear consensus on how to define a stakeholder, the essential question that most definitions attempt to answer is, ‘What is a stake?’ The two definitions above certainly represent a contrast in broad versus narrow viewpoints of stakeholders. With Clarkson’s (1995) narrow perspective, a distinction can be made between stakeholders that voluntarily or involuntarily bear some form of risk. Voluntary stakeholders are those that bear risk based on an investment of either capital, human, or financial value in a firm. Involuntary stakeholders are at risk due to the activities of the firm. The common element between both types of stakeholders is risk, and without risk there is no stake (Mitchell et al., 1997). In the broader definition offered by Freeman (1984), the list of possible stakeholders is so expansive that it could include almost anyone or any entity. Diverse groups such as suppliers, community, industry, local government, neighbors, lobby groups, labor unions, and the natural environment have been included as stakeholders under this broad definition. The broadness of this definition (i.e. “can effect or is affected by”) allows the stake to be either unidirectional or bidirectional, and there is no requirement for reciprocal action as in a contract or with a relationship (Mitchell et al., 1997). From the critical perspective, Freeman’s definition (1984) is so broad that it would include everyone or every entity, except those with no power to affect the firm and have no relationship to the firm. The claim that a stakeholder is “any group or individual who can effect, or is affected by, the achievement of an organisation’s objectives” (Freeman, 1984: 46) is so broad that it is not falsifiable. In contrast, Clarkson’s definition (1995) uses risk to represent some form of legitimate claim on an organisation by stakeholders. A legitimate claim is required to fully understand the stakeholder environment, but does not necessarily imply the power to influence the organisation (Mitchell et al., 1997). Stakeholders must have something of value at risk (i.e. capital, human or financial value) in a firm, as well as represent a legitimate claim upon the firm (i.e. current wages, warranties and equity). Preston and Post (1975) theorised that the stakeholders in a firm could be classified as either primary or secondary. They offered that stakeholders were primary to the organisation when they provided “the basis for exchange relationships between it and the rest of society” (Preston and Post, 1975: 75). Post et al. (1996) later explained that these stakeholders would be the market-driven ones. Preston and Post thought that stakeholders should be considered secondary when their relationships or activities were “ancillary or consequential to its primary involvement activities” (1975: 96). No matter how one labels them, some stakeholders will bear some sort of direct risk in an organisation’s performance, and others will be indirectly impacted by the organisation’s performance whether they care to be or not (Freeman, 1984). The difference between these two groups is the primary stakeholders have deliberately chosen to accept the risk of the firm’s performance, whereas the secondary stakeholders have no choice in accepting the risk but are nonetheless affected by the performance of the firm. Secondary stakeholders are ancillary to the primary exchange relationship of the business (Preston and Post, 1975) and may include the community, local government, lobby groups, labor unions, or the natural environment. Even those that may have the resources will certainly also be oriented toward primary stakeholders since they are directly involved in the economic exchange relationship. Frooman (1999) asserts that there are two types of stakeholders: strategic and moral. The strategic stakeholder deals with how certain interests are managed and are the one who can impact an organisation and its direction. The moral stakeholder seeks to balance certain interests of the organisation and is the ones who are actually impacted by those interests. In organisations, communicating with and between stakeholders the interests or key directional strategies can also impact the organisations outcomes and infrastructure. Frooman (1999) adds that balancing power between stakeholders influences key organisational strategies. At the most basic level large mining companies must have customers (clients), contractors, suppliers, and definitely have employees. In contemporary business context, companies operating within mining and metallurgical industries are not monopolies and management will envision at least one or more competitors. There will naturally be interactions between employees, management, suppliers and clients and actions or reactions with competitors in the marketplace. Mining development businesses must be financed, so investors may be comprised of an owner, business partners, or others with a financial investment in the outcome of the business. These investors may also interact with other stakeholders and be relevant to most businesses. Therefore, the primary stakeholders for large mining development companies are employees, clients, suppliers, contractors, investors, and competitors. In the context of large mining development, the secondary stakeholders are the community, local government, labor unions and, of course, natural environment. From the critical perspective, according to stakeholder theory, the conflict of interest between different stakeholders within an organisation is an evitable and is considered to be natural. In the context of mining development companies, the conflicts in stakeholders’ interests can occur regularly, but in principle these interests are not necessarily antagonistic in their nature. For instance, investors as primary stakeholders of any mining development company are interested in company’s continuous profitability and so are company’s employees, because employer’s positive financial indicators result in better compensation, working conditions, and professional development of human resources. Simultaneously, the concerns of local community regarding pollution and industrial wastes produced by the economic activities of mining development companies seem to be in conflict with those interests of companies’ stockholders and management. However, these conflicts can be offset if mining developing companies establish particular green policies, such as park and forestation enhancement, and other policies that reflect their organisational commitment to local communities and environment. The six primary stakeholders – employees, clients, suppliers, contractors, investors, and competitors – have an economic relationship to the mining development companies. Since primary stakeholders have a direct economic exchange relationship between the firm and society (Preston, 1975), each are important to the firm. Any stakeholder group could be seen as the most significant stakeholder to a particular mining development company. Every mining company may have a strategic interest in employees. Employees may be anxious over job security, pay parity, benefits, or their association with their employer. Research has shown that the performance of an organisation is directly related to the attitude and behavior of the firm’s employees (Riordan, Gatewood, & Bill, 1997). Large companies, including those of mining development sectors, have shown a greater propensity to institute a formal hierarchical structure, establish a recognised division of labor, and augment administrative processes to be more attune to the workforce as the business increases the number of employees. Likewise if employees feel ignored as an organisation grows, workers may feel that an implied psychological contract has gone unfulfilled, and that may impact workplace attitudes and eventually the intention to leave the company. Simultaneously, mining companies interested in growth and mutual prosperity, may decide that the attitude and performance of the workforce is paramount to the manufacture of their products or services, and management may be more oriented toward employees than any other stakeholder group. Large mining developing companies are more likely to enjoy loyal clients when they have an orientation toward clients. The firm’s reputation has been shown to have the broadest influence over other attributes, such as brand image, on perceptions of client’s value and client’s loyalty. Given the importance of clients’ perceptions on an organisation’s performance, large manufacturing firms like mining companies have been found to engage in relationship marketing to craft a bond with clients that can strengthen perceptions and reinforce loyalty to the organisation. Investors may be of primary concern to mining companies since it is the investors that provide the capital to begin, maintain and grow a business when an owner cannot finance company alone. Outside investors typically come from one of three sources: 1) banks or financial institutions, 2) venture capitalists, or 3) angel investors. Banks or financial institutions make up the bulk of outside investors and generally stress the financial aspects of the business. Venture capitalists are very selective investors that are not only concerned with financial issues, but also with market issues. Additionally, venture capitalists generally require an active involvement in the governance of the company in which they invest, as well as a potential equity position in exchange for the risk that is accepted when investing in a mining development business. When shareholders or investors are concerned with their investment as demonstrated by a lack of performance of a mining company, managers and executives are removed from their positions more quickly and other executives are less likely to engage in strategies that may be perceived as risky. With outside investors actively involved in an organisation, it would be reasonable for a mining company to have a greater orientation toward investors rather than any other stakeholder group. REFERENCES Clarkson, M. B. E. 1995. A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance. Academy of Management Review, 20(1): 92-117. Freeman, R. E. 1984. Strategic Management: A Stakeholder Approach. Boston, MA: Pitman. Frooman, J. 1999. Stakeholder influence strategies. In Academy of Management Review, 24 (2), 191-205. Mitchell, R. K., Agle, B. R., & Wood, D. J. 1997. Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of Management Review, 22(4): 853-886. Post, J. E., Frederick, W. C., Lawrence, A. T., & Weber, J. 1996. Business and Society: Corporate Strategy, Public Policy, Ethics. New York, NY: Mc-Graw Hill. Preston, L. E., & Post, J. E. 1975. Private Management and Public Policy: The Principle of Public Responsibility. Englewood Cliffs, NJ: Prentice Hall. Riordan, C. M., Gatewood, R. D., & Bill, J. B. 1997. Corporate image: Employee reactions and implications for managing corporate social performance. Journal of Business Ethics, 16(4): 401-412. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Stakeholder Essay Example | Topics and Well Written Essays - 1250 words”, n.d.)
Stakeholder Essay Example | Topics and Well Written Essays - 1250 words. Retrieved from https://studentshare.org/miscellaneous/1572813-stakeholder
(Stakeholder Essay Example | Topics and Well Written Essays - 1250 Words)
Stakeholder Essay Example | Topics and Well Written Essays - 1250 Words. https://studentshare.org/miscellaneous/1572813-stakeholder.
“Stakeholder Essay Example | Topics and Well Written Essays - 1250 Words”, n.d. https://studentshare.org/miscellaneous/1572813-stakeholder.
  • Cited: 1 times

CHECK THESE SAMPLES OF The Stakeholder Theory

Stakeholder Theory and the Legitimacy Theory of Accounting - British Petroleum

This study will rely on The Stakeholder Theory and the legitimacy theory of accounting to explore the responses by British Petroleum (BP) following the oil spill crisis of the year 2010 in the Gulf of Mexico.... The suitability of The Stakeholder Theory derives from the fact that the theory is based on the need to prioritize value for the stakeholders in an all-inclusive and comprehensive manner.... The Stakeholder Theory entails a study of the impact of the relationships and connections of the various stakeholders on the actions and reactions of a firm in the event of an issue (Rendtorff, 2009)....
6 Pages (1500 words) Essay

Developments in Stakeholder Theory

This paper ''Developments in stakeholder theory'' tells us that literature review means finding and analysis of different articles, dissertations, conference proceedings, and other sources related to a research paperer and particular issues.... In this paper, various researchers have produced their views regarding the development of stakeholder theory.... This literature review focuses on different aspects of stakeholder theory.... For managing different stakeholders and their relationship with the organization stakeholder theory is established....
10 Pages (2500 words) Essay

Corporate Governance and Audit

The report that has been established by the UK committees of corporate governance includes The Stakeholder Theory that not only generates the wealth of the shareholders but also takes into consideration a wide group of stakeholders.... takeholder theoryThe main objective of The Stakeholder Theory that is proposed by Freeman is the creation of wealth and it focused on gaining a competitive advantage for the firm.... The government decides to reduce this theory for minimizing the problem of principal agents and also reduce the direct and indirect costs involved in ensuring that the agents behave by the principles....
10 Pages (2500 words) Coursework

The Stakeholder Theory of the Corporation

In the paper 'The Stakeholder Theory of the Corporation' the author discusses the influence of stakeholders and how corporate organizations are governed, but the big question is: how influential are they?... Therefore the question about how far a stakeholder can go in order to influence corporate governance can cause a lot of confusion....
10 Pages (2500 words) Dissertation

Comparison of Stakeholder Theory and Agency Theory

The "Comparison of stakeholder theory and Agency Theory" paper discusses whether these two approaches are exclusive to each other along with consideration of alternative approaches.... The subsequent section will be elaborating on the crux of the stakeholder's theory.... The influence of each theory in the development of corporate governance and their practices in different countries along with the relevance of each theory will be elucidated....
7 Pages (1750 words) Coursework

Global Financial Ethics

The Stakeholder Theory defines the purpose of the firm as creating wealth for the stakeholders.... According to Clarke, The Stakeholder Theory explains the governance of multinational corporations due to the value placed on the stakeholders of the corporation.... Modern multinational corporations show interdependence between the company and its shareholders and hence can be said to be using The Stakeholder Theory of corporate governance.... The Stakeholder Theory helps business leaders to work efficiently because it defines their goal as improving wealth creation in the organization (Clarke T....
8 Pages (2000 words) Coursework

Practical Application of the Accounting Theory

This journal article shows that The Stakeholder Theory is largely used to address the shifting needs in the vibrant business world (Evangeline E.... The article shows a study that aimed at using The Stakeholder Theory in analyzing commercial environmental performance in the listed companies in Australia.... This journal is reliable because it shows that The Stakeholder Theory can help a person to understand the behavior of financial entities especially in making sue of the constantly shifting financial environment in areas where environmental issues have become more crucial....
12 Pages (3000 words) Assignment

The Effect Stakeholder and Shareholder Theories have on Director's Duties

479) inferred that the expansive power in The Stakeholder Theory is a direct outcome of the fact that when limited reflection is engaged in its utility, its implications and prescriptions in management are infinitive.... On the other hand, when debated in its 'instrumental' variations, - that the managers ought to attend to the stakeholders as a means towards achieving other goals at the organizational level, for instance, shareholder wealth maximization or profit-The Stakeholder Theory remains nearly unopposed....
9 Pages (2250 words) Literature review
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us